Thursday, September 5, 2013

Growth in U.S. services unexpectedly accelerated in August

By Jeanna Smialek

Growth in U.S. service industries unexpectedly accelerated in August as orders picked up, showing further progress in the world’s biggest economy.

The Institute for Supply Management’s non-manufacturing index increased to 58.6 from 56 the prior month, a report from the Tempe, Arizona-based group showed today. The median projection in a Bloomberg survey of economists called for a decline to 55. Readings above 50 indicate growth in the industries that make up almost 90 percent of the economy.

The pickup followed the group’s report this week that showed manufacturing grew the most since June 2011, indicating the four-year economic expansion is broadening. The rebound in housing is reverberating through the rest of the economy and driving sales at companies such as Lowe’s Cos. at the same time car dealers benefit from increased demand for new vehicles.

“The service sector will continue to expand,” Harm Bandholz, chief U.S. economist at UniCredit in New York, said before the report. “I’m positive on the economic outlook for the coming quarter. Housing has been strong. Credit is improving and the job market is improving.”

Estimates of the 78 economists in the Bloomberg survey ranged from 53.5 to 57.5 for the index, which includes industries from utilities and retail to health care, housing and finance. The gauge has averaged 53.7 since the recession ended in June 2009, before today’s report.

New Orders

The ISM non-manufacturing survey’s measure of new orders increased to 60.5 in August, the highest since February 2011, from 57.7 the month earlier. A gauge of business activity climbed to 62.2 from 60.4.

A measure of employment in non-manufacturing industries rose to 57 from 53.2 in July.

The group’s factory index earlier this week showed manufacturing, which accounts for about 12 percent of the economy, rose to 55.7 in August, the strongest since June 2011, from 55.4 a month earlier.

Service industries in other parts of the world are showing signs of stabilizing or improving outright. U.K. services growth unexpectedly accelerated last month, indicating the economy is gaining momentum. A gauge of services activity increased to 60.5 from 60.2 in July, the highest since December 2006, Markit and the Chartered Institute of Purchasing and Supply said in a statement yesterday.

Markit’s gauge of new business at services companies rose to the highest in more than 16 years in August. Construction grew at the fastest pace in six years and manufacturing expanded the most in more than two years, it said earlier this week.

European Economy

In the euro area, a services index increased to 50.7 in August from 49.8 in July.

Among non-manufacturing industries in the U.S., home- improvement retailers are enjoying increased sales as the housing market recovery. Lowe’s Cos. Chief Executive Officer Robert Niblock said the market’s growth depends on how much higher mortgage rates affect Americans’ buying decisions.

The average rate on a 30-year fixed mortgage climbed to a two-year high of 4.58 percent on Aug. 22 after reaching a recent low in May of 3.35 percent, data from Freddie Mac show.

“The stronger-than-expected pace of home-improvement industry growth so far this year was fed by modestly stronger gains in housing turnover and job growth than originally forecast, further offsetting the negative effects of higher taxes,” Niblock said on an Aug. 21 conference call.

Mortgage Rates

Higher mortgage rates, they “shouldn’t derail it as long as job gains persist, homes continue to appreciate, and rates rise more gradually going forward,” he said.

A report tomorrow from the Labor Department is projected to show employers stepped up the pace of hiring in August, taking on 180,000 workers after adding 162,000 a month earlier, according to the median forecast in a Bloomberg survey.

Job gains and cheaper financing by some automakers are spurring motor vehicle demand. Cars and light trucks sold last month at a 16 million annualized rate, the fastest since October 2007, according to Ward’s Automotive Group data.

General Motors Co. recorded its best month since 2008 and Ford Motor Co. its strongest month of retail sales since 2006. Chrysler Group LLC sales rose for the 41st straight month.

Americans spending more on cars and housing helped the economy maintain a “modest to moderate” pace of expansion from early July through late August, even as borrowing costs increased, the Federal Reserve said yesterday.

“Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods,” the Fed said. “Residential real estate activity increased moderately in most districts, and demand for nonresidential real estate gained overall.”

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