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updated: 1/4/2013 10:43 AM

U.S. service firms grow by most in 10 months

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Associated Press

WASHINGTON -- A gauge of U.S. service firms' activity expanded in December by the most in nearly a year, driven by a jump in new orders and hiring.

The Institute for Supply Management said Friday that its index of nonmanufacturing activity rose to 56.1 in December from 54.7 in November. That's the highest level since February and above the 12-month average of 54.7. Any reading above 50 indicates expansion.

A measure of new orders rose to the highest level since February, suggesting consumers kept spending even as the country moved closer to the fiscal cliff.

An index of employment rose strongly. That conflicted with a Labor Department report Friday that said the economy added just 109,000 service jobs last month, the fewest since June. One key difference between the two reports is the government doesn't include construction in service jobs. That would have boosted the December total by 30,000.

The ISM report measures service growth in industries that cover 90 percent of the workforce, including retail, construction, health care and financial services. The trade group of purchasing managers conducts surveys of business activity and other research.

Many analysts had expected service growth to soften last month as Americans fretted about looming tax increases and spending cuts that were due to take effect at the beginning of the year.

Congress and the White House reached a deal this week to avert the tax increases, but delayed tougher decisions about spending cuts for another two months.

The solid increase in December suggests the tense negotiations to resolve the fiscal cliff did not slow growth at service companies. A separate ISM survey of manufacturing activity showed only a slight gain last month.

"The service sector appeared to have felt the concerns over the drawn-out negotiations over the `fiscal cliff' less than manufacturing," said Terry Sheehan, an analyst with Stone & McCarthy Research.

Companies saw a "year-end surge" in orders, in the words of one executive surveyed by the ISM.

Services have been a key source of job growth this year, creating about 90 percent of the net jobs added since January. For all of 2012, the economy added 1.69 million service jobs, about the same as 2011. Many of the new jobs are in low-paying retail and restaurant industries.

The overall economy grew at an annual rate of 3.1 percent in the third quarter of 2012, up from 1.3 percent in the April-June period.

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