Growth in Service Sector Slows

The nation’s service sector grew again in January, but the pace of growth slowed while extending an expansion that has stretched for nearly three years.

The Institute for Supply Management said Friday that its index of non-manufacturing activity fell to 56.8 from a revised reading of 61 in December. The new figure was lower than the 60 reading forecast by analysts.

A reading of 50 and above points to a growing service sector, and a figure below that signals contraction. January was the 34th consecutive month of growth for the service sector, the institute said.

“The service sector of the economy is still doing well, but it’s not sort of as broad an improvement as what it looked like earlier,” said Gary R. Thayer, chief economist with A.G. Edwards & Sons Inc.

Also Friday, the government said orders to U.S. factories increased 1.1% in December, the third straight monthly rise. For all of 2005, orders rose 8.1% after a 9.7% gain the previous year.

Economists and investors were also studying a report by the University of Michigan showing its consumer sentiment index slid 2.2 points to 91.2. Economists had predicted a decrease to 93.1.

Businesses surveyed by the Institute for Supply Management were largely positive in assessing the economy, although some expressed continuing concerns about high energy prices and rising interest rates.

Of the 16 service industries tracked by the institute, eight reported increased activity, down from 11 in the previous month. They include insurance, business services, utilities, mining, transportation, health services and finance and banking.

New orders, employment and production all showed continued growth in the service sector but at a slower rate, the institute said.

The new reading reflects a growing service sector that has cooled somewhat, Thayer said.

Overall, the combination of economic figures released Friday reflects an economy that started 2006 well, with the employment situation improving from the end of last year, Thayer said.