As was the case with last Friday's ISM manufacturing report, today's July service sector report was solid. Fortunately, unlike the manufacturing report, Europe's service sector outlook is also positive. Both economies are growing and improving, and that's very good news.
The July Business Activity subindex came in just shy of a post-recession high.
The Prices Paid subindex shows little or no trace of the dreaded deflation that so many seem to worry about.
The Employment subindex was also just shy of a post-recession high, and suggests that businesses are feeling more confident about the future.
The overall Service Sector index handily beat expectations (58.7 vs. 56.5), and hit a new post-recession high. Happily, the Eurozone version of this index showed continued improvement since the end of the 2012-13 Eurozone recession.
All of this adds to the already-long list of indicators pointing to continued growth and forward economic momentum. The only mystery is why the Fed feels that zero short-term interest rates are necessary to sustain and foster the growth of the U.S. economy. These graphs almost certainly do not paint a picture of an anemic recovery.
Expect increasing dissension among FOMC members, and an earlier-than-expected move to raise short-term interest rates. This may prove briefly unsettling to markets, but it would be the right thing to do, and as such it would be non-threatening.