Strong growth continues in US economy

The US services sector grew at the fastest rate in more than five years in January, another sign the economy started the new year on a solid footing.

And new claims for unemployment benefits also fell sharply last week, a separate dataset showed.

The US Institute for Supply Management's index of national non-manufacturing activity rose to 59.4 last month – above economists’ expectations for dip to 57.0 – from 57.1 in December.

A reading below 50 indicates contraction in the sector, and it was the 14th straight month of expansion in the nation's vast services sector.

And Labor Department data showed initial claims for state unemployment benefits tumbled 42,000 to a seasonally adjusted 415,000, unwinding most of the previous week's weather-induced spike.

Economists had forecast claims dropping to 420,000.

"The economic data continue to overshoot expectations. We are seeing an acceleration in economic activity that is less reliant on public support and more self-sustaining," said Scott Anderson a senior economist at Wells Fargo Securities in Minneapolis.

Reports continue to paint a bullish picture for the US economy, they also showed some inflation pressures under control, in stark contrast to developments in other parts of the world.

US companies continue to hold the line on costs, despite a spike in commodity prices.

The economy grew at a 3.2 per cent annual rate in the fourth quarter, accelerating from a 2.6 per cent pace in the prior period, and economists believe strengthening domestic demand will translate into increased hiring of new workers.

"This is showing the labour market is recovering but not at a pace that will keep the Federal Reserve from its accommodative stand," said Rudy Narvas, a senior economist at Societe Generale in New York.