Service Sector Sluggish in March

A key barometer of U.S. service sector activity dipped in March to within a hair of a 3 1/2-year low struck in January, a report Wednesday said, further clouding the outlook for the broader economy.

March was also the first month in the survey’s 3 1/2-year history that the employment component suggested service sector job losses, which analysts said could point to weakness in the government’s March jobs report due Friday.

The National Assn. of Purchasing Management said its gauge of non-manufacturing activity fell to 50.3 in March from 51.7 in February, slightly above January’s reading of 50.1.

A number above 50 indicates the sector is expanding; anything below 50 represents contraction. Analysts had expected the index to dip to 51.5.

“Although this series is still too short to assess its reliability in foreshadowing changes in the non-factory sectors of the economy, it does raise all sorts of warning flags,” said Steven Wood, economist at FinancialOxygen, a Walnut Creek, Calif. financial information company.

“Most revealing is that every component except inventory sentiment has been on a significant weakening trend over the past year,” he said.

Meanwhile Wednesday, in testimony to the Senate Finance Committee, Federal Reserve Chairman Alan Greenspan did not address the near-term economic outlook or interest rates.

Instead, he hammered home his long-held belief that free trade promotes higher standards of living by encouraging competition and fostering productivity gains.

Ralph Kauffman, NAPM’s non-manufacturing committee chairman, said non-manufacturing activity grew “at a much decreased rate of growth compared with 2000,” adding that the drop in the employment index pointed to broader slowing.

The new orders index rose to 52.2 in March from 51.3 in February, driven by health services, agriculture and insurance. Inventories fell for the fifth consecutive month, with the index up slightly to 49.0 from 47.0 in February. Inflationary pressures remained tame, as the prices paid index fell to 59.5 from 60.5 in February.

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Non-Manufacturing Activity Index

Tracks overall business activity at 370 non-manufacturing companies.

March: 50.3

Source: National Assn. of Purchasing Management