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USA : Supply Mangement index rises to 64.8 |
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2004-8-6
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July saw U.S. service businesses expand at faster pace, providing further evidence that the economy accelerated after a second-quarter slowdown.
The Institute for Supply Management''s index of financial services, retail and other non-manufacturing companies rose to 64.8 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. Factory orders in June increased 0.7 percent, the Commerce Department said separately.
"The service sector is humming," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis, who forecast a reading of 64. The index ''has remained at a high level for a very long time.''
"We are seeing the best environment in over three years for industrial manufacturers," Sandy Cutler, chief executive of Eaton Corp., the world''s No. 2 maker of hydraulic equipment, said in an interview today. "We believe we''re beginning to see this economy build broadly."
Economists expected the Tempe, Arizona, institute''s index to rise to 61.5, according to the median of 63 forecasts in a Bloomberg News survey. The index reached a record 68.4 in April. Services account for about 85 percent of the economy.
The increase in factory orders exceeded the median forecast and followed a revised 0.4 increase in May, which the Commerce Department originally reported as a 0.3 percent decline. Economists had predicted orders would rise 0.5 percent.
The Treasury''s benchmark 4 3/4 percent note due in May 2014 rose 1/32 point, leaving its yield at 4.42 percent at 5 p.m. in New York.
The ISM survey''s employment index declined to 50 from June''s 57.4. The number of companies adding workers fell to 18 percent in July from 27 percent a month earlier.
The employment readings from today''s services report and Monday''s related ISM manufacturing survey ''take away some of the upside risks'' to job-creation estimates, said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Connecticut. The median forecast of 240,000 jobs for July would more than twice the June figure of 112,000.
Joseph LaVorgna, chief U.S. fixed-income economist at Deutsche Bank Securities LLC in New York, lowered his forecast by 25,000 to 225,000 today. "This change has no effect on our view that the U.S. economy will be raising rates at each of the next three" Federal Open Market Committee meetings, he said.
The ISM services-industry employment index doesn''t always track tightly to monthly jobs data. While the index reached a record in June, service-providing industries added only 122,000 workers that month, the smallest increase since February.
"Private sector estimates are strong -- and they look reasonable to us," Treasury Secretary John Snow said at a press conference at the New York Stock Exchange. "Lots of jobs are being created - the American economy has begun to take off."
Gross domestic product grew at a 3 percent annual rate in the second quarter, after reaching 4.5 percent the first three months of the year, the Commerce Department said last week. Yesterday, the government reported consumer spending in June dropped 0.7 percent, the biggest decline since the terrorist attacks in 2001.
The indexes for business activity, orders, prices and employment are adjusted for seasonal variations. All others are unadjusted. The survey''s index of prices paid, a measure of costs for purchased materials and services, fell to 73.1 from a record 74.6 in June.
Orders for non-durable goods, which include industrial chemicals, drugs, papers, plastics and textiles, rose 0.5 percent after increasing 2 percent the month before. The increase was led by more orders for meats, tobacco, and paper products. The increased value of non-durable goods may have reflected higher materials costs. |
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