Service Sector Continues to Grow but Pace Slows

The U.S. service sector grew for a sixth straight month in July, but the pace of expansion slowed, a report said Monday, providing more evidence that the U.S. economy’s fragile recovery may be faltering.

The Institute for Supply Management said its monthly non-manufacturing index fell to 53.1 in July--the lowest level since January--from 57.2 in June, marking the second straight month the index has fallen. The figure was below analysts’ forecasts for a dip to 54.6.

A number greater than 50 indicates expansion in the sector, which makes up roughly 80% of the economy and includes such diverse fields as legal help, retail and construction. Anything less than 50 signals contraction.

“It doesn’t look like things are going to turn around in terms of faster growth, significantly faster growth, until maybe close to the end of the year,” said Ralph Kauffman, director of the institute’s non-manufacturing survey committee.

The drop in the service sector data came after the institute’s manufacturing index last week showed growth in that sector nearly stalled in July, in part because factories grew more cautious as major stock indexes plunged to five-year lows and consumer confidence suffered.

In one sign that service sector growth may slow further in coming months, the new-orders index, a gauge of future demand, fell to 52.6 from 56.9 in June.

Survey respondents said that although the economy continued to improve, the outlook remained cautious through year-end.

The report said the pace of layoffs slowed slightly as the employment index rose to 45.8 in July from 44.3 in June, but it still marked the 17th straight month of job losses.

That followed the government’s labor report Friday that showed the economy added just 6,000 jobs in July, too few to bring down the jobless rate from 5.9%.