Even as market panic grows, fueled primarily by inflationary fears, it is easy to forget that the economy remains on a firm footing. Recently released ISM services data provides ample proof of this fact, with the index hitting a 12 and a half year high. This was a significant improvement over the last two months of readings and was likely a product of optimism emanating from recently announced tax cuts.

Moreover, the outlook of the business services sector is firmly tied to the broader economy. It is widely expected that the business-friendly approach of the Trump administration will provide a further boost to the U.S. economy.

Further, earnings and revenues from the sector are likely to improve in the fourth quarter, which makes it a good idea to pick up select business services stocks which are also slated to outperform their earnings estimates.

ISM Services Gauge Touches Record High

In January, the ISM Services Index increased by 3.9% to 59.9%, exceeding the consensus estimate of 56.8%. This is the highest level since August 2005 when it hit 61.3. Any level above 50 signifies expansion for the sector and going by that benchmark, this is the 96th consecutive month of expansion.

Further, the New Orders Index increased by 8.2% to 62.7%. Additionally, the Prices Index and the Employment Index gained 5.3% and 2% to hit 61.6% and 59.9%, respectively. The surge in orders was attributable to recent tax cuts and a strong economy. Only three services industries contracted, with 15 reporting expansions. These gains are particularly noteworthy since they come after two months of declines.

Strong Economy, Trump Administration to Boost Sector

Currently, the U.S. economy exhibits signs of improvement with a rise in GDP, an improving employment scenario, inflation approaching 2%, easing of the U.S. dollar and momentum gained by oil prices. The Trump administration remains focused on improving the ease of doing business, exemplified by recently passed tax cuts. It is widely expected that it will pursue its agenda of deregulation aggressively.