April 3 (Bloomberg) — Service industries picked up in March after expanding at the slowest pace in four years, showing the biggest part of the U.S. economy was starting to thaw along with the weather.
The Institute for Supply Management's non-manufacturing index rose to 53.1, less than forecast, from 51.6 in February, the Tempe, Arizona-based group said today. Readings greater than 50 signal expansion. The median projection in a Bloomberg survey of economists called for a gain to 53.5.
American shoppers began returning to stores and auto dealers as weather conditions improved and job gains helped brighten spirits. The pickup in optimism among service companies followed a report earlier this week showing a faster pace of expansion at manufacturers, indicating the economy was building momentum into the second quarter.
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"The outlook is generally positive," David Sloan, a senior economist at 4cast Inc. in New York, said before the report. "Employment growth will be driving demand. There has been some negative weather effect, but I expect that to fade."
Estimates in the Bloomberg survey of 77 economists ranged from 50 to 55. Prior to today's numbers, the index has averaged 53.7 since the recession ended in June 2009.
Among other reports today, the number of Americans filing applications for unemployment benefits rose more than forecast after reaching a six-month low. Jobless claims increased 16,000 in the period ended March 29 to 326,000 from 310,000 the previous week, the fewest since Sept. 7, the Labor Department reported.
Trade Deficit
Data from the Commerce Department showed the U.S. trade deficit reached a five-month high in February. The gap widened 7.7 percent to $42.3 billion as exports declined and imports increased.
The U.S. ISM's measure of new orders rose to 53.4 from 51.3. The group's employment gauge surged to 53.6 in March from 47.5 the month before, which was the lowest since March 2010. It was the biggest one-month gain on record.
The business activity index, which parallels the manufacturing production gauge, decreased to 53.4, the weakest since June from 54.6. The index of prices paid increased to 58.3, matching July as the highest since October 2012, from 53.7.
The ISM non-manufacturing survey covers an array of industries including utilities, retailing, health care and finance that make up almost 90 percent of the economy. It also factors in construction and agriculture.
Factory Gauge
The group's manufacturing index, released earlier this week, expanded at a faster pace as production picked up. The gauge increased to 53.7 last month from 53.2 in February.
Automakers enjoyed stronger March sales after winter storms limited foot traffic at dealerships earlier in the year, according to company reports earlier this week. Cars and light trucks sold at a 16.33 million annualized rate in March, the strongest since May 2007, according to Ward's Automotive Group.
Some retailers are confident demand will pick up as the weather improves.
"As we look ahead, while winter weather has continued to impact sales in February, we're cautiously optimistic that the improved sales trend in the bookstore will continue," Terrance Finley, chief executive officer at Birmingham, Alabama-based Books-a-Million Inc., said on a March 20 earnings call.
The final week of March was the coldest to close out the month since 2006, according to Berwyn, Pennsylvania-based weather data provider Planalytics Inc. The winter this year was the coldest in the contiguous U.S. since 2009-2010, based on data from the National Oceanic and Atmospheric Administration.
Consumer Spending
Rochester-based Monro Muffler Brake Inc. is among retailers closely watching consumers to see how they behave once the data- obscuring winter chill lifts.
"Biggest headwind and biggest unknown is what's going to happen with the consumer," Chief Executive Officer Robert Gross said in a March 26 call. "Our view is the consumer is not as great as numerous people think, but you can see retail is kind of choppy."
Housing, a source of strength for the expansion, has also been stumbling as a rise in borrowing costs and prices reduces affordability. Purchases of previously owned homes fell in February to the lowest level since July 2012.
–With assistance from Ainhoa Goyeneche in Washington.
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