WASHINGTON (AP) — U.S. service firms expanded in July at the fastest pace since February, fueled by a brisker month of business and a rise in new orders. The increase suggests economic growth could be starting to pick up after a weak first half of the year.
The Institute for Supply Management said Monday that its index of service-sector growth rose in July to 56.0. That’s up from 52.2 in June. Any reading above 50 indicates expansion.
The survey covers businesses that employ 90 percent of the workforce, such as retail, construction, health care and financial services.
A measure of business activity, which includes current sales for the month, rose to a reading of 60.4. That’s the highest since December and was driven in part by faster home construction. And a gauge of new orders, which indicates sales over the next few months, increased to 57.7 — a five-month high.
One concern is that a measure of employment fell slightly in July. That echoed last week’s government employment report that showed hiring has slowed.
The government said last week that employers added 162,000 jobs last month— nearly all of them at service firms. That’s down from 188,000 in June. And most were in low-paying industries — half were at retail business or restaurants and bars.
The unemployment rate fell to 7.4 percent. That’s a 4½-year low and down from 7.6 percent in June.
Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. On Friday, the government said consumers increased their spending in June at the fastest pace in four month.
The economy grew at a tepid 1.7 percent annual rate from April through June. That’s up only slightly from the 1.1 percent pace in the previous quarter and the third straight month of subpar economic growth.
Still, the rise in consumer spending and service activity follows other indications that suggest growth is starting to improve. Home sales and prices continue to rise, and Americans’ confidence in the economy stayed last month close to a 5 1/2-year high.
U.S. factories are also starting to rebound after slumping at the start of the year. A separate ISM released last week showed manufacturing activity jumped in July to the highest level in two years, reflecting a surge in new orders, increasing hiring and rising factory output.
Businesses have ordered more industrial machinery and other equipment for four straight months. Steady gains in new-home sales and construction are supporting strong growth in industries such as wood products, furniture, and electrical equipment and appliances. And healthy auto sales are buoying growth in the production of metal parts and components.