U.S. service companies expanded last month at the fastest pace in more than six years, suggesting that strong economic growth is continuing in the current quarter. A closely watched index of the service sector rose to 58.7 from 56 in June, the Institute for Supply Management said Tuesday. A reading above 50 indicates expansion.
Economists expected 56.5. The index’s measure of business activity rose to 62.4 from 57.5, the highest since February 2011. The new orders index reached 64.9, up from 61.2 in June, the highest reading since August 2005.
And the employment index rose to 56 from 54.4, signaling growth for the fifth straight month. In July, all 16 service industries reported growth, led by construction, education, public administration and real estate. Last week, the government said the economy grew a better-than-expected 4% at an annual rate in the second quarter. Employers in July added more than 200,000 jobs for the sixth straight month — the first such stretch since 1997.
Economist Paul Dales of Capital Economics says the high July reading of the service- sector index “is a strong sign” that economic growth in the third quarter “will be at least 3%.”