Service Industries Expand at a Faster Pace in June
Growth at U.S. service industries picked up in June from a more than one-year low, signaling steady improvement in the biggest part of the economy.
The Institute for Supply Management’s nonmanufacturing index increased to 56 from 55.7 the prior month, which was the weakest since April 2014, the Tempe, Arizona-based group said July 6. A gauge above 50 indicates expansion, and the median estimate in a Bloomberg News survey of economists was 56.4.
Sales and orders advanced last month for service providers such as retailers and real estate firms that are enjoying a rebound in consumer spending. Further gains for these businesses that make up almost 90% of the economy are helping fuel an expansion beset by tepid capital investment and overseas markets.
“This is a fairly robust pace of activity,” Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates in Princeton, New Jersey, said before the report. “The fact that it’s held on very well speaks to the underlying strength of the economy.”
Estimates in the Bloomberg survey of 74 economists ranged from 54.8 to 58.
The new orders gauge increased to 58.3 in June from 57.9 the prior month. The business activity index, which parallels ISM’s factory production gauge, climbed to 61.5 last month from 59.5 in May.
A moderate pace of economic growth after a first-quarter setback is prompting service industries to slow the pace of hiring. ISM’s measure of employment dropped to 52.7, the lowest level since January, from 55.3 in May.
Last week figures showed ISM’s June manufacturing index reached the highest level in five months. A gain in orders indicated U.S. customers are helping fuel factory demand, though stronger business investment will be needed to produce a more pronounced pickup.
The ISM services survey covers an array of industries, including agriculture and construction.
Homebuilders such as KB Home are optimistic that business will pick up alongside a strengthening recovery.
“The national economy is continuing to improve with sustained job growth now occurring across the country,” CEO Jeffrey Mezger said on a June 19 conference call. “This improving employment and economic environment is in turn contributing to increased consumer confidence, which is currently at one of the highest levels reported since 2007.”
The report adds to evidence that household spending may be firming after weakness earlier this year as consumers put paychecks from newly gained jobs to use.
Household purchases increased 0.9% in May, the biggest gain since August 2009, after rising 0.1% in April, Commerce Department figures showed last month.
Still, a tighter labor market that sparks wage growth will be needed to sustain such gains. While payrolls climbed by 223,000 in June, average hourly pay was little changed and up 2% over the past 12 months, matching the pace that’s persisted throughout the recovery.
