US service companies likely expanded at slightly faster pace in July as hiring picks up

MarketsAssociated Press

The Institute for Supply Management reports on growth at U.S. service firms in July. The ISM will release its services index Tuesday at 10 a.m. Eastern time.

FASTER GROWTH: Economists forecast that the index rose to 56.5 in July from 56 in June. Anything above 50 indicates the services sector is expanding. July's projected figure would be the highest in nearly a year. The ISM is a trade group of purchasing managers.

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The services survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms.

SPRING REBOUND: Service companies accelerated in the spring after getting slammed by harsh winter weather at the beginning of the year. The index plummeted to a four-year low in February, and then reached the highest reading in almost a year when it stood at 56.3 in May.

Sales fell in June, but new orders, hiring and exports grew at a faster pace.

Faster growth in services would help accelerate the overall economy and hiring. Manufacturing expanded at the fastest pace in nearly three years in July, according to a separate ISM report released Friday. And factories added 28,000 jobs that month, the most in eight months, driven mostly by healthy gains at auto plants.

Yet while Americans are willing to splash out on autos, furniture and other large goods, they have been more frugal when it comes to services such as restaurants, financial services and health care. Spending on big-ticket goods jumped 14 percent in the April-June quarter, according to government data. But spending on services rose just 0.7 percent.

That may have held back hiring in July. Services companies added just 140,000 jobs last month, down from an average of 220,000 in the previous three months.

Still, overall hiring has picked up strongly this year, which will give more Americans paychecks to spend and likely boost spending on both goods and services.

U.S. employers have added an average of 244,000 jobs a month in the past six months, the healthiest 6-month hiring spree in eight years.