The largest sector of the world's largest economy is back in business - and that's a great thing for global growth


While global manufacturing activity remains stuck in the mud, the same can’t be said for for global service sector activity. Led by the largest economy in the world – the US – it’s growing strongly.

In July the JP Morgan-Markit global services PMI gauge rose to 53.9 from 53.6 in June.

In PMI surveys, a reading above 50 indicates that activity within the sector is expanding.

Activity in the sector has now expanded for 34 consecutive months – not bad, all things considered.

In what is an encouraging sign for global economic activity, most nations – both developed and developing – saw activity levels accelerate over the month.

While not part of the Markit survey, the US ISM non-manufacturing PMI reading was particularly impressive, rising to a decade-high level of 60.3. Markit’s separate report on the US – at 55.7 – also pointed to a solid expansion in activity.

Yes, the largest sector in the world’s largest economy, at least based on these surveys, is starting to run hot.

Good news.

Elsewhere there were robust readings from Europe, while China, India and Russia – three of the four massive “BRIC” nations – saw activity levels expand from a month earlier.

Brazil, at 39.1, was the only one of the four to produce a weak result.

The full breakdown of the JP Morgan-Markit survey for July can be found below. Note the improvement in the new business gauge – a lead indicator that points to a potential acceleration in activity in the months ahead.

Reflective of the divergent performance between manufacturing and services in July, JP Morgan senior economist Joseph Lupton suggests the acceleration in service sector activity should make a solid contribution to global GDP growth moving forward.

“The latest service sector PMI data signalled an acceleration in growth of both business activity and new orders, clawing back some of the momentum lost in recent months. This should position the service sector well to make a solid contribution to global GDP growth, helping to offset the ongoing weakness in manufacturing”.

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