Activity in the U.S. service sector grew at a faster rate in the month of July, according to a report released by the Institute for Supply Management on Monday, with the index of activity in the sector rising by much more than economists had anticipated.
The ISM said its non-manufacturing index jumped to 56.0 in July from 52.2 in June, with a reading above 50 indicating growth in the service sector. Economists had been expecting the index to show a more modest increase to a reading of 53.0.
With the bigger than expected increase, the non-manufacturing index rose to its highest level since a matching reading in February.
"According to the NMI, 16 non-manufacturing industries reported growth in July," said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee. "Respondents' comments are mostly positive about business conditions and the overall economy."
The improvement by the headline index was partly due to a notable increase by the business activity index, which surged up to 60.4 in July from 51.7 in June.
The new orders index also showed a substantial increase for the month, climbing to 57.7 in July from 50.8 in the previous month.
The report also showed that the prices index jumped to 60.1 in July from 52.5 in June, indicating that prices increased at a significantly faster rate.
Meanwhile, the employment index dipped to 53.2 in July from 54.7 in June, suggesting a modest slowdown in the pace of job growth in the service sector.
Last Thursday, the ISM released a separate report showing that its index of activity in the manufacturing sector jumped to a two-year high in July.
The ISM said its purchasing managers index surged up 55.4 in July from 50.9 in June, with a reading above 50 indicating growth in manufacturing activity. Economists had expected the index to climb to a reading of 53.1.
With the much bigger than expected increase, the ISM's manufacturing index rose to its highest level since reaching 55.8 in June of 2011.
James Knightley, senior economist at ING, said, "Taking the two ISM series together it paints a relatively upbeat growth picture, but we remain concerned over a lack of agreement on the fiscal situation."
"This has the potential to drag on and given what happened in 2011 we suspect that the Fed will err on the side of caution rather than go headlong into a September taper whatever happens," he added.
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