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US Service Sector Expands at the Best Pace in Five Months

Posted by Joseph Trevisani on Aug 5, 2013 11:43:00 AM

The U.S. service sector pushed to its highest rate of growth since February, rebounding from June's three year low as new orders and business activity surged.

The services index from the Institute for Supply Management (ISM) rose to 56.0 in July, easily outstripping economists' median estimate of 53.1 and the prior month's score of 52.2.

New orders climbed to 57.7 in July from 50.8, also the best reading since February. Business activity reached 60.4, the highest level since last December.  Readings above 50 indicate expansion, below contraction.

When today’s service index is combined with the ISM manufacturing index released last week which rose to 55.4 in July from 50.9 in June and 49.0 in May, it is an indication that economic growth may strengthen later in the year. The U.S. economy expanded at a 1.1 percent annual pace in the first quarter and 1.8 percent from April to June.

Still, in a generally upbeat report the gauge for employment dropped to 53.2 in July from 54.7.  This measure had fallen from its post-recession high of 57.5 in January as far as 0.1 in May.  Imports slid to 50.5 in July from 53.5, suggesting American consumers and business are still constrained in outlook and exports moderated to 49.5 from 47.5 in June.   The export index had touched a post-recession high in February at 60.5 but fell into contraction in June.

Some analysts have suggested that the large gain in July may owe something to agressive seasonal adjustments, a notion denied by the Institute for Supply Management.


Joseph Trevisani

Chief Market Strategist


Charts: Bloomberg

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