Tags: ism | economy | Service | Sector

Services Firms Expand at Slowest Pace in 17 Months

Wednesday, 03 Aug 2011 10:14 AM

The U.S. service firms, which employ nearly 90 percent of the country's work force, experienced their weakest growth in 17 months in July. The report confirms other data that show the economy is struggling two years after the recession ended.

The Institute for Supply Management said Wednesday its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.

The ISM's index covers a range of service industries, including health care, retail, and financial services. The index reached a five-year high of 59.7 in February, but has fallen since then.

Growth slowed to less than 1 percent in the first six months of this year, the government said Friday. Consumer spending, which fuels 70 percent of economic activity, fell 0.2 percent in June. It was the first decline since September 2009.

Less spending has hurt service-sector companies such as restaurants, retailers, and amusement parks.

As the economy has slowed, so has hiring. Employers added only 18,000 jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent.

The government will release the July jobs report Friday. Economists predict only 90,000 jobs were added last month and the unemployment rate was unchanged. The economy needs roughly three times that many jobs to reduce the unemployment rate.

Much of the slowdown stems from a spike in gas prices since last year. That reduces the amount of money consumers can spend on discretionary goods such as furniture, electronics, and appliances. Spending on those categories has fallen for three straight months.

Spending fell largely because most Americans aren't seeing any pay increases. Incomes rose only 0.1 percent in June, the department said, the smallest gain since September. Americans are also saving more, boosting the savings rate to 5.4 percent.

Manufacturing output has also been hit by supply disruptions stemming from Japan's March 11 earthquake, which caused auto companies in the U.S. to reduce production.

Many analysts had predicted the economy would turn around in the second half of the year once those temporary factors began to fade.

But the ISM's manufacturing report, released Monday, showed the economy is still deteriorating. The manufacturing index fell to 50.9, its lowest level in two years.

Most economists have reduced their growth forecasts. Paul Dales, an economist at Capital Economic, now expects growth of only 2 percent in the second half of the year, down from an earlier forecast of 2.5 percent.

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The U.S. service firms, which employ nearly 90 percent of the country's work force, experienced their weakest growth in 17 months in July. The report confirms other data that show the economy is struggling two years after the recession ended. The Institute for Supply...
ism,economy,Service,Sector
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2011-14-03
Wednesday, 03 Aug 2011 10:14 AM
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