America’s service providers from restaurants to real estate agencies expanded in July at the strongest pace in a decade, putting the U.S. economy on track for faster growth.
As Bloomberg reports, the Institute for Supply Management’s non-manufacturing index jumped by 4.3 points to 60.3, the best reading since August 2005 and well above the most optimistic projection in a Bloomberg survey of economists, the group’s report shows this morning. All major components of the gauge, including orders and employment, advanced.
Steady hiring, a recovering housing market, reduced fuel expenses and cheap borrowing costs are benefiting service producers while the nation’s factories battle tepid global sales and slower capital spending. Resilient domestic demand helps explain why Federal Reserve policy makers will probably raise interest rates this year for the first time since 2006.
“The economy is in good shape,” says Brian Jones, a senior U.S. economist at Societe Generale in New York. “The consumer is fine because of the strong labor market. We have the luxury that so much of our activity is determined within our own national borders.”
Entertainment and recreation, real estate and retail led the list of 15 industries that reported expansion in July. Mining, which includes oil and gas well drilling, was among the two that contracted.
Readings above 50 for the Tempe, Arizona-based ISM’s index signal expansion. The median forecast in the Bloomberg survey was 56.2 after 56 in June, with estimates ranging from 54 to 58. It marked the biggest positive surprise in the gauge since February 2012. The survey covers industries that make up almost 90% of the economy, including utilities, retailing and health care. It also factors in construction and agriculture.
In contrast, American manufacturers were off to an uninspiring start to the second half of 2015, according to the group’s survey released on Monday. The factory index dropped in July to a three-month 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, six months before the last recession ended.
