Growth in Services Slows

The U.S. services sector, the largest part of the economy, grew last month at the slowest pace since January amid signs that consumers are paring spending.

The Institute for Supply Management’s index for retail, construction and other non-manufacturing companies fell to 50.9 last month, close to the level of 50 that separates growth from contraction. August’s reading was lower than the 53.1 in July and the weakest since it was 49.6 in January.

Economists had expected a reading of 54 in the index, which is based on a survey of 375 companies in 17 industries. Six of those industries reported a decline in business last month, led by communications and transportation.

Services account for five-sixths of the $10-trillion U.S. economy and include industries such as entertainment, utilities, health care, farming, insurance, retail, restaurants and zoos.

The institute, based in Tempe, Ariz., said corresponding indexes measuring new orders, inventories and exports also fell, and employment contracted for the 18th month in a row.

The group’s report is a companion to its manufacturing survey, which this week showed that factory orders declined in August for the first time in nine months. The overall factory index was at 50.5, matching July’s reading, which was the weakest since January.

The institute’s manufacturing index suggests that Thursday’s report from the Commerce Department of a surge in July bookings will be short-lived. The government reported a 4.7% jump in July orders, following a 2.5% decline in June.

In another economic report, the Labor Department said states received 403,000 initial claims for unemployment benefits in the week that ended Saturday, down from a revised 411,000 in the prior week. Still, the less volatile four-week average rose for a fourth straight week to 400,000 from 394,750.

The Labor Department also reported that the productivity of U.S. workers rose at a 1.5% annual pace in the second quarter, higher than the estimate last month of a 1.1% increase. The second-quarter gain follows an 8.6% surge in the first three months of the year.

“Companies in general have been quicker to lay off people and slower to rehire,” said Stephen Stanley, an economist at Greenwich Capital Markets Inc. in Greenwich, Conn. “At a time when companies are not able to raise their prices, they’ve been able to squeeze costs out of the production process.”