Car Sales Boost Service Sector

The huge discounts automakers offered on new cars last month did more than clear out dealers’ inventory -- they helped boost activity in the nation’s service sector at a faster-than-expected pace.

The Institute for Supply Management said Wednesday that its index of business activity in the non-manufacturing sector rose to 62.2 in June from 58.5 in May, well above the 58.9 that analysts had expected. It was the 27th consecutive month of expansion.

A reading of 50 or above means the service sector economy is expanding, and a reading below 50 indicates a contraction.

Economists agreed the index boded well for the June employment report due Friday from the Labor Department.

“June looks like it is going to be a blow-out month all around,” said Mark Vitner, senior economist at Wachovia Securities. “There is real strength in consumer spending.”

Vitner said the impressive June sales figures posted by the automotive industry propelled activity in the non-manufacturing sector.

Last week, General Motors Corp. said its sales soared 41% in June to their highest monthly total in nearly 19 years thanks to a heavily promoted discount that allowed customers to buy cars and trucks at the employee rate. Asian brands also continued their surge with Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. all posting their best June sales periods ever in the United States.

“General Motors is still an awfully big company, and when its sales improve it has broad-ranging implications,” Vitner said.

Only two of the 14 industries tracked in the June study reported decreased activity from the previous month -- health services and agriculture.

In another economic report, the National Assn. of Realtors said Wednesday that contracts to buy previously owned U.S. homes fell in May for the first time in four months but remained close to a record.

The index of signed purchase agreements, or pending home resales, fell 2% to 124.9 from a revised 127.5 in April, the group said. The May figure was the third highest on record. The April sales index originally was estimated at a record 128.2. The index averaged 120.6 last year.

The report contrasts with data on new-home sales, which expanded at the second-fastest pace ever in May.

The level of pending resales suggests that rising prices may be discouraging some prospective buyers, though home purchases remain elevated by historical measures.

Associated Press and Bloomberg News were used in compiling this report.