Service Sector Index Slides
The service sector grew more slowly than expected in June, but the labor market showed strength as jobless claims slipped unexpectedly last week, according to data released Thursday.
Economists and the inflation-wary Federal Reserve will get a more complete picture of the U.S. labor market today when the Labor Department releases its closely watched employment report for June.
The Institute for Supply Management said Thursday that its nonmanufacturing business activity index fell to 57 in June, the lowest level since January. The June reading was below May’s 60.1 and the median forecast of 59 among economists polled by Reuters.
A reading above 50 indicates expansion in the U.S. sector, which accounts for more than three-quarters of overall U.S. economic activity.
“The economy is growing strongly but it has lost momentum since the beginning of the year,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pa.
The ISM nonmanufacturing survey’s employment gauge slid to 52, its lowest level since January. The ISM job measure added to the recent spate of conflicting data on the strength of the labor market. A deceleration in job growth would allow the Fed to step back from its two-year campaign to raise interest rates, analysts said.
Earlier Thursday, the government reported that new claims for U.S. unemployment benefits unexpectedly slipped by 2,000 last week, signaling a solid U.S. job market. The jobless claims reinforced the view of strong private-sector job growth signaled by data in the ADP National Employment Report released Wednesday.
“It’s the sign of a robust labor market in terms of layoffs. Companies are reluctant to lay off workers in the current climate,” said Ethan Harris, chief U.S. economist at Lehman Bros. in New York.
On Wednesday, some analysts raised their forecasts for June job growth after the ADP employment report showed a huge 368,000 job gain in the private sector in June.
While trying to sort out the state of the job sector, analysts say the housing market may have found temporary footing as rising mortgage rates have cooled home demand.
Pending sales of U.S. homes increased unexpectedly in May, reversing three straight monthly declines, said the National Assn. of Realtors. The group’s pending sales index rose 1.3% to 113.4 in May, above the forecasted 111.2.
The Mortgage Bankers Assn. said Thursday that its mortgage application index rose 5.9% last week as interest rates on 30-year fixed-rate mortgages fell for the first time in four weeks to 6.8%.
Fed Vice Chairman Donald Kohn said Thursday that he was aware of the risk of raising rates more than necessary but saw a need for higher global interest rates to maintain stability.
“A rise in global interest rates is a necessary condition ... for stability going forward,” Kohn told a seminar arranged by the European Economic and Financial Centre in London. “If low rates were allowed to persist, then we would risk inflation,” Kohn said.
