Service Companies Expand at Slower Pace as New Orders, Hiring Fall

Thursday, 03 May 2012 10:28 AM

 

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U.S. service companies, which employ roughly 90 percent of the work force, expanded more slowly in April. Companies saw less growth in new orders and hired at a weaker pace.

The Institute for Supply Management said Thursday that its index of non-manufacturing activity dropped to 53.5 last month from 56 in March. Any reading above 50 indicates expansion.

The report contributed to a raft of mixed data that suggests the economy is growing only modestly.

On Thursday the government said the number of people seeking unemployment benefits fell sharply last week, a positive sign for future hiring. But retailers reported that sales in April slowed from the previous two months.

The ISM survey covers all sectors outside of manufacturing. That includes retail, construction, financial services, healthcare, and hotels.

The latest reading was slightly below the long-run average for the index of 53.9. Still, economists pointed out that the reading showed service companies expanded for the 28th straight month. And the ISM's manufacturing index, released Tuesday, showed that U.S factory activity grew in April at the fastest pace in 10 months.

"We're not convinced that we are seeing the beginnings of a spring-time slowdown much like last year's," said Paul Dales, an economist at Capital Economics, in a note to clients.

There were some cautious signs in the ISM survey. A gauge of hiring fell to its lowest level in four months, although it still indicated that companies are adding jobs. And growth in new orders slowed.

The government will report Friday on April job growth. Economists predict employers added 163,000 jobs last month, and the unemployment rate stayed at 8.2 percent.

Services firms need to step up hiring to accelerate job gains and rapidly push down the unemployment rate. The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting and financial services.

The job market is improving, but incomes are barely growing. That could weigh on consumer spending in the coming months, dragging on the service sector.

Consumer spending rose in March, but by much less than in the two previous months.

Americans are spending more on goods, such as cars and appliances, but are holding back when it comes to services. A government report Monday showed that spending on services was flat in March.

The ISM's services index reached the highest point in a year in February, when it was 57.3. Consumers stepped up their spending that month at the fastest pace in seven months.

In the January-March quarter, Americans increased their spending at the fastest pace in a year. But most of those gains were in January and February. And Americans spent more while saving less, a trend that economists worry isn't sustainable.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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