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To: maceng2 who wrote (507)	1/4/2004 1:51:06 PM
From: maceng2	Read Replies (1) \| Respond to of 1417

Preview: Services data to keep investors guessing By Chris Flood Published: January 4 2004 15:11 \| Last Updated: January 4 2004 15:11 news.ft.com The outlook for service sector industries will provide much of the focus of attention with the publication on Monday of December purchasing managers' reports for the UK, US and Europe. The Monetary Policy Committee, which meets this week, will examine with interest the UK report as the sector's progress will be of relevance to its deliberations over interest rates. Weak Christmas trading for retailers (one of the sub-sectors not included in the report) may be enough to convince the MPC that the rate rise in November has put the brakes on consumer spending, one of its main concerns. Although growth in consumer spending is expected to slow this year, economists have been revising their forecasts for overall UK growth upwards, as further evidence of the sustainability of the global economic recovery emerges. The continuing improvement in the service sector is a key reason for the upward revisions to the projections. The Royal Bank of Scotland is forecasting that service sector output will expand by 3.9 per cent in 2004, up from 2.5 per cent in 2003. The November purchasing managers report showed growth of service sector activity had accelerated to its fastest rate since June 1997 with particular strength for business expectations. More than 63 per cent of companies surveyed expect higher activity in 12 months' time compared to 5 per cent that expect a decline in activity. Higher growth for new orders has underpinned the improvement in business optimism, which is also reflected in the improvement in employment conditions in November. The purchasing managers' employment index has pushed above the no-change level of 50 during the past four months and, although the growth in workforce numbers is modest, the improvement is broadly based with all service industries reporting an increase in demand for permanent and temporary staff. However, economists are starting to worry that with unemployment at such a low level, any further tightening in the labour market could increase inflationary pressures. The upturn in employment is reflected in the US Institute of Supply Management report on non-manufacturing activity. In November, the employment component reached its highest level since March 2000, when the US economy was generating more than 200,000 jobs per month. The overall non-manufacturing ISM index and the new orders component had a modest downward correction in November, but both still stand at 60.1, well above the no-change level of 50. The improvement in demand for labour has begun to emerge in Europe with the employment component of the eurozone report pushing above 50 in November, the first time in more than a year. The overall tone of the November report appeared consistent with sustained recovery for the service sector with new orders continuing to rise and business expectations for the next 12 months strengthening. The high level of business expectations was common to Germany, France and Italy. Economists remain reluctant to raise their 2004 growth forecasts for the eurozone, but if the upswing in the PMI surveys can be maintained this would be indicative of a sustainable improvement in domestic demand.