Service sector offers hope

August 5, 2010 at 12:00a.m.

Associated Press

WASHINGTON

Job prospects are looking just a little brighter.

The service sector, which makes up 80 percent of the economy, grew for the seventh month in a row, and state aid to preserve jobs for tens of thousands of teachers and other public employees cleared a key hurdle in Congress on Wednesday.

Of course, the job market still has a long way to go. A key employment report due out Friday is expected to show the nation actually lost jobs in July, mostly because of temporary census work that came to an end.

“The good news is that the economy is still moving forward, but the bad news is that it is moving at a fairly moderate rate,” said Sal Guatieri, senior economist at BMO Capital Markets.

The news seemed to satisfy investors. The Dow Jones industrial average rose 44 points in afternoon trading, flirting with the 10,700 level for the first time since May.

Wall Street’s reaction is not so much a sign of confidence in the recovery as a sigh of relief. Weeks of dismal reports have suggested the rebound had slowed.

“The barrage of bad news in recent weeks has lowered the bar sufficiently to leave markets happy with any report that doesn’t add to the array of deteriorating indicators,” said Mike England, an economist at Action Economics.

The most encouraging development was a private trade group’s report that the nation’s broad service sector expanded in July. The Institute for Supply Management’s index, which covers everything from home builders to medical transcriptionists to Google, rose to 54.3.

A reading of 50 or higher on the service index signals growth, and it hasn’t been below that threshold since 2009. June’s reading was 53.8, and economists were expecting a drop to 53 for July.

The service sector depends heavily on consumer spending, and that has been weak since the recession began in 2007. Americans are saving more and resisting major spending sprees, a trend that the latest government reports confirmed this week.

The latest forecasts show the economy lost 65,000 jobs in July, much of it because of the lingering effect of temporary census jobs that have ended.