U.S. Service Index Unexpectedly Indicates Faster Growth In August

(RTTNews) - U.S. service sector activity expanded for the fifty-fifth consecutive month in August, according to a report released by the Institute for Supply Management on Thursday, with the report also showing an unexpected acceleration in the pace of growth in the sector.

The ISM said its non-manufacturing index climbed to 59.6 in August from 58.7 in July, with a reading above 50 indicating growth in the service sector.

The modest increase by the non-manufacturing index came as a surprise to economists, who had expected the index to dip to a reading of 57.5.

With the unexpected increase, the ISM said the composite index reached the highest level since its inception in January of 2008.

The report also showed a notable increase by the business activity index, which climbed to a nearly ten-year high of 65.0 in August from 62.4 in July.

The backlog of orders index also rose to 54.5 in August from 53.0 in July, while the employment index edged up to 57.1 from 56.0.

On the other hand, the ISM said the new orders index dipped to 63.8 in August from 64.9 in July, suggesting a modest slowdown in the pace of new orders growth.

The report also indicated a slowdown in the pace of price growth during the month, as the prices index slid to 57.7 in August from 60.9 in July.

Paul Dales, Senior U.S. Economist at Capital Economics, said the service sector data looks even more impressive when taken alongside the manufacturing data released earlier this week.

On Tuesday, the ISM said its index of activity in the manufacturing sector climbed to 59.0 in August from 57.1 in July, while economists had expected the index to edge down to 56.8.

With the unexpected increase, the ISM said the manufacturing index rose to its highest level since reaching 59.1 in March of 2011.

"A weighted average of the two ISM activity indices is consistent with annualized GDP growth of between 4.5% and 5.0% in the third quarter," Dales said.

He added, "We are not convinced that growth will be quite that strong, but the latest evidence certainly suggests that the economy is putting the weak start to the year firmly behind it."