Service Sector Expansion Suggests Economic Surge

U.S. service businesses expanded at a faster pace in July, a report said Wednesday, providing further evidence that the economy accelerated after a second-quarter slowdown.

But a gauge of hiring activity in the sector fell sharply.

In a separate report, the government said that factory orders in June rose 0.7%.

The Institute for Supply Management’s index of financial services, retail and other non-manufacturing companies surged to 64.8 last month from 59.9 in June. The index now has exceeded 50, signaling expansion in industries that account for the bulk of the economy, for 14 straight months.

The institute’s new-orders index rose to a record high.

Combined with the government’s report that factory orders increased in June, the orders component of the services report suggested that corporate spending is becoming a more important source of economic strength, analysts said.

Factory orders for non-defense capital goods excluding aircraft, a proxy of future business investment, rose 1.1% in June after declining 2% in May, the Commerce Department said.

The increase in factory orders exceeded analysts’ median forecast and followed a revised 0.4% increase in May.

But the employment index in the services report dropped from a record, which economists said made them less optimistic about forecasts that July job gains in the economy overall will more than double from June figures.

The government will report on July employment on Friday.

The ISM survey’s employment index declined to 50 from 57.4 in June. The number of companies in the survey adding workers fell to 18% in July from 27% in June. However, the ISM services employment index doesn’t always track tightly to the economy’s overall jobs data.

Treasury Secretary John W. Snow said Wednesday that economists’ estimates of July job growth are “reasonable.” Estimates center around 228,000 new jobs.