Growth at U.S. service industries picked up in June from a more than one-year low, signaling steady improvement in the biggest part of the economy.
The Institute for Supply Management said Monday that its service index edged up to 56 in June from 55.7 in May. Any reading over 50 indicates that service firms are expanding.
Steady hiring over the past year has fueled a consumer spending rebound from a winter slump. Many economists say the economy will expand at an annual rate of 2.5 percent in the second quarter, after shrinking during the first three months of 2015.
"The trend certainly has been consistent with moderate growth in the overall economy -- not exactly booming but not weak either," said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Fla. "We're seeing consumers in general feeling better, going out and spending money. We're optimistic that that's going to continue."
The index's hiring component slipped in June, which indicates that the rate of job growth might slow.
"This was a mixed but still decent report on the U.S. economy," said Jennifer Lee, a senior economist at BMO Capital Markets.
The report corresponds with economic growth of around 3 percent annually in the second quarter, Lee said.
The Institute for Supply Management is a trade group of purchasing managers. Its survey of service firms covers businesses that employ 90 percent of workers, including retail, construction, health care and financial services companies.
The increase in the broader index points to increasing demand for services from consumers and companies. Business activity climbed last month to a reading of 61.5, up from 59.5. The levels for new orders ticked up to 58.3 from 57.9 in May.
"The overall business outlook remains strong and performance in our market has been very good," one retailer said in the group's survey.
The majority of the 18 sectors in the survey expanded last month, although both construction and mining firms contracted.
Arts and entertainment, real estate, and hotels and restaurants led the list of the 15 nonmanufacturing industries that reported growth in June.
"We're starting to see this slow, steady and incremental growth month over month," Anthony Nieves, chairman of the institute's services survey, said during a conference call with reporters after the release.
A moderate pace of economic growth after a first-quarter setback is prompting service industries to slow the pace of hiring. The institute's measure of employment dropped to 52.7, the lowest level since January, from 55.3 in May.
Last week figures showed the institute's June manufacturing index reached the highest level in five months. A gain in orders indicated U.S. customers are helping fuel factory demand, though stronger business investment will be needed to produce a more pronounced pickup.
Homebuilders such as KB Home are optimistic that business will pick up alongside a strengthening recovery.
"The national economy is continuing to improve, with sustained job growth now occurring across the country," Chief Executive Officer Jeffrey Mezger said during a June 19 conference call. "This improving employment and economic environment is in turn contributing to increased consumer confidence, which is currently at one of the highest levels reported since 2007."
Monday's report adds to evidence that household spending may be firming after weakness earlier this year as consumers put paychecks from newly gained jobs to use.
Household purchases increased 0.9 percent in May, the biggest gain since August 2009, after rising 0.1 percent in April, Commerce Department figures showed last month.
Still, a tighter labor market that sparks wage growth will be needed to sustain such gains. While payrolls climbed by 223,000 in June, average hourly pay was little changed and up 2 percent over the past 12 months, matching the pace that has persisted throughout the recovery.
Information for this article was contributed by Victoria Stilwell and Chris Middleton of Bloomberg News and Josh Boak of The Associated Press.
Business on 07/07/2015