Survey Sees Slowing in Service Sector

Growth in the vast U.S. service sector slowed in July but was still robust as new orders rose, an industry report showed Wednesday, adding to evidence that the U.S. economy was on a solid growth path.

The service data from the Institute for Supply Management followed the organization’s report Monday showing that the manufacturing sector grew more than expected last month despite higher oil prices.

Although higher energy costs added to inflationary pressures, most analysts focused on the headline number in the service report. It slipped to 60.5 last month from 62.2 in June and was just under Wall Street forecasts of 60.9. A number above 50 indicates growth in the sector.

The group represents purchasing managers in the service sector, which constitutes about 80% of the U.S. economy and includes businesses such as hair salons, restaurants, hotels and airlines.

“It’s a little surprising that the overall index is down, given the strength we’ve seen in a variety of other PMI numbers recently,” Steve Ricchiuto, chief U.S. economist at ABN Amro Inc., said of the purchasing managers index. “But looking at the breakdown, exports are up, deliveries are up, inventories are up.

The measure of prices paid rose to 70.3 from 59.8, while new orders rose to 61.9 from 59.5. The survey’s measure of jobs eased to 56.2 from 57.4.

Economists said the increase in prices could raise Federal Reserve concerns about inflation, particularly because the factory sector grew more than expected.

Separately, the National Assn. of Realtors said U.S. home affordability in the second quarter fell from the previous quarter and also was down from the second quarter of 2004.

The group’s housing affordability index, which measures the ability of a family earning the median income to buy a home at the median price, dropped to 120.8 from 133.2 in the first quarter. In the second quarter of 2004, the index stood at 132.3.