Service industries in the U.S. expanded in July at the fastest pace since December 2005, showing the economy was building more momentum at the start of the second half of 2014.
The Institute for Supply Management’s non-manufacturing index increased to 58.7 from the prior month’s 56, the Tempe, Ariz.-based group said Tuesday. A reading greater than 50 shows expansion. The median estimate in a Bloomberg survey of economists was 56.5. A measure of orders climbed to an almost nine-year high.
The pickup among service providers, combined with the strongest rate of growth in more than three years at American factories, shows the world’s largest economy was strengthening at the start of the third quarter. Faster payroll growth is helping fuel consumer demand, raising the odds a self-reinforcing cycle of increased hiring and spending is underway.
“The U.S. economy has continued to pick up a little bit of steam,” Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Conn., said before the report. “More jobs mean more money in people’s pockets, which means they can spend more, which leads businesses to expand activity more and increase hiring and investment.”
Estimates of the 73 economists in the Bloomberg survey ranged from 54.5 to 57.5. The non-manufacturing index has averaged 55 this year compared with 54.7 in 2013.
The ISM services survey covers an array of industries including utilities, retailing, health care and finance that make up almost 90 percent of the economy. It also factors in construction and agriculture.
The ISM’s measure of new orders among non-manufacturing industries surged to 64.9 in July, the highest since August 2005, from 61.2 the prior month. The group’s employment gauge advanced to a six-month high of 56 from 54.4.
The business activity measure, which parallels the ISM’s factory production gauge, increased to 62.4, the strongest reading since February 2011, from 57.5 in June. A measure of prices paid fell to 60.9 from 61.2.