The service sector expanded in April, with business activity accelerating at the strongest pace in four years.
The Institute for Supply Management, a trade group of purchasing executives, said its service sector index read 55.4 in April, the same level as in March. It's the fourth straight month of growth. Economists polled by Thomson Reuters had expected a stronger reading of 56. A level above 50 indicates growth.
The service sector accounts for 80 percent of U.S. jobs in areas such as health care, retail and financial services. It has lagged behind the smaller manufacturing sector in the recovery as consumers curtailed their spending.
While employment data released from other market trackers Wednesday pointed to a brightening jobs picture, ISM's jobs measure contracted for the 28th straight month in April despite strong growth in business activity.
Payroll company ADP on Wednesday said private employers added 32,000 jobs last month, with services producers adding 50,000 jobs. Outplacement consultancy Challenger Gray & Christmas said American employers planned about 38,300 jobs cuts in April, the fewest since July 2006.
The government reports Friday on April employment. Economists expect employers to add 200,000 jobs, which would be the biggest jobs gain since March 2007. The unemployment rate is expected to stay at 9.7 percent.
That's "pretty modest" employment growth, said Ryan Wang of HSBC. Of the 200,000 jobs gains forecast for April, HSBC predicts 135,000 will come from temporary hires by the U.S. Census.
The service sector is getting a boost from retail sales, which are recovering from their plunge last year, and industries associated with manufacturers, he said. But they remain cautious about hiring, he added.
Jennifer Lee, an economist with BMO Capital Markets, said even though the ISM service sector reading was lower than expected, it still shows the non-manufacturing sector has grown during the past four months.
"That is key as industries outside of manufacturing account for about 80 percent of the U.S. economy and is thus a good indication that the economy is spreading beyond the manufacturing base," she said.
ISM said its measure of business activity rose to 60.3, the strongest pace of expansion since April 2006, and a measure of new orders remained high. New orders signal future business.
Fourteen of the 18 industries ISM surveys said they grew in April, led by arts and entertainment, real estate, the information sector, agriculture, and management and back-office support services companies.
The four industries that shrank were utilities, education, healthcare and social services, and professional and scientific services.
© 2016 Thomson/Reuters. All rights reserved.