A pickup in revenue growth across the vast U.S. service sector this spring signaled continued modest expansion in the broader economy fueled by consumer spending at doctors’ offices, hotels and other businesses.
Total revenue at service-providing firms rose an estimated 4.3% in the second quarter compared with a year earlier, the Commerce Department said Thursday, versus annual growth of 3.5% in the first quarter and 2.2% in the fourth quarter of 2015. It was the strongest year-over-year revenue gain since the fourth quarter of 2014.
Overall revenue, without adjustments for seasonal variations or price changes, was up 3.4% in the second quarter compared with the first three months of 2016. On an annual basis, revenue rose last quarter in 10 of 12 categories including the three largest service sectors: finance and insurance; health care and social assistance; and professional, scientific and technical services.
The Commerce Department last month estimated that gross domestic product, a broad measure of the goods and services produced across the U.S. economy, expanded at a modest 1.1% seasonally adjusted annual rate, down from an initial estimate of 1.2%. Consumer spending was the primary driver of growth, outweighing drags from inventories, business investment and other factors. The agency will release a revised estimate on Sept. 29 based on Thursday’s Quarterly Services Survey report.
No major shift is expected in the new GDP estimate. J.P. Morgan Chase economists on Thursday predicted growth at a 1.1% rate, and Barclays left its estimate unchanged at 1.3%. Forecasting firm Macroeconomic Advisers nudged up its prediction to 1.4% growth.
Thursday’s report contained hard data on revenue at service-providing firms such as funeral homes, medical-imaging laboratories and law offices. The QSS report, which attracts relatively little attention compared with better-known economic indicators such as nonfarm payrolls, can lead to significant revisions in estimates for consumer spending and overall U.S. economic growth.
The U.S. manufacturing sector has been weak this year, battered by the energy industry’s woes and a strong dollar. The far larger services economy had proven more resilient, but also has seemed to weaken in recent months. The Institute for Supply Management’s gauge of nonmanufacturing activity tumbled in August to its lowest level since February 2010, though it continued to signal overall expansion.
