as analysts were beginning to fixate on risks to the
U.S. from a fragile global economy, a new report
Wednesday melted away the gloom.
the moment, the U.S. appears to be in surprisingly good
shape. In fact, the service economy ó or the great
majority of the U.S. economy ó surged to the highest
level in a decade in July, according to the Institute
for Supply Management non-manufacturing report.
ISM report, closely watched by economists and investors,
shocked analysts because it indicated surprising
strength across a wide range of industries ó from
education services, entertainment and health care, to
the wholesale trade, retail and transportation. In
addition, hiring continued its 17-month climb, reaching
the highest level since 2005.
report "was good news all-around," said Ksenia
Bushmeneva, economist for TD Economics. "There is
definitely no summer lull in the U.S. services
Jim OíSullivan of High Frequency Economics said:
"The data show good momentum."
contrast, the nationís manufacturing economy has not
been strong. Economies in Asia, Europe and Latin America
have been reluctant to make purchases; a strong U.S.
dollar has made American products expensive to foreign
service economy is "less exposed to weakening in
foreign demand," said OíSullivan.
the Dow Jones industrial average first surged 100 points
upon the release of the service sector data, the gains
gave way to concerns from investors who fear the data
will provide a green light for the Federal Reserve to
start raising interest rates.
Dow closed down 10 points to 17,540.
rates have been near zero since the Fed started using
stimulus to bring life to the recessionary economy. As
low rates have persisted, theyíve been a knee-jerk
signal to investors to buy stocks even when the economy
has been troubled. With bonds paying little interest due
to the Fedís low-rate policy, stocks were perceived as
the only game for investors who wanted to earn some
if the Fed takes the pacifier away by raising interest
rates in September, there is a concern that investorsí
knee-jerk reaction will be to sell stocks. Presumably
the stock market would dip from recent lofty levels. Yet
just how far or how sustained that decline might be has
been hotly debated. Some analysts point to history
showing that the stock market typically rises, rather
than falls, when the Fed starts raising rates, because
the Fed action means the economy is strong. Other
analysts say history is worthless because of
unprecedented action by the Fed during the last few
years to manipulate the economy and the stock market
after the recession.
investors anticipating a rate increase soon, the stock
market has stalled this year. But the Standard &
Poorís 500 has climbed about 90 percent during the
last five years.
unemployment rate will be watched closely for another
signal about the Fedís next step. Until recently,
Federal Reserve Chair Janet Yellen has said there were
too many people without well-paying jobs, so the Fed had
to continue to keep interest rates low. Her tone seemed
to change after the Fedís July meeting. On Tuesday,
Dennis Lockhart, president of the Federal Reserve Bank
of Atlanta, said itís time for the Fed to start
increasingly are expecting the Fed to begin raising
interest rates in September. They think concerns will
persist about the potential drag on the U.S. from
weakness in the global economy but assume that modest
strength in the U.S. will last.
particular, despite an ADP jobs report Tuesday that came
in below expectations, analysts are assuming Fridayís
unemployment report will be strong.
do not believe this Fridayís jobs report will be
weak," Deutsche Bank economist Joseph LaVorgna said
in a note to clients Wednesday.
noted that very few people have lost their jobs
recently. "Initial jobless claims remain near a
42-year low," and the taxes people are paying to
the IRS from their paychecks have "been growing at
a healthy 5 percent annual rate."
he added, "July motor vehicle sales were a robust
17.5 million units, which bodes well for hiring because
households typically do not purchase big-ticket consumer
goods if job and income prospects are not