Services Sector Expands; Factory Orders Are Flat

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The vast U.S. services sector in December grew at its fastest clip in 10 months, boosted by a rise in new orders. Meanwhile, a separate report showed that new orders received by U.S. factories were flat in November

The Institute for Supply Management said its services index rose to 56.1 last month from 54.7 in November. The December reading was the highest since February and was well above economists' forecasts of 54.2, according to a Reuters poll.

A reading above 50 indicates expansion in the sector.

New orders rose for a second straight month, with the sub-index hitting a 10-month high of 59.3 in December after 58.1 the prior month. The employment index jumped to 56.3, the highest since March. It stood at 50.3 in November.

The survey's business activity index slipped to 60.3 from 61.2 while prices paid fell to 56.6, the lowest in five months, from 57.0.

New orders received by U.S. factories were flat in November, missing expectations as demand for aircraft sank sharply, although a gauge of business spending plans still gave a positive sign for the economy.

The Commerce Department on Friday said orders for factory goods were unchanged after gaining 0.8 percent in October. Analysts polled by Reuters had expected a 0.4 percent increase in November.

Manufacturing, the pillar of the recovery from the 2007-09 recession, has lost momentum in recent months as fears of the "fiscal cliff" and slowing global demand slammed the economy.

However, there was little sign in the factory report that worries over planned austerity measures were leading businesses to cut back on investment plans.

Orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans — increased 2.6 percent in November, a slight downward revision from an initial estimate released last month but still a healthy gain.

November's factory orders suggested that manufacturing was not heading for a hard landing, even though factories are struggling to regain momentum.

The Institute for Supply Management said on Wednesday its index of national manufacturing pointed to a return to growth in December after factory activity contracted in November.

Weighing on overall factory orders, orders for transportation equipment, a volatile category, fell 1 percent in November on weak civilian and defense aircraft. Orders for motor vehicles and parts rose 2.8 percent.

Factory goods orders excluding transportation rose 0.2 percent.