Services Industries Growth Caps Best Quarter Since 2004
Service industries grew in September, capping the strongest quarter of expansion in more than 10 years for the biggest part of the U.S. economy.
While the Institute for Supply Management’s non-manufacturing index fell to 58.6 from the prior month’s 59.6, the third-quarter average was the highest since the first three months of 2004, a report from the Tempe, Arizona-based group showed today. Readings above 50 signal expansion. The median forecast of 78 economists surveyed by Bloomberg called for 58.5.
More hiring and stock-market gains are boosting Americans’ wealth and encouraging them to keep spending. Advances in service industries — which account for about 90% of the economy — combined with manufacturing growth bode well for the world’s largest economy that’s now in its sixth year of expansion.
“Demand seems to be pretty solid,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. “The labor market is improving. Consumer spending will probably gain some traction in the fourth quarter.”
For the ISM index, estimates in the Bloomberg survey ranged from 56 to 60.2. The measure averaged 59 from July through last month and compares with 54.7 in 2013.
The ISM non-manufacturing survey covers an array of industries including utilities, retailing, and health care and also factors in construction and agriculture.
The gauge of services employment increased to 58.5, the highest since August 2005, from 57.1 the prior month. The index was corroborated today by a Labor Department report that showed more signs of vigor in the U.S. job market.
ISM’s new orders measure fell to 61 from 63.8. The index of prices paid dropped to 55.2, the lowest since February, from 57.7.
The business activity index declined to 62.9 from 65 in August, which was the highest since December 2004. The measure parallels the ISM’s factory production gauge.
Earlier this week, figures showed that while the ISM manufacturing index cooled in September, dropping to 56.6 from 59, its average over the past three months was the highest since early 2011.
Household spending, which accounts for almost 70% of the economy, is underpinning growth. Purchases rebounded 0.5% in August following little change in July, according to Commerce Department data. Incomes grew 0.3% as wages and salaries climbed the most in three months.
Some companies are preparing for stronger sales toward the end of the year. United Parcel Service Inc., the Atlanta-based package-delivery company that’s working to prevent a repeat of 2013’s holiday crunch, plans to open 14 temporary shipping facilities to help expedite deliveries.
The groups of modular structures — similar to portable school buildings, pieced together in parking lots with dozens of bays that UPS trucks back up to — are part of $500 million in capital spending being expedited for the seasonal holiday peak.
