Service providers expanded in August at the fastest pace in nine years, a sign of growing momentum in the broadest sector of the U.S. economy.
The Institute for Supply Management’s non-manufacturing index climbed to 59.6, the strongest since August 2005, from 58.7 a month earlier, the Tempe, Arizona-based group said.
The gauge exceeded the highest estimate in a Bloomberg News survey, which had a median forecast of 57.7. Readings greater than 50 signal expansion.
The boom at service providers and faster growth in manufacturing demonstrate a broadening of the economic expansion that’s encouraging businesses to invest in more equipment. Further improvement in the job market has the potential to spur gains in consumer confidence and spending, particularly if a tighter labor market begins to drive up wages.
The economic expansion in becoming “self-sustaining,” Robert Stein, deputy chief economist at First Trust Portfolios said. Progress in the job market ‘is supportive of income growth, which supports consumer spending and business growth, which supports more job growth.”
Estimates in the Bloomberg survey of 74 economists ranged from 53.2 to 59.5. The non-manufacturing index has averaged 55.6 so far this year, compared with 54.7 in 2013. The August reading matched the fourth-highest in records going back to 1997.
The business activity index jumped to 65, the highest since December 2004, from 62.4 in July. The measure parallels the ISM’s factory production gauge.
The ISM’s measure of new orders to service producers eased to 63.8 from 64.9, and a measure of prices paid fell to 57.7 from 58.
The services survey covers an array of industries including utilities, retailing, health care and finance.