Growth of service sector slowed in June, group says

July 7, 2010 at 12:00a.m.

Associated Press

NEW YORK

The service sector grew more slowly in June, an industry trade group said Tuesday, offering the latest sign that the economic recovery is weakening as the second half of the year begins.

The Institute for Supply Management, a trade group of purchasing executives, said its index tracking service-oriented companies slid to 53.8 last month from 55.4 in May — the highest point since the recovery began.

A reading above 50 indicates expansion. June’s reading is well above the 37.2 low in November 2008. But it’s far below the pre- recession high of 67.7 in 2004.

The index was broadened in January 2008 to consider four areas of information: business activity, employment, supplier deliveries and new orders. Before that, it looked only at business activity.

A robust service sector, which accounts for about 80 percent of U.S. employment, is crucial to keeping the economy expanding and adding jobs. Service-oriented jobs include those in hospitals, shops, restaurants, airlines, schools, construction, banks and consulting firms, among others.

The dip in the non- manufacturing index follows last week’s raft of economic data that point to a slowing recovery. For the second-straight month, private-sector job creation was weak. The number of people seeking unemployment benefits is on the rise, a sign that layoffs have yet to ebb. Home sales are plunging, and factory orders are down.

Still, the decline in service-sector growth didn’t interrupt a rally on Wall Street. The Dow Jones industrial average rose 136 points in early trading.

But it may force some economists to revise their expectations for growth in the second half of the year.

“Everyone is kind of pausing, looking at the landscape, not quite throwing in the towel yet,” said Pierre Ellis of Decision Economics. The index’s slowing growth in June is “the first sign of potential problems.” He expects economic growth in the second half to slow to 2.5 percent. The economy grew 2.7 percent during the first quarter.

One troubling sign from the service-sector report is a decline in new orders, which signal future business. Though still growing, they fell in June to their lowest level since December.

These businesses mainly depend on shoppers. Consumers have increased purchases only moderately, about 2 percent to 3 percent in the second quarter, said research firm Capital Economics.