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

Factory Index

The group’s factory index last week showed manufacturing expanded in July as orders and production surged, a sign that companies are growing more optimistic about the economy’s prospects. The index of manufacturing, which accounts for about 12% of the economy, jumped to 55.4 from 50.9 in the prior month.

Service industries in the rest of the world are showing signs of stabilizing. In the U.K., services growth accelerated in July at the fastest pace in more than six years, according to figures today from Markit Economics and the Chartered Institute of Purchasing and Supply.

Euro-area services output shrank at a slower pace than initially estimated, data from Markit Economics showed, while in China, an index of non-manufacturing purchasing managers increased for the first time since March.

Progress in the labor market and rising home prices are keeping American consumers optimistic as they recover from an increase in the payroll tax that went into effect at the start of the year.

Labor Market

Payrolls increased 162,000 in July, while the unemployment rate declined to 7.4%, the Labor Department reported last week.

Sales of new homes climbed in June to the highest level in five years. Prices increased in May from a year earlier by the most in more than seven years.

That’s boosting the prospects of companies such as Caesars Entertainment Corp., which has been coping with gaming industry trends like lower visitation and casino revenues in the second quarter.

“With housing values rebounding, a relatively strong stock market and a modestly improving labor market, we hope to benefit from improving macro trends and consumer sentiment,” Chief Executive Officer Gary Loveman, said in a July 29 conference call. “We believe sustained improvement in the economy, of course, has the potential to translate into higher cap spending at our properties.”

Consumer spending increased in June by the most in four months, Commerce Department data last week showed. After adjusting for inflation, purchases rose 0.1%, the same as in the previous month.

Automakers are on pace for their best showing in six years as job gains boost confidence and consumers replace older vehicles. Cars and light trucks sold at a 15.6 million annualized rate in July and 15.9 million the prior month, the strongest back-to-back readings since late 2007, according to figures from Ward’s Automotive Group.

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