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US services growth slows in June, employment stable

The pace of growth in the US economy's services sector remained sluggish in June and new orders fell, but employment held steady last month, according to an industry report released on Wednesday.

business Updated: Jul 06, 2011 21:10 IST

The pace of growth in the US economy's services sector remained sluggish in June and new orders fell, but employment held steady last month, according to an industry report released on Wednesday.

The Institute for Supply Management said its services index fell to 53.3 last month from 54.6 in May. The reading fell shy of economists' forecasts for 54.0, according to a Reuters survey. A reading above 50 indicates expansion in the sector.

"The question is whether this is significant or just normal volatility," said Pierre Ellis, senior economist at Decision Economics in New York.

The stable employment and export components of the report suggested "this is probably just normal up and down rather than evidence of new deterioration," Ellis said.

ISM's employment gauge improved slightly, edging up to 54.1 from 54.0, and new export orders held steady at 57.0.
The new orders component eased to 53.6 from 56.8, though prices paid fell sharply to the lowest level in 10 months, a positive sign that inflation pressures are easing.

US stocks were little changed immediately following the data, with investors focused on renewed worries over the euro zone's sovereign debt crisis and an interest rate hike from China. Treasuries prices added a small gain after the weaker-than-expected data. The report echoed data from Europe on Tuesday that showed services growth slowed last month in the face of sluggish new orders and rising interest rates.

The economy is struggling to gain traction after growth slowed in the first half of the year. ISM's manufacturing survey last week had suggested some improvement with the sector unexpectedly picking up in June. But consumers remained gloomy last month and employment last month is expected to have been weak.

The snapshot of labor conditions in the services sector comes ahead of Friday's key U.S. non-farm payrolls report, which is forecast to show the economy created 90,000 jobs in June compared to a scant 54,000 the month before.

A separate report on Wednesday gave a cloudy picture of the labor market as the number of planned layoffs at U.S. firms increased for the second month in a row in June, though downsizing in the first half of the year was at the lowest level since 2000.

Employers announced 41,432 planned job cuts last month, up 11.6 % from 37,135 in May, according to the report from consultants Challenger, Gray & Christmas, Inc.

The latest data on the housing market was also mixed as purchase applications for US home mortgages rose last week, but refinancing activity plunged as interest rates jumped, according to the Mortgage Bankers Association.