Service sector, productivity increase

A month into the new year, the economy continued to show signs of improvement as the service industries expanded more than estimated in January for the 13th straight month. 

The Institute for Supply Management’s index of non-manufacturing businesses, which covers about 80 percent of the economy, rose to 59.4 percent from December’s 57.1 percent, which was the fastest pace since May 2006, the group said in a release Thursday. 

A reading greater than 50 signals growth. 

The ISM's business activity gauge increased 1.7 percentage points to 64.6 percent, reflecting growth for the 18th consecutive month and a faster rate than in December. New orders were up 3.5 percentage points to 64.9 percent, and the employment index also increased, up 1.9 percentage points to 54.5 percent, indicating growth in employment for the fifth consecutive month, the report showed. 

The Labor Department's weekly unemployment figures showed applications for jobless benefits beat estimates and decreased by 42,000 to 415,000 in the week that ended Jan. 29. 

The total number of people receiving unemployment insurance and those collecting extended payments also decreased.

The Labor Department might report on Friday that the United States added 140,000 jobs in January, but the pace of job growth is still too slow to bring down the 9.4 percent unemployment rate. 

In the ISM report, businesses think uncertainty is subsiding and business activity is picking up. 

House and Senate Democratic lawmakers, along with President Obama, have pledged to work with Republican lawmakers in an effort strengthen the economy and accelerate growth. 

But the two parties are already bickering over job-creation initiatives, with both saying the other isn't doing enough to spur businesses to increase hiring and speed up the economy's expansion. Republicans are pushing for the White House to make massive spending cuts to get the deficit under control while President Obama called for investment in infrastructure and education as initiatives that will help workers find jobs.

In several recent business surveys, firms have said they are prepared to pick up the pace of hiring in the next six months, a move that will be a key factor in the continuing economic recovery.

Meanwhile, worker productivity unexpectedly increased in the fourth quarter as hourly output increased at a 2.6 percent annual rate, compared with a revised 2.4 percent gain in the previous three months, the Labor Department reported Thursday. 

For all of 2010, productivity climbed 3.6 percent, the most since 2002. Meanwhile, labor costs fell 1.5 percent after a 1.6 percent decrease in 2009, the first consecutive drop since 1962-63, the Labor Department said.

Labor costs, adjusted for efficiency gains, dropped at a 0.6 percent pace following a 0.1 percent drop in the prior quarter, the Labor Department’s productivity report showed.