Figures signal expansion in services, manufacturing
Growth in the nation’s service economy, coupled with recent data showing the manufacturing sector is humming, suggests the broader economy may be shaking off slumps in the housing and automotive industries.
The Institute for Supply Management, based in Tempe, Ariz., said Tuesday its index of business activity in the nonmanufacturing sector registered a faster-than-expected pace of 59.7 in May. The reading was higher than April’s reading of 56 and Wall Street’s expectation of 56.
A reading above 50 indicates expansion, while one below 50 indicates contraction.
The new orders index was 57.4, up from 55.5 in April. The employment index rose to 54.9 from 51.9.
“The core indexes -- new orders and employment -- are up moderately, and that signals the economy is improving,” said Brian Bethune, an economist with Global Insight.
An overly pessimistic outlook led to the “first-quarter malaise,” Bethune said, and now companies are realigning their orders, employment and inventory to match a more robust growth.
The service industries covered by the ISM report represent about 80% of economic activity and span diverse industries including banking, construction, retailing, agriculture and travel.
The manufacturing sector also showed strength in May, with the ISM reporting last week that the sector rose to its highest level in a year. The reading of 55 marked the fourth consecutive month of growth.
Corporate executives also foresee good prospects. The Business Roundtable said Tuesday most executives expect sales, capital investment and hiring to remain at current levels or rise in the coming months.
The strength of the global economy may account for the uptick in the service economy, said Mark Zandi, chief economist at Moody’s Economy.com.
“That’s a big part of the story. The global economy is performing about as well as it ever has. Combined with a weaker dollar, it’s lifting orders from U.S. businesses,” Zandi said.
The ISM index for new export orders rose to 66, up from 55.5 in April.
