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Service sector surprises on the upside

Another day, another report showing the U.S. economy is not only avoiding a recession but in fact improving. Say what you will about the increased number of temporary, part-time, and low-paying jobs, it's still the case that conditions in the U.S. are slowly improving. That's a far cry from the recession fears that are still driving the Fed's zero interest rate policy and the public's seemingly insatiable demand for zero-interest safe assets. Today's service sector report is one more in a growing list of reasons why the U.S. economy no longer needs QE. The Fed could begin tapering its QE any day in my book, and it wouldn't much matter. Indeed, it might contribute to bolstering optimism in the future. At the very least, it is becoming abundantly clear—at least to me—that the U.S. economy is well beyond the stage at which it requires QE life support.

The July ISM service sector index handily beat expectations (56 vs. 53.1), and the business activity subindex (shown above) jumped from 51.7 to 60.4. That's quite a turnaround; perhaps there's some noise here, but at the very least it would appear that the service sector is on a solid footing and not even flirting with recession. 

No sign of deflation here: a clear majority of service sector businesses report paying higher prices.

The employment subindex continues to be moderately positive. We're not talking about leaps-and-bounds improvement, it's more a steady-as-she-goes economy that may be getting slightly stronger. 

As was the case with the ISM manufacturing report, the Eurozone service sector appears to be on the cusp of emerging from a two-year recession. This is good news for the rest of the world, which has been growing despite the Eurozone's struggles. 

The July UK service sector report was surprisingly robust, posting one of its strongest readings since the survey began in 2006.

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