Service Sector Grows More Quickly in July
August 4, 2010 - 11:39 AMGrowth in the U.S. service sector picked up in July, according to a trade group's survey, in a good sign for the overall economy and the job market.
The Institute for Supply Management said Wednesday its service-sector index rose to 54.3 last month, up from 53.8 in June. Economists had expected a pullback to 53 for July.
Levels above 50 signal growth. July was the seventh straight month of expansion.
The index shows service companies have been expanding every month this year, but at a less robust pace than the manufacturing sector. They are more dependent on consumer spending, which has grown only modestly because unemployment remains near 10 percent.
The slow recovery in the service sector this year had put a damper on overall hiring, since it accounts for about 80 percent of U.S. employment. Service jobs include those in hospitals, shops, restaurants, airlines, banks and consulting firms.
July's report suggested improvement. The index showed businesses reported that new orders, an indicator of future business, grew faster last month. A measure of hiring expectations also expanded in July for only the second time since December 2007, when the recession began. It had ticked slightly over 50 in May before shrinking to 49.7 in June. The July reading was 50.9.
At that level, the hiring index typically corresponds to monthly increases of nearly 100,000 private-sector jobs, said Capital Economics analyst Paul Ashworth.
Economists expect that the economy lost 65,000 jobs in July because the federal government fired employees who had been hired temporarily as Census workers, according to a survey by Thomson Reuters. Private-sector payrolls would rise by about 100,000 in July, predicted Ryan Wang, an economist with HSBC, about the same pace of job growth from earlier this year, on average. The private sector added 593,000 jobs in the first six months of the year.
Private-sector employers added 42,000 net jobs during July, according to payrolls processor ADP, which releases a monthly employment survey.
This summer, other economic reports have signaled weakening trends in the housing sector, manufacturing and consumer spending. The weaker data have triggered fears that the pace of hiring might slow, said Wang. The ISM data also suggest that hiring is "at least holding steady," he said.
Wednesday's ISM report helps reassure that the economy is not going to go back into recession, economists said.
Some business are finally seeing strong growth return. Cognizant Technology Solutions Corp., which provides consulting and information technology outsourcing, on Tuesday posted big gains in net income and revenue in the second quarter as corporate customers restarted projects that had been on hold during the recession. It said it added 3,200 jobs to its payrolls during the quarter, an increase in its workforce of nearly 4 percent.
Still, many other companies remain wary. Those businesses responding to ISM's survey showed "cautious optimism about business conditions," said Anthony Nieves, who oversees the ISM's service sector survey.
Office supply chain OfficeMax Inc. said Tuesday that it expected small declines in sales for the year as the economic recovery is slower than company executives had expected. Grocer Safeway Inc. in July lowered its profit forecast for the year, saying it doesn't expect supermarket prices to increase until the fourth quarter because shoppers remain frugal.
Of the 18 industries ISM surveyed, 13 reported growth in July, led by real estate and the arts and entertainment sectors. Construction and utilities were the biggest of four industries saying they shrank last month. Companies providing professional and scientific services said they saw no net change in growth.
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