Data show economy firing on all cylinders
Wed May 3, 2006 11:54am ET
By Victoria Thieberger
NEW YORK (Reuters) - Activity in both the vast U.S. services sector and at factories accelerated more than expected, according to data on Wednesday that pointed to fresh economic vigor and the possibility of more interest rate hikes.
Most economists are expecting economic growth to slow from a torrid first-quarter pace of 4.8 percent, yet the latest figures showed no hints of slowing and appeared likely to keep the Federal Reserve leaning toward further hikes in interest rates. Federal Reserve Chairman Ben Bernanke said last week a pause in the rate-hike cycle was possible.
The Institute for Supply Management's services index rose to 63.0 in April from 60.5 in March as new orders jumped, confounding Wall Street estimates for a slowdown to 59.2.
In addition, the government reported new factory orders rose a stronger-than-expected 4.2 percent in March, beating estimates for a 3.5 percent gain, as demand for transportation equipment, computers and electronics proved robust.
Treasury debt prices fell and the dollar firmed against the euro after the data.
"It does suggest that the overall economy is improving and for the market it is part of the recent theme -- all the numbers are coming in on the stronger side of expectations," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.
Financial markets have fully priced in another rate rise at the Fed's policy meeting next week, and on Wednesday raised the chances of a follow-up move in June.
"They want to keep their options open for late June but most likely they may end up leaning toward another rate hike as the data continues to come in strong," said Brown. Continued...
Reuters |
