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The most important sector of the economy is still growing

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Jasper Juinen / Getty Images

Services, the most important sector of the economy, is still growing according to two key readings released on Wednesday.

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The latest ISM's non-manufacturing Purchasing Manager's Index (PMI) came in at 55.5 in July.

This was slightly below economists' expectations of a dip to 56.0, and weaker than last month's stronger than expected reading of 56.5 — a seventh-month high.

Still, an index above 50 theoretically indicates an expansion. So, in other words, growth in the non-manufacturing sector continued, just at a slightly slower pace.

"Despite the decline this month, the index remains at a strong outright level," wrote Jefferies' Ward McCarthy in a note. "...today’s data is encouraging from the standpoint that it offers some evidence that the slowdowns in the May ISM NMI and employment data will prove to be temporary."

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"Besides the indication of continued buoyancy in overall activity in the service sector, the upbeat assessment in the key forward-looking indicators points to continued strong growth in this crucial segment of the US economy going forward," added Millan L. B. Mulraine, Deputy Chief US Macro Strategist at TD Securities, in a note.

Meanwhile, earlier in the day, Markit Economics' final services PMI for July came in at 51.4, which was unchanged from the prior month, but slightly above the earlier flash estimate of 50.9.

"Those looking for signs of the US economy moving up a gear in the third quarter will be disappointed by the PMI readings for July," wrote Chris Williamson, the Chief Economist at Markit, in the report.

"The surveys are indicating that the pace of economic growth has held at around 1% at the start of the third quarter, largely unchanged on the signals sent by PMIs for the first and second quarters."

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Still, on the positive side, he noted that there was good news on the hiring side of things, which he attributed to the fact that there are signs that the weaker blip the economy rolled through could prove to be temporary.

“These survey results add to the sense that policy makers will be encouraged by the resilience of the labour market in particular, but will want to see signs of stronger economic growth before hiking interest rates again," he argued as an end note.

"Another rate hike by the end of the year therefore still looks a strong possibility, though with odds of the timing of that hike skewed heavily towards December.”

Screen Shot 2016 08 03 at 10.20.29 AM
IHS Markit

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