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Economy Showing Renewed Signs of Strength, Data Show

CNBC.com
Thursday, 3 May 2007 | 10:43 AM ET

The U.S. economy is showing signs of renewed strength, three reports out Thursday indicated.

The pace of growth in the U.S. service sector rose in April, as new orders and jobs components improved. Also, U.S. business productivity grew a greater-than-expected 1.7% in the first three months of 2007 but labor costs rose far less than forecast. And the number of U.S. workers filing new claims for jobless benefits fell unexpectedly by 21,000 to the lowest level of claims since January.

The Institute for Supply Management's services index rose to 56.0 in April from a four-year low of 52.4 in March. The median forecast among analysts polled Reuters was 53.0.

A number above 50 indicates growth in the sector.

The survey's prices-paid index edged up to 63.5 in April from 63.3 in March while the jobs component improved to 51.9 to from 50.8.

The services sector represents about 80% of U.S. economic activity, including businesses such as restaurants, hotels, hair salons, banks and airlines.

Analysts were expecting business productivity, a measure of how much any given worker can produce in an hour, to rise by 1% in the first quarter.

Productivity advanced by 2.1% in the fourth quarter of last year, revised up from the previously reported 1.6% gain.

Unit labor costs grew by 0.6% in the first three months of the year, well below the 4% rise analysts were expecting. It was the weakest showing since labor costs fell
2.5% in the second quarter of 2006.

The rise in unit labor costs in the first quarter was much slower than the 6.2% increase in the fourth quarter of 2006, which was originally reported as a 6.6% gain.

Productivity advanced by a scant 1.6% in all of 2006, the smallest gain since 1997, while unit labor costs grew by 3.1%, the biggest increase since 2000.

Initial filings for state unemployment insurance claims slid to 305,000 in the week ending April 28 from an upwardly revised 326,000 the previous week.

There were no special factors behind the drop in new claims, a Labor Department analyst told reporters. The last time initial claims were this low was for the week ending Jan. 13, the government said.

Analysts polled by Reuters were expecting a 4,000 rise in claims from the previously reported level of 321,000 in the week ending April 21.

A four-week moving average of claims, which smooths weekly volatility to provide a better sense of underlying job-market trends, slipped to 328,750 from a revised 333,250 a week
earlier.

The total number of people still on the benefit rolls after drawing an initial week of aid declined more than expected to 2.5 million from 2.59 million in the previous week. Analysts were expecting claims to ease to 2.55 million.

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