Sizzling service sector demand points to stronger growth in the second half
WASHINGTON — America’s service providers from retailers to real estate agencies sizzled in July.
The industries that make up almost 90 per cent of the economy expanded at the fastest pace in a decade, the Institute for Supply Management said Wednesday. The broad-based pickup was accompanied by a flurry of orders, prodding more companies to beef up staffing levels.
Increasing hiring, reduced fuel expenses and cheap borrowing costs are sparking demand, making up for the malaise in manufacturing. Resilient domestic sales help explain why Federal Reserve policy-makers will probably raise interest rates this year for the first time since 2006.
“It shows a good, solid pace of activity,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York. “Consumers are doing fairly well, and housing is starting to do better. We’ve got a good job market in place. We should get stronger results for second- half economic growth.”
The ISM’s non-manufacturing index jumped by 4.3 points to 60.3, the highest since August 2005 and exceeding the most optimistic projection in a Bloomberg survey. Readings above 50 signal expansion.
The median forecast was 56.2 after a 56 reading a month earlier. It marked the gauge’s biggest positive surprise since February 2012.
While it is “a bit unusual” to see such elevated readings at this time of the year, “all indications are that we should see growth continue,” Anthony Nieves, the ISM’s survey chairman, said on a conference call with reporters.
Entertainment and recreation, real estate, and retail led the list of 15 industries reporting expansion in July. Mining, which includes oil and gas well drilling, was among the two that contracted.
According to ISM’s survey released on Monday, the factory index dropped in July to a threemonth low of 52.7. The 7.6 point difference between the ISM’s non-manufacturing gauge and the factory index was the biggest since January 2009.