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Last Updated: Tuesday, 5 December 2006, 16:21 GMT
US services surprise with growth
Worker at US car plant
Manufacturing may be in a slump, but services are helping offset it
The US service sector, the biggest part of the world's largest economy, has grown unexpectedly fast in November.

According to the Institute for Supply Management, its services index rose to 58.9 in November from 57.1 in October.

The figures helped offset concerns about a drop in manufacturing orders, as reports showed slower productivity, and wage and benefit growth.

The worries have helped trigger calls for an interest rate cut from the US central bank, the Federal Reserve.

Over the two years from June 2004 to June 2006, the Fed had raised its key discount rate by a quarter of point at every meeting - although it has kept rates stable at 5.25% since then.

"We're still seeing good growth on the service side of the economy," said Gary Thayer, of AG Edwards & Sons.

"Manufacturing may be soft, but the economy as a whole still has good underlying strength, especially in the service sector," he added.

"The Fed's view that the economy is still healthy seems appropriate."

Different views

Analysts had expected the services index to post a figure of closer to 56 - anything above 50 represents expansion.

The service sector accounts for more than 75% of US economic activity, and includes retailers, restaurants, banks and airlines.

A separate Commerce Department showed that orders to US factories dropped by 4.7% in October, the biggest drop in more than six years and the third month in a row that the figure has declined.

Analysts said that manufacturers were paying the price for an earlier slowdown in the total economic growth as car sales and construction suffered.

According to the Labor Department, US worker productivity growth slowed in the three months to September.

Productivity - seen as a key indicator of the economy's health - grew at an annual rate of 0.2%, following a growth rate of 1.2% in the previous quarter, it said.

The figure was up from an earlier estimate of zero growth, but below analysts' predictions of 0.5%.

Labour cost growth was revised down to 2.3% from an initial estimate of 3.8%, which may be good news for the US Fed.


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