Service firms' growth at fastest pace in a year

WASHINGTON — U.S. service companies grew in February at the fastest pace in a year, buoyed by higher sales, more new orders and solid job growth. The gain suggests higher taxes have yet to slow consumer spending on services.

The Institute for Supply Management said Tuesday that its index of non-manufacturing activity rose to 56 in February from 55.2 in January. Any reading above 50 indicates expansion.

The report measures growth in industries that cover 90 percent of the work force, including retail, construction, health care and financial services. A solid recovery in the housing market helped drive the index higher.

Service firms also kept adding jobs last month. A measure of service-sector hiring fell only slightly after reaching a nearly seven-year high in January.

"This survey does bode well for both activity and employment in the second quarter," Paul Dales, an economist at Capital Economics, said in a note to clients.

The increase contributed to a record-setting day on Wall Street. The Dow Jones industrial average rose 125.95 points to close at an all-time high of 14,253.77. The previous high was set in October 2007, two months before the Great Recession began. The Dow has now regained all its losses from the recession.

In the ISM survey, 13 of the 18 industries reported expansion, including construction, real estate, finance and insurance, and utilities.

The growth suggests that Americans are spending more despite an increase in Social Security taxes that took effect on Jan. 1. The companies surveyed by the ISM cover many industries that are closely tied to consumer spending, such as retail, hotels and restaurants and arts and entertainment. The higher payroll taxes cost a household earning $50,000 about $1,000 a year; a household with two high-paid workers will have up to $4,500 less.

And those companies expect consumers to keep spending. Order backlogs grew at the fastest pace in 20 months, a sign that many firms can't keep up with rising sales.