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US Service Economy holds Post-Recession High in July: Markit

H.S. Borji
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The US service economy in July remained close to its pre-recession high, although the pace of new business growth eased to a three-month low and employment growth moderated from June’s four-and-a-half year high.

Markit Group’s flash estimate of US service activity eased slightly from 61 to 60.9. Economists forecast a sharper decline to 59.8. 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 – was unchanged at 61.

Last week Markit said the US manufacturing industry remained elevated in July, although the pace of output and new orders rose at a slower rate, as job creation eased to its lowest level since September 2013.

Markit Group’s flash estimate of US manufacturing activity declined 1 percentage point to 56.3. A median estimate of economists called for a gain of 0.2 percentage points to 57.5.

The flash estimate is based on approximately 85 percent of usual monthly responses.

Services output remained elevated in July, as business conditions continued to improve after inclement weather weighed on economic activity at the start of the year. July marks the ninth consecutive month US service activity increased.

Despite the increase, new business growth moderated in July, which led to weaker payroll figures than the previous month.

New business growth eased for the first time in four months after expanding at the fastest clip since the survey began in October 2009. A slower pace of new business growth also resulted in a renewed reduction in work backlogs.

Employment growth remained positive in July, but the pace of job creation moderated significantly from the June reading. Service providers reported lower business expectations in the year ahead, as optimism fell to its lowest level since November 2012.

US employers added 288,000 nonfarm payrolls in June, the Labor Department reported earlier this month. That marked the fifth consecutive month job growth was above the 200,000 mark – the first stretch of its kind since 1999-2000.

The Labor Department will post July nonfarm payrolls on August 1. Economists are confident the US economy added another 230,000 nonfarm payrolls in July, as the unemployment rate held steady at 6.1 percent.

“July’s survey highlights another positive month for the U.S. service sector, with output growth remaining at a post-crisis high and the trend mirroring strong gains reported by manufacturers so far this summer,” said Markit senior economist Tim Moore in a statement. “As a result, latest PMI figures provide an early signal that robust growth momentum has been sustained into the third quarter, setting the U.S. economy firmly on course to recover some of the ground lost earlier in the year.”

The US economy is still rebounding from a disastrous first quarter that saw gross domestic product contract at an annual rate of 2.9 percent. The economy rebounded at an annual pace of around 3 percent in the second quarter, according to forecasts.

The Commerce Department will post an initial estimate of first quarter GDP growth Wednesday.

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