U.S. service sector not as weak as expected

The U.S. service sector contracted in July -- though less than expected -- as new orders decreased and prices rose, stifling growth for truckers, retailers and insurers.

The Institute for Supply Management, a trade group of purchasing executives, said Tuesday that its reading of the service sector was 49.5 in July, up from 48.2 in June. It beat economists’ prediction of a reading of 49.0, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR.

A reading below 50 signals contraction, while a reading above 50 indicates growth.

Improvement in the index was “so marginal, it’s impossible to say” what caused it, John Ryding of RDQ Economics said.

“Qualitatively, it changes nothing about our assessment of the economy: Growth is at best weak and inflation pressures remain elevated,” he said.

The industries that reported growth include entertainment, recreation, scientific and technical services, utilities, hotels and restaurants.

The survey showed that prices continued to rise, as they have for the last five years, but the rate of increase was slower in July than it was in June.

In a good sign, companies said their order backlogs grew in July. New export orders fell, however.