Service sector hits highest in 8 years

Service sector hits highest in 8 yearsU.S. service sector businesses saw expansion at its fastest pace in nearly eight years during August as sales and orders grew resulting in employers having to add employees.

On Thursday, the Institute for Supply Management said that the service-sector index increased to 58.6 in August. That is up 2.6 points from 56 in July. That attains the highest point since December 2005. Any reading above 50 indicates expansion, the institute notes.

A measure of hiring rose to 57, which is its highest level in six months. Experts consider this to be an encouraging sign for the job market as the service sector employs about 90 percent of the U.S. workforce. The service sector includes retail, construction, health care and financial services.

The August jobs report will be distributed by the Labor Department on Friday. It is a highly anticipated report around Wall Street.

Consumers appear to be spending more money. Spending appears to be increasing at auto dealerships, retailers, hotels and restaurants. The housing recovery is adding some growth in real estate.

The service sector data comes after another report released this week showed the number of weekly applications for unemployment benefits fell to their lowest level in five years. A private survey indicated that businesses in the U.S. added 176,000 jobs last month, which is a figure below the previous month but roughly in line with the average gain this year.

Thursday’s reports do suggest that the job market is improving at a steady pace. These reports will play a significant role in the Federal Reserve’s decision making process when it meets Sept. 17-18 to consider whether to begin tapering its monthly bond purchases.

Many experts are under the impression that the central bank will begin to taper back its bond buying, which has been intended to keep long-term borrowing rates near record lows.

A measure of sales in the ISM report rose to its highest level in nearly three years with new orders attaining their highest point since February 2011. According to that data, sales for service companies are expected to remain strong in the months ahead.

Employers are believed to have added 177,000 jobs during August, according to forecasts. It is also believed that the unemployment rate probably stayed steady at 7.4 percent.

The service sector’s outsize role in hiring has raised some concern about the quality of the jobs gained this year. Many new jobs have been part-time positions in industries known to offer low pay, including restaurants, retail establishments, motels and hotels.

On the opposite end of the spectrum, those higher paying industries, including manufacturing and construction, have cut or lost jobs during the last four months.

In July, income rose just 0.1 percent, which is down from 0.3 percent in June. Slower growth in wages forced people to cut back on their spending last month. Consumer spending barely changed, raising just 0.1 percent in July. Consumer spending is the force behind 70 percent of economic activity.

On Monday, the ISM said factory activity grew at its fastest levels in more than two years in August. New orders jumped to their highest level since April 2011 and export orders rose at a healthy clip.

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About the author

Drew is a regular contributor covering trending topics.