US Services Sector Grew At Fastest Pace In July Since 2005

The president's 2016 budget proposal would expand the earned-income tax credit, which benefits low-income workers. Pictured: A customer speaks to the cashier as he checks out at a Walmart Neighborhood Market in Bentonville, Arkansas, June 5, 2014. Reuters

The U.S. services economy is continuing to expand hiring and in June grew at its fastest pace in almost a decade. And as the economy continues to expand, albeit at slower than traditional rates, the news is good for everyone from doctors, to store cashiers and truck drivers.

The sector, which accounts for four out of five American jobs, and based on data released Tuesday from a survey of service company executives, the ISM Non-manufacturing Index rose 2.7 points to 58.7, the highest reading since December 2005.

A reading above 50 indicates growth. Economists polled by Reuters had forecasted 56.3.

“This report indicates continuing steady growth in non-manufacturing industries,” Ozlem Yaylaci, U.S. economist for IHS Global Insight, said in an email. “Respondents were optimistic about the outlook and they commented that the second half of the year looks promising for increased orders as the demand for services is increasing.”

Business activity increased to the highest reading since 2011, while new orders increased to the highest reading since 2005, and employment increased to a six-month high, the report said. Prices paid for material and service costs increased but at a slower pace than in June, showing little pressure from costs as demand for services continues increasing.

Among the 18 industries surveyed in the report, such as government, finance, information technology and wholesale and retail trade, only utilities reported decreased activity. A separate, closely watched survey released Tuesday by financial firm Markit showed the pace of growth in the U.S. services sector slowed a bit in July from June, but still hit a 4.5-year high.

U.S. manufacturing is also picking up its pace. The ISM Manufacturing Index for July, released Friday, showed the highest reading in three years.

A weighted average of the two ISM indices forecasts annualised GDP growth of around 4 percent in the third quarter, said Paul Dales, U.S. economist at Capital Economics. "Our current forecast is closer to 3 percent, but we are encouraged by the widespread strengthening in demand evident in this [non-manufacturing] survey," he said.

Another survey, by the Commerce Department, showed U.S. manufacturing increased by 1.1 percent in June, more than expected. The durable goods component, which includes long-lasting products like washing machines and cars, was recently revised to a 1.7 percent jump from an initially recorded 0.7 percent increase, and goods excluding aircraft and those for the military rose by 3.3 percent over the month.

"The surveys suggest that the economy has maintained strong momentum after rebounding in the second quarter from the weather-torn start to the year," said Chris Williamson, chief U.S. economist at Markit.

However, he also warned that the surveys indicate job growth and business confidence are waning. "While the economy looks set to continue to expand at robust pace in the second half of the year, these summer months may turn out to represent the peaking in the rate of growth," Williamson said.

Manufacturing