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US Service Economy Rises at Sharpest Pace since October 2009: Markit

H.S. Borji
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The US service economy in June accelerated at the sharpest pace since October 2009, as output and new business levels supported the fastest pace of job creation in nine months.

Markit Group’s gauge of US service activity surged from 58.1 to 61.2. Economists called for a reading of 58.0. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.

The PMI composite – a gauge of service and manufacturing activity – increased from 58.6 to 61.2.

The services sector in June expanded at the fastest pace since Markit’s PMI survey began in October 2009, led by a sharp rise in services output and new business levels. Incoming new work increased markedly in June, rising at the fastest pace since October 2009.

June marked the eighth consecutive month service sector business activity had increased. Survey participants said they were highly confident about their growth prospects over the next 12 months. Anecdotal evidence also suggested improved economic conditions this month and a greater willingness to spend among customers.

Stronger confidence led to increased hiring. June marked the sharpest pace of service job creation since September 2013, a sign employment growth in the US economy remained elevated in June. Combined with the June manufacturing PMI report, the latest services data suggest the US economy added around 200,000 nonfarm payrolls in June, Markit data showed.

US employers added 217,000 nonfarm payrolls in May, the Labor Department reported earlier this month. That followed a gain of 282,000 that was the biggest in more than two years.

The Labor Department will post June nonfarm payrolls July 3.

“Business activity in the US service sector surged higher in June,” said Markit chief economist Chris Williamson in a press release. “A record high in the services PMI follows news from the flash manufacturing PMI that factory output grew in June at the fastest rate for just over four years.”

Markit reported earlier this week the US manufacturing industry expanded sharply in June, as overall business conditions improved at the fastest pace since May 2010. The manufacturing PMI index climbed 1.1 percentage points to 57.5, exceeding estimates.

“Second quarter GDP data are therefore likely to show a strong recovery after the 2.9 [percent] annualized decline seen in the first quarter,” Williamson added. “Growth in excess of 3.0 percent would not be a surprise.”

The US economy contracted at a steeper pace than initially forecast in the first quarter, the Commerce Department confirmed today in its third estimate of Q1 GDP growth.

Negative contributions from private inventory investment, exports, government spending, nonresidential fixed investment and residential fixed investment were the main factors behind the contraction.

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