Services in U.S. expand at fastest pace in five months

Service industries in the U.S. expanded in July at the fastest pace in five months, a sign the world’s biggest economy will improve after slowing the last three quarters.

The Institute for Supply Management’s non-manufacturing index increased to 56, exceeding all forecasts in a Bloomberg survey, from a more than three-year low of 52.2 in June, a report from the Tempe, Arizona-based group showed today. The median estimate called for a gain to 53.1. Readings higher than 50 indicate growth in the industries that make up almost 90% of the economy.

The figures follow the group’s report last week that showed manufacturing advanced at the fastest rate in more than two years, indicating the expansion is broadening. The recovery in the housing market and record equity values are bolstering household finances, laying the ground for a pickup in consumer spending on goods and services that account for about 70% of the economy.

“The pickup in July wasn’t limited to the manufacturing sector,” said Brian Jones, senior U.S. economist at Societe Generale in New York, whose forecast of 55 was the highest forecast in the Bloomberg. “Things are picking up going into the third quarter of the year.”

Stocks held losses after the report, with the Standard & Poor’s 500 Index falling 0.2% to 1,706.75 at 10:25 a.m. in New York.

Monthly Increase

The non-manufacturing gauge’s 3.8-point gain from June was the biggest since February 2008. Estimates of the 75 economists in the Bloomberg survey ranged from 51.5 to 55 for the index, which includes industries from utilities and retail to health care, housing and finance. The gauge averaged 53.7 since the recession ended in June 2009.

The ISM non-manufacturing survey’s measure of new orders increased to a five-month high of 57.7 after 50.8. A gauge of business activity rose to 60.4, the highest this year, from 51.7 the prior month.

The employment gauge fell to 53.2 last month from 54.7 in June. The

The index of prices paid climbed to 60.1 from 52.5. A measure of order backlogs decreased in July to 46.5 from 52 in the prior month.

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