Service sector index grows again in October

NEW YORK - November 4, 2009

The Institute for Supply Management said Wednesday that its service index dipped to 50.6 last month from 50.9. Any reading above 50 signals growth. Analysts polled by Thomson Reuters had expected a 51.5 for the index that tracks the country's hospitals, retailers, financial services companies and truckers.

But new orders, an augur of future activity, rose to 55.6, from 54.2 in September. Business activity also rose.

Still, the decline in employment worsened. The employment tracker has contracted for 21 of the past 22 months.

In the ISM's survey, nine industries said their businesses grew last month, with real estate, construction, corporate management and support services showing the biggest gains. Seven sectors contracted.

The index tracks more than 80 percent of the country's economic activity.

Last month's dip "may be a sign that the recovery is still struggling to gain any momentum," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto. He added, though, that a similar slip in July was later reversed and that the new report may "possibly be nothing more than a temporary blip."

Investors liked the growth in new orders, and stocks rose on Wall Street. The Dow Jones industrials added about 125 points in morning trading, and broader indexes also rose.

The service sector's recovery has been choppy, unlike manufacturing's sharper move upward as companies restock inventories and demand increases from overseas.

The U.S. economy grew at a 3.5 percent pace last quarter after a record four straight drops. But analysts wonder if that growth can be sustained amid rising unemployment and tight lending.

"Companies are still reluctant to turn the faucet on and start bringing people on board until they can see these are going to be sustainable levels of activity," Anthony Nieves, chair of the ISM's survey committee, said on a conference call with reporters.

The U.S. unemployment rate in September hit a 26-year high of 9.8 percent. It's expected to increase to 9.9 percent when the government releases the October report on Friday.

Consumer spending, which powers the service sector and 70 percent of the economy, dropped in September, the government said last week. That was the first decline in five months. Americans' wages and salaries also dipped.

Still, retail sales for October are expected to improve a bit from last year, according to MasterCard's SpendingPulse. Retail chains report monthly sales on Thursday.

There may be slight increases in seasonal retail employment this holiday season, Nieves said.

But many companies are cutting jobs. Retailer Target Corp. said last month it would trim about 85 marketing jobs, while health products maker Johnson & Johnson said this week it could eliminate as many as 8,300 jobs as part of an effort to save up to $900 million next year.

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