Services sector, factory orders show gains

• ISM's services index rose to 54.7 in November from 54.2
• Factory orders edged up 0.8% in October
• Productivity in Q3 was revised up to a 2.9% annual rate

WASHINGTON (AP) — Service companies grew at a slightly faster pace in November because sales and new orders rose, a good sign for the economy.

The Institute for Supply Management said Wednesday that its index of non-manufacturing activity rose to 54.7 from 54.2 in October. That's above the 12-month average of 54.4. A reading above 50 indicates the sector is expanding.

The report measures growth in a range of businesses from retail and construction to health care and financial services. The industries covered employ about 90% of the work force.

A measure of employment fell sharply but still showed companies added workers last month.

A second report Wednesday said orders to U.S. factories rose modestly in October, helped by a big gain in demand for equipment that reflects business investment plans.

The Commerce Department says factory orders edged up 0.8% in October from September, when orders jumped 4.5%.

Orders for core capital goods, a category viewed as a good proxy for business investment plans, increased 2.9% in October, biggest increase in eight months. That represented an upward revision from an initial estimate of 1.7%. The increase came after big declines in the investment category this summer.

Orders for durable goods rose 0.5% in October, up from a preliminary estimate of no gain, while orders for nondurable goods, items such as chemicals and paper, were up 1.1%.

A third report Wednesday said workers were more productive this summer than first estimated.

Productivity rose at an annual 2.9% rate in the third quarter, fastest pace in two years and up a percentage point from the initial estimate, the Labor Department said. The number was revised up because third-quarter economic growth was better than first estimated, while hours worked were unchanged. Productivity measures the amount of output per hour of work.

The report suggests companies are finding ways to squeeze more out of existing workers.

Still, the trend in productivity has been fairly weak. It has risen 1.7% year over year, half the average growth in 2009 and 2010, when layoffs were widespread. And the rate is below the long-run productivity growth rate of 2.2% a year dating back to 1947.

The good news is that companies may need to hire more workers if demand for their products picks up. The bad news is that labor costs rose a puny 0.1% last quarter compared with a 3.9% year-over-year gain of 3.9% gain in the first quarter of 2007, before the Great Recession began. Economists suggest it indicates companies aren't feeling any pressure to hike wages.

The Federal Reserve closely monitors productivity and labor costs for any signs of wage inflation. Mild inflation has allowed the Fed to keep short-term interest rates at record lows in an effort to boost economic growth and fight high unemployment.