Service sector offsets manufacturing slump

NEW YORK —  Weakness in the manufacturing sector, especially the auto industry, may be damping the nation’s economic prospects, but the bigger service sector appears to be more than making up for it.

The Institute for Supply Management said Monday that its index of business activity in the non-manufacturing sector advanced to 59 in January from 56.7 in December. Wall Street analysts had expected a reading of 57 for last month.

A reading above 50 indicates expansion whereas one below that indicates contraction.

Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C., said the trade group’s report last week on the manufacturing sector indicated that it was contracting in January in contrast to the service sector, which grew for the 46th consecutive month.

“Manufacturing is weakening as domestic auto manufacturers cut back and as residential construction declines,” Vitner said, but he noted that this made up just about one-quarter of the economy. Meanwhile, the service sector, which represents about three-quarters of the economy, continued to grow.

“The message to take away from the two is that economic growth will slow, but there will be growth,” Vitner said.

Most economists are looking for the nonmanufacturing sector to be a driver of growth in 2007.

Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla., said the “headline figure was stronger than the details,” suggesting that the survey wasn’t sending clear signals about the near term.

Still, he added, “the economy certainly is still expanding.”

Anthony Nieves, chairman of the institute’s non-manufacturing business survey committee, said new orders and employment increased at slower rates in January than in the previous month and that the price index also eased.

The new-order index weakened slightly to 55.4 in January from 55.6 in December, while the backlog of orders strengthened to 49 from 48.

Prices increased at a slower rate, with the price index registering 55.2 in January, down from 59.7 in December.

The service employment index moved down to 51.7 in January from 53.2 in December.

Seven industries reported growth: utilities; transportation and warehousing; professional, scientific and technical services; information; finance and insurance; healthcare and social assistance; and miscellaneous services.