Jump in expansion of US service companies

WASHINGTON • American service companies expanded last month at the fastest rate in almost a year, returning the economy's biggest segment to a steady growth path after a slump in the prior month.

The Institute for Supply Management's (ISM) non-manufacturing index jumped to 57.1, the highest since October 2015, and exceeded all forecasts in a Bloomberg survey, the group's data showed yesterday.

The August reading of 51.4 was the lowest in more than six years.

Measures of employment and orders led the advance, which signals that businesses which make up almost 90 per cent of the economy see enough demand to keep expanding.

The group's factory survey released yesterday showed that manufacturers also made up some ground last month, suggesting that the slowdown in both ISM measures in August probably overstated softness in the US expansion.

"Consumers continue to put the economy on their back, and they are spending aggressively," Mr Ryan Sweet, a senior economist at Moody's Analytics, said before the report.

"The key is going to be housing and the job market, and the housing market continues to move in the right direction, and the job market's doing very, very well."

The ISM's measure of services employment advanced to 57.2, the strongest since October 2015, from 50.7. The 6.5-point jump was the biggest monthly gain in records dating back to 1997, and provides a reassuring sign ahead of the Labour Department's September payrolls report.

The ISM services survey covers an array of industries, including retail, health care, agriculture and construction.

The group's manufacturing survey earlier this week showed that factories expanded at a modest rate last month after unexpectedly shrinking a month earlier, underscoring limited progress for the battered sector.

The gauge advanced to 51.5 after the 49.4 reading in August, which was the weakest since the start of the year.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 06, 2016, with the headline 'Jump in expansion of US service companies'. Print Edition | Subscribe