U.S. Service Industry Expanding: Signs Of A Healthy Economy?

In June, American service providers showed signs of a healthy U.S. economy by expanding at the fastest pace in seven months in terms of sales and orders.

The non-manufacturing index from The Institute for Supply Management increased from 52.9 to 56.5, which overcame the highest projection from a Bloomberg survey.

This jump occurred in May, as the Tempe, the group based in Arizona, indicated.

Service providers, including retailers and construction firms, posted the largest monthly advance since February of 2008.

Strong consumer spending aided this significant advance.

When you combine this with the already existing increase in manufacturing, this information could suggest that the United States economy was seeing a speed increase in the days leading up to Brexit, which has been the name of Britain’s choice to leave the European Union.

Brexit presented some really unforeseen reactions from the Stock Market to the construction companies and service providers.

Americans and Consumer Spending

Sophia Kearney-Lederman, who works as an economic analyst at FTN Financial in New York, says that the consumers are looking good.

She also commented that they seemed to be leading the second-quarter rebound.

The ISM non-manufacturing index contains industries that account for nearly 90% of the economy.

When there are readings higher than 50, they signal economic growth.

15 out of 18 industries reported in June that they had experienced growth, including entertainment, real estate, mining, and retail.

Bloomberg surveyed a median forecast of economists that predicted 53.5 and featured estimates that ranged from 51.5 to 55.

Anthongy Nieves, who is the chairperson of the ISM non-manufacturing survey, said that we experienced a few months of cooling off, but there is not increase that will allow us to see the sustainability of the economy as we move forward.

He also pointed out that by looking at what is occurring domestically, that is predominantly the driving force behind the latest acceleration and fast pace.

The ISM published a factory survey last week that showed there might be a nascent recovery taking form in the beleaguered manufacturing industry.

Bolstered by increased production, as well as bookings, the index jumped to the highest peak since February of 2015, stopping at 53.2.

To help readers understand the affects and specifically chart out the highs and lows here is the graph below showing this increase:

Kearney-Lederman also said that a pickup in the manufacturing district would be a positive sign for the service sector.

The strong dollar, as well as the weak global demand, caused production to suffer a hard hit.

Kearney-Lederman points out that it was only a matter of time before the services could not longer weather the slowdown.

The services survey offers details that indicate a climb to 59.9 from 54.2 in June on the new orders index.

In particular, the increase for the most forward-looking gauge turned out to be the largest since March of 2010.

This increase also points out that the economy had been doing well as the second quarter came to an end.

The business activity index of the group paralleled the ISM’s factor production gauge when it went from 55.1 to 59.5.

There is also an indication that a greater number of companies are adding workers.

This is shown by the advancement in the measure of non-manufacturing employment.

This measure increased from 49.7 in the month before 52.7 in June.

Twenty-nine percent of these companies reported that there was an increase in employment, the highest percentage since July of 2015.

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Suppliers and Deliveries

Last month, the ISM index for supplier deliveries increased to 54.

This is the highest number in over a year from where it stood at 52.5.

When a reading is greater than 50, it means that deliveries have slowed.

This slowing is a positive sign, indicating that companies were struggling to keep up with the demands for their products.

The services report reflects that consumers are resilient in their spending, a fact that economists are predicting will lead to a rebound in growth after a weak beginning to the year.

Brexit, the term that has been coined to describe Britain’s decision to leave the European Union after a harrowing vote, still poses a risk to economies everywhere.

However, a separate poll from ISM showed that the majority of purchasing executives in the manufacturing, as well as the services sector, should expect the minor impact on their staffing levels along with their operations from the U.K. leaving the EU.

On the side of the consumers, they will more than likely still need a form of reassurance that the recovery to the labor market will continue to be on track.

This is because this ramps up their spending.

In June, it is probable that the payrolls increased by around 180,000.

This number was found after a survey by Bloomberg of a median projection of economists.

After the two weakest months of job growth since early 2011, this rebound would be welcomed and appreciated.

The graph below shows that May, in particular, showed an unusually low job growth index.

Specifically, the minimum number in five years.

The Bottom Line

The first half of 2016 saw some shocking lows for job growth, but also shows astounding highs by the time the second quarter ended, all thanks to June reports.

The United States service industries are showing expansion rates that are much faster than previous months according to the reports.

These numbers are helped along by resilient consumer spending, as well as domestically driven acceleration.

Various indexes have shown climbing percentages, which is looking positive for our nation’s economy.

Companies have already started to increase their number of workers, which is leading to advances in non-manufacturing employment.

Overall, the service industry seems to be expanding at a fast pace that serves as a very positive signal for the economy in general.