Services in U.S. Grow at Second-Fastest Pace in Almost Year

Service providers from construction firms to retailers expanded in June at the second-fastest pace in almost a year, showing more momentum in the U.S. economy.

The Institute for Supply Management’s non-manufacturing index was 56 last month after May’s 56.3, which was the highest since August, the Tempe, Arizona-based group said today. The median forecast in a Bloomberg survey of economists called for no change from May. Readings greater than 50 signal expansion.

The expansion at service providers, along with sustained growth at the nation’s factories, underscores a pickup in demand that’s helping put people to work. A report earlier showed payrolls increased more than forecast in June and the jobless rate fell to an almost six-year low.

“The economy in general is doing really well,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “It’s substantial improvement since the dark days of the winter.”

The Dow Jones Industrial Average climbed above 17,000 for the first time after the employment data and as the European Central Bank prepared to disclose details of its stimulus plans. The Dow gained or 0.4 percent to 17,040.62 at 10:23 a.m. in New York. The Standard & Poor’s 500 Index rose 0.3 percent. Equities markets close at 1 p.m. today before the Independence Day holiday.

Estimates in the Bloomberg survey of 76 economists ranged from 55 to 58.5. The non-manufacturing index has averaged 54.4 so far this year, compared with 54.7 in 2013.

June Employment

Earlier today, Labor Department figures showed job creation surged beyond expectations in June and the unemployment rate fell to 6.1 percent, the lowest since September 2008. The addition of 288,000 jobs followed a 224,000 gain in May that was bigger than previously estimated, according to the Labor Department in Washington. The median forecast in a Bloomberg survey of economists called for a 215,000 advance.

The ISM’s measure of new orders to service producers climbed to 61.2, the highest since January 2011, from 60.5. The group’s employment gauge rose to 54.4, the strongest reading since January, from 52.4 in May.

The business activity index, which parallels the ISM’s factory production gauge, fell to 57.5 from 62.1, which was the highest since February 2011. A measure of prices paid was little changed at 61.2 after 61.4.

“We’re not getting feedback from our respondents that they’re starting to see inflation,” Anthony Nieves, chairman of the ISM’s non-manufacturing survey, said on a conference call with reporters.

The ISM services survey covers an array of industries including utilities, retailing, health care and finance.

Auto Sales

An improved labor market this year has underpinned consumer spending. Auto sales climbed to a 16.9 million pace in June, the strongest since July 2006, from a 16.7 million rate a month earlier, based on data from Ward’s Automotive Group.

The housing market is also gaining traction as borrowing costs skirt record lows. Los Angeles-based KB Home is acquiring land and starting work on new communities as would-be buyers return to showrooms, Chief Executive Officer Jeffrey Mezger said.

“While these favorable trends are very encouraging, it is still going to take some time until we reach historical new home activity levels,” Mezger said on a June 27 earnings call. Many outlooks on the housing industry are measured. But we are optimistic as we are building a real growth story in the current environment.”

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