US service sector activity heats up

There is definitely no summer lull in the U.S. services sector. ISM non-manufacturing report was good news all-around with broad-based gains alongside an impressive headline, which passed the 60-point threshold for the first time in 10 years.  

With this week's release of both manufacturing and non-manufacturing surveys, the data continues to point to a growing divergence between the two sectors. Faced with the surging greenback and uneven global growth, U.S. factory activity has shifted into lower gear this year. 

"Meanwhile, these headwinds are less of an issue for non-manufacturing industries that are more domestically-oriented.  Buoyancy in the non-manufacturing index suggests that service sector activity continues to expand at a fast clip. Going forward, domestic demand will continue to benefit from multiple tailwinds, including rising employment and incomes, and accelerating activity in the housing market", says Economics TD.

Today's large gain in employment subcomponent suggests that the service sector, which already generates the bulk of new jobs, will continue to drive above-trend employment growth. 

"This bodes well for Friday's payroll report, which is expected to show another +200k gain", added Economics TD.