The sprawling U.S. service economy remained on a path of decent growth headed into the second half of 2016.
The Institute for Supply Management on Wednesday said its nonmanufacturing index decreased to 55.5 in July from 56.5 in June. Economists surveyed by The Wall Street Journal had expected a July reading of 55.8.
A reading above 50 signals expansion while a reading below 50 indicates contraction. With July's partial pullback after a sharp rise in June, the headline index has run above the 50 threshold for 78 straight months.
"It looks to us like it's a reasonably good bet that the economy will continue to grow -- albeit grow maybe somewhat anemically," Arne Sorenson, chief executive at hotelier Marriott International Inc., told analysts last week.
The details of Wednesday's report were uneven. The business-activity index fell slightly to 59.3 in July from 59.5 the prior month. The new-orders index was 60.3, inching up from 59.9 in June. The employment index moved lower in July, 51.4 compared with 52.7 in June.
Still, growth was broadly shared in July. A total of 15 nonmanufacturing industries tracked by ISM reported growth last month, while just three sectors reported contraction.
"There is this stability right now in nonmanufacturing, especially considering everything that's going on in the global economy," said Anthony Nieves, who oversees the ISM survey.
Some U.S. firms expect an impact from the U.K.'s June 23 vote to leave the European Union, but Mr. Nieves told reporters that "they felt it was too early at this point in time to see what the actual impact would be" from Brexit.
The broader U.S. economy posted weak growth in the first half of 2016, with gross domestic product expanding at a modest 1.2% annual rate in the second quarter following a first-quarter growth pace of just 0.8%, according to the Commerce Department. ISM's index of manufacturing activity
The manufacturing sector, which accounts for about 12% of U.S. economic output, stabilized this spring after months of contraction under pressure from a strong dollar, which makes U.S. exports more expensive for foreign customers, and low oil prices that pinched domestic energy firms. The ISM's index of manufacturing activity was 52.6 in July, down from 53.2 in June but remaining above 50 for the fifth straight month.
The group's nonmanufacturing index covers a wider swath of business activity including retail trade, construction and services including health care. It has signaled continuous expansion since early 2010, though growth has slowed over the past year.
"Overall, the recent strength of underlying retail sales can largely explain the resilience of service sector activity," said Andrew Hunter, U.S. economist at Capital Economics, in a note to clients. "Consumer spending growth is likely to slow to a more sustainable pace over the coming months, especially given the recent weakness of real income growth. Nonetheless, this report supports our view that GDP growth will accelerate in the third quarter."
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