Associated Press | The U.S. service sector grew in March at its fastest pace in more than two years, suggesting the economic recovery is expanding from the nation’s factories to its shops, restaurants, hospitals and other big sources of jobs.

The Institute for Supply Management, a trade group, said Monday its service index rose to 55.4 in March from 53 in February. Economists surveyed by Thomson Reuters had expected a reading of 54. Any reading above 50 signals expansion.

It is the strongest pace of growth since ISM revised how it measured the
service sector in January 2008.

The service sector is important as it accounts for about 80 percent of
U.S. jobs excluding farmworkers. It includes jobs in areas like health
care, retail and financial services. The sector is highly dependent on
consumer spending, which powers about 70 percent of the economy.

The recovery in services has been bumpy, lagging a resurgence in
manufacturing amid high unemployment, slow wage growth and a rocky real
estate market.

Another report released Monday showed improvement in the residential
home market. The National Association of Realtors said the number of
buyers who agreed to purchase previously occupied homes rose 8.2 percent
in February to 97.6 from 90.2 in January.

Economists had expected a reading of 90.3. The index is considered a
signal of future sales activity.

The report “may signal the early stages of a second surge of home sales
this spring,” said Lawrence Yun, the trade group’s chief economist. Home
sales had been sluggish during the winter, partly because shoppers felt
less rushed after lawmakers extended the deadline to qualify for a tax
credit. The new deadline for the tax credit is April 30.

Stock prices rose on the economic news. The Dow Jones industrial average
gained 55 points to 10,982 by late morning.

In March, growth in service companies’ business activity soared to its
strongest level since April 2006 and new orders are surging at their
fastest pace since August 2005.

The report suggested the broader economy is recovering, said Jennifer
Lee, economist at BMO Capital Markets. “It’s much better news than we
would have thought a few months ago,” she said. BMO recently bumped up
its prediction for first-quarter growth to 3.6 percent from 3.5 percent.
During the fourth quarter, the economy grew at a 5.6 percent pace.

ISM said employment contracted for the 27th straight month in March, but
the 49.8 reading was the closest to growth in jobs growth since the
recession began. A level above 50 indicates jobs growth.

The government said last week that the economy added 162,000 jobs, the
biggest gain since the recession began.

Of the 18 industries surveyed, 14 reported growth, two shrank and two
held steady at February’s level.