U.S. Service Sector Expands At Notably Faster Rate In July

(RTTNews) - Activity in the U.S. service sector expanded at a notably faster rate in the month of July, according to a report released by the Institute for Supply Management on Tuesday.

The ISM said its non-manufacturing index climbed to 58.7 in July from 56.0 in June, with a reading above 50 indicating growth in the service sector. Economists had been expecting the index to edge up to a reading of 56.5.

With the bigger than expected increase, the ISM said the non-manufacturing index reached its highest reading since the revised survey's inception in January of 2008.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "Respondents' comments indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses."

The bigger than expected increase by the headline index was partly due to a sharp jump by the business activity index, which surged up to a three-year high of 62.4 in July from 57.5 in June.

The new orders index also climbed to 64.6 in July from 61.2 in June, reaching its highest level since August of 2005.

The ISM said the employment index also rose to 56.0 in July from 54.4 in June, indicating the fifth consecutive month of job growth in the service sector.

Meanwhile, the prices index edged down to 60.9 in July from 61.2 in the previous month, pointing to a modest slowdown in the pace of price growth.

The ISM released a separate report last Friday showing that activity in the manufacturing sector expanded at a notably faster rate in the month of July.

The report said the purchasing managers index climbed to 57.1 in July from 55.3 in June, while economists had been expecting the index to edge up to a reading of 56.0.

With the bigger than expected increase, the manufacturing index came in just above last November's reading of 57.0 and hit its highest level since reaching 58.9 in April of 2011.

Paul Dales, Senior U.S. Economist at Capital Economics, said, "A weighted average of the two ISM indices is consistent with annualized GDP growth of around 4% in the third quarter."

"Our current forecast is closer to 3%, but we are encouraged by the widespread strengthening in demand evident in this survey," he added.