U.S. service companies expanded in February at the fastest pace in a year, helped by increased demand for new orders and growth in hiring.
The Institute for Supply Management said Monday that its index of non-manufacturing activity rose to 57.3, up from January's 56.8. Any reading above 50 indicates expansion.
The trade group of purchasing managers surveys roughly 90 percent of U.S. companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care, and hotels.
A measure of new orders reached its highest point in a year. While the group's employment index declined from its highest reading in six years, it stayed at a level that suggests many service companies are adding workers.
That confirms other data that show service companies have stepped up hiring. The government said last month that service firms added 176,000 jobs in January, the most in four months. The government reports on February hiring Friday.
Big job gains at service firms are necessary to reduce unemployment. Factories are creating a lot of new jobs but the sector isn't large enough to employ that many people.
The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting and financial services.
There are some recent signs that consumers are willing to spend more, a good sign for the service sector. Retail sales rose moderately in January, according to a government report that showed consumers rebounded from weak holiday spending. Americans spent more on electronics, home and garden supplies, sporting goods, and at restaurants and bars.
On Thursday, many large retail chains, such as Target and Macy's, reported healthy sales gains in February. The International Council of Shopping Centers said that its tally of 20 retailers showed that sales rose 6.7 percent last month, compared to a year earlier. That was the biggest rise since June.
Rising job gains have made consumers more optimistic. Consumer confidence reached its highest point in a year last month, the Conference Board said last week.
Employers have added an average of 200,000 net jobs per month for the past three months. That's pushed the unemployment rate down to 8.3 percent, its lowest in nearly four years.