POISED

US service sector reaches six year peak (Andrei Postelnicu, August 5 2003, Financial Times)

The US service sector surprised experts with a fourth consecutive month of growth in July that helped fan hopes of a recovery, according to Institute for Supply Management data on Tuesday.

The ISM's index of non-manufacturing activity rose to 65.1 in July, from 60.6 in June. The new reading is the highest in the six years of the ISM non-manufacturing index, and countered most economists' expectations of a decline to 58.

However, the muted reaction of the US equities market reflected the short record of the index and investor focus on other parts of the economy, according to Richard Berner, chief US economist at Morgan Stanley.

Any reading above 50 suggests expansion in the sector, which encompasses a wide range of economic activity, from banking and retail to tourism and transport. The rise was attributed to the components of the index measuring new orders, backlogs of orders, inventories and imports. But there was only modest growth in the employment sub-index, suggesting employers continue to be reluctant to hire.

It seems like the economy is at a psychological stumbling block, waiting for some kind of signal that it's okay to believe in economic growth again. If we're waiting for a positive signal that's as significant as 9-11 was negative, it'll be a long wait. Posted by Orrin Judd at August 6, 2003 8:25 AM