U.S. Service-Sector Activity Picked Up in June -- Update

Business at U.S. service providers climbed steadily in June, a sign the broadest segment of the economy is gaining momentum after a lackluster first half of the year.

A closely watched index of nonmanufacturing activity rose to 57.4 in June from 56.9 in May, the trade group Institute for Supply Management said Thursday. A reading above 50 indicates industry expansion, as measured by sales, production, hiring, inventory levels and other factors.

Economists surveyed by The Wall Street Journal had expected a June reading of 56.5.

Service providers form the bulk of the U.S. economy, covering industries such as construction, mining, accounting and health care. Activity in the sector provides a broad snapshot of the broader economy's health.

Thursday's report showed a jump in sales, a slight pickup in production and a surge in companies restocking their shelves -- signs of stronger spending by Americans and rising optimism among businesses.

"Every month we think we might have a little bit of a clawback here and yet we don't -- we just keep chugging along," said Anthony Nieves, head of the ISM survey. "The only thing I feel would derail this is some catastrophic event."

The report could offer reassurance to the Federal Reserve about the economy's health as it considers another increase in short-term interest rates and shrinking its portfolio of bonds and assets in coming months.

The June reading on service-sector activity corresponds to economic output growing at 3.3% a year, the ISM report said. But activity hasn't been holding at that level consistently, and broader measures of growth suggest the economy remains lackluster.

Gross domestic product -- the broadest measure of output -- grew at a 1.4% annual rate in the first quarter and is projected to have expanded at a pace of between 2% and 3% in the second quarter.

Thursday's report showed prices in the service sector picked up, indicating higher inflation. Employment continued to rise, but at a slower pace from the prior month. Inventories grew healthily, suggesting rising optimism among business owners as they restock their shelves.

Write to Josh Mitchell at joshua.mitchell@wsj.com

(END) Dow Jones Newswires

July 06, 2017 11:19 ET (15:19 GMT)