Service Sector Growing Again, But New Jobs are Few
January 6, 2010 - 3:10 PMA gauge of the U.S. service sector returned to growth last month, aided by the holiday season's retail sales. The expansion reflected a slowly improving economy - but it was too slight to generate much hiring.
The Institute for Supply Management, a private trade group, said its service index rose to 50.1 in December from 48.7 in November. A level above 50 signals growth. Seven industries out of 18 reported growth, led by agriculture and retail.
The ISM's employment gauge, which hasn't grown in two years, shrank again in December, though at a slower pace than in November. It reached 44 in December, compared with 41.6 a month earlier.
Job generation throughout the economy has been weak even as layoffs have slowed. Economists expect the Labor Department to report Friday that the unemployment rate ticked up to 10.1 percent in December from 10 percent in November and that the economy lost a net total of 8,000 jobs.
The ISM said the four service-sector groups that added jobs in December were retail, finance and insurance, public administration and a category of other services.
The overall service-sector gauge returned to growth in September for the first time in 13 months. But the comeback has been fitful amid scant gains in consumers' incomes and weak bank lending. The ISM's service-sector gauge is closely watched because service jobs make up more than 80 percent of non-farm U.S. employment.
"We don't think the increase was all that convincing," said TD Securities' Millan Mulraine, because growth in new orders slowed and employment still signaled contraction.
The Labor Department reported last month that the service sector added jobs in November, even though that wasn't reflected in the ISM survey. The service sector is so large that the ISM survey may not be effective in calculating changes in employment, Mulraine said. He predicts the economy will post a net increase of 25,000 jobs for December.
The ISM report said new orders, a signal of future business, expanded for the fourth straight month, though less quickly than in November. Business activity also grew, as did the prices paid by businesses. That may mean service companies will pass their higher costs on to consumers, collecting higher revenue.
More spending by U.S. consumers would translate into higher sales for the nation's service providers - and eventually, should mean more jobs.
"Retail might very well be the shot in the arm," said Capital Economics' Paul Ashworth.
Retailers will release December sales results on Thursday. But Ashworth cautioned that strong growth in spending is unlikely, with American shoppers constrained by slow income growth and tight credit.
On Monday, the ISM reported that manufacturing grew in December for the fifth straight month. A rebound in the industrial sector has been helping the U.S. limp out of the recession, but manufacturing doesn't add many American jobs. The service sector, which depends on consumer spending, is a much bigger factor in job creation.
The ADP National Employment Report said Wednesday that 84,000 private-sector jobs were lost in December, an improvement from November. ADP said private nonfarm employment in the service sector grew by 12,000 jobs, while manufacturing lost 43,000 jobs.
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