High oil prices have investors running scared, but all other signs indicate the economy is improving -- especially in the services sector, including software and other technology companies.The political uprising in Libya that has pushed oil above $100 understandably has dominated the headlines lately. But amid all the concern about oil and instability in the Middle East, investors shouldn't lose sight of the improving economic fundamentals in the U.S.'s manufacturing sector and, equally significantly, in its services sector.

Services, which account for 65% to 70% of the country's GDP, expanded for the 15th consecutive month in February, according to the Institute for Supply Management's survey. That month, the institute's nonmanufacturing index rose to 59.7, its highest level in about five years, from 59.4 in January. Readings above 50 signal an expansion; below 50, a contraction.

And every key component in the services index is pointing to continued growth.

The new-orders component -- a gauge of future business demand -- did dip to 64.4 in February from 64.9 in January, but the number still indicates that demand is increasing. What's more, new orders are increasing faster than inventories. The inventories measurement rose to 55.5 in February from 49 in January, which suggests that commercial activity is likely to keep services firms -- such as software and technology companies -- busy.

Services-Sector Jobs on the Rise

All of that increased activity has created a need for more service employees. The ISM survey's services employment index rose to 55.6 in February from 54.5 in January, marking its six straight monthly rise.

ADP's (ADP) February private payroll report confirmed that hiring trend, finding that 202,000 services sector jobs were added last month. The ADP survey also estimates that employment in the services sector has increased by 779,000 since September 2010, or roughly 129,800 new jobs per month.

In an emailed research note to clients, IHS Global Insight's Chief U.S Financial Economist Brian Bethune says he expects good news on the job-market front. "These recent consecutive gains in the ISM employment gauges point in the direction of a fairly significant improvement in the labor market," Bethune wrote.

All this activity presents policymakers -- particularly U.S. Federal Reserve officials -- with perhaps their most challenging question since the acute stage of the financial crisis in the fall of 2008 and winter of 2009: Does the economy have enough demand in it to grow without monetary stimulus?

One Stat That Could End the Recovery

On the one hand, most economic fundamentals are positive. Led by export demand, the manufacturing sector is humming and services-sector activity is growing at a good clip. Also, initial jobless claims have declined, job growth has improved in the past five months and consumers -- more confident that the period of large job layoffs is over -- have started spending a little more. Meanwhile, lean corporations well positioned for economic growth continue to register adequate-to-good quarterly earnings growth.

On the other hand, one variable largely beyond the control of U.S. policymakers could negate almost all of that positive momentum, and that's the price of oil. Oil, which traded up 0.34% to $104,75 per barrel Wednesday, has grown more than 40% in five months. And prices posted at U.S. gas stations' entrances are rising almost as fast as an altimeter in an F-16 fighter jet.

Rising oil prices slow the U.S. economy by decreasing consumers' disposable income and by increasing businesses' operating costs. They also can increase inflation, as fuel costs raise the cost of making petroleum-based goods, of transporting goods and of travel.

True, the U.S. economy has grown more fuel efficient, making it less vulnerable to high oil prices now than it was during previous oil shocks in 1973-74 and 1979-80. But economists generally agree that sustained prices of more than $120 per barrel would slow the economy substantially, while prices over $150 would tip the economy back into a recession.

Right now, the bulk of the economic data -- including manufacturing, services, employment, consumer spending -- points to a self-sustaining expansion up ahead, and probably a winding down of the Fed's QE2 stimulus later this year. But investors can rest assured that the Fed also is keeping an eye on oil prices and will take them into account.

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Imeen Smith

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March 14 2011 at 4:14 AM Report abuse rate up rate down Reply
netexas121

I think that what we have here is two things. A setup with Oil companies and Obama to allow them price gouging US public to make money due to the not so far away changes in fossil fuel uses. Oil companies are getting their R&D money so they can dominate the next major change. That is if we survive to see that next major change. Dec 21st 2012.

March 12 2011 at 8:04 PM Report abuse rate up rate down Reply
Trish

So we should feel encouraged that around 5000 jobs per state over the last month is going to reverse the economic trend in this country? In my state, Florida, the unemployment rate is over 12%. There isn't much hiring going on here. I think this article is just pie in the sky without much fact to back it up. We have not yet seen the layoffs the various state governments are threatening.

March 11 2011 at 6:59 PM Report abuse +1 rate up rate down Reply
slick

FOR COKE KID, YOU ARE RIGHT ON!!!! OBAMA SPENT A RECORD AMOUNT OF TAX DOLLARS IN FEB. THE OBAMA STIMULUS PACKAGE WAS PASSED 2 YRS AGO ALL IT DID WAS PUT US 80O BILLION DEEPER IN DEBT, SINCE OBAMA TOOK OVER WE HAVE LOST 2.5 MILLION JOBS!!!UNEMPLOYMENT HAS DOUBLED TO OVER 20%

March 11 2011 at 8:54 AM Report abuse +2 rate up rate down Reply
slick

AMERICA NEEDS TO DRILL AND PRODUCE OUR OWN OIL!!!!! ITS RIGHT UNDER OUR OWN SOIL !!!!! MY HOPE IS ALL OF YOU TREE HUGGERS FEEL THE PINCH WHEN YOU HAVE YOUR SERVANTS FILL YOUR AUTOS

March 11 2011 at 8:46 AM Report abuse rate up rate down Reply
1 reply to slick's comment
KevinBeair

do you really think a few hippi tree huggers can stop major oil corporations from drilling oil where ever they want??? Hello!! the BP oil spill!!! Get a clue instead of just spewing Bill Oreilly rhetoric.

March 11 2011 at 12:36 PM Report abuse rate up rate down Reply
zbiornik

Yeah, everybody will work for goverment,or in the office and in service idndustry. We will all be driving in electric cars made in China with batteries also made in China,and sponsored by Al Gore.Power will come from Mexico,or wind mills. And economy will be booming.

March 11 2011 at 7:47 AM Report abuse rate up rate down Reply
daveswrath0704

OPEC just said there more oil on the market then is need now NO reason for them to incearse output of oil HUM no reason for gas to go up just greed and time to start puting people in Jail for the greed of money and stop ripping off people there are laws on the book to stop this !!!!!!!!!!!!!!!!!!!!!!!!!

March 11 2011 at 7:19 AM Report abuse rate up rate down Reply
1 reply to daveswrath0704's comment
bggdg

WHat laws?

March 11 2011 at 9:47 AM Report abuse +1 rate up rate down Reply
daveswrath0704

If its cost to much DONT buy IT like oil now (THE) used what you have store here stop making 93 gas we dont need it price at the pump drop 50 cent make one type of 87 gas for all USA price drop at the pump 75cent at the pump over night how hard is that and big oil with there greed will STILL MAKE there profit (FACTS)

March 11 2011 at 7:03 AM Report abuse -1 rate up rate down Reply
Coke Kid

OMG! how dare you say you think we need another stimulus !!!!!!!!!!!!!! what the hell is wrong with you people! Obama has out spent every president in history and im sick of it as he runs the dollar into the ground and high energy peices and now inflation because of spending and you want more....get your head out of your asses people..

March 11 2011 at 2:15 AM Report abuse +2 rate up rate down Reply
GAYLEN

Don't write Congressman or Senatore about high gas prices, because thet will do nothing about talk about it. Just remember next election time is to throw all of these bums out of the door. Now we can have fresh crookes to rob the American people!

March 10 2011 at 11:11 PM Report abuse +4 rate up rate down Reply