Growth at US service firms steady, hiring picks up

AP News
Posted: Nov 03, 2011 11:03 AM
Growth at US service firms steady, hiring picks up

Growth at U.S. service firms was slow but steady in October and hiring increased. The gains at firms that employ 90 percent of the work force suggest the economy is growing at a modest pace.

The Institute for Supply Management said Thursday that its service sector index dipped slightly to 52.9, from 53 in September. Any reading over 50 indicates expansion. The index covers retailers, financial services firms, hotels and all other non-manufacturing industries.

The overall ISM index is just above a 17-month low reached in July. It reached a five-year high of 59.7 in February.

Firms said that growth in new orders decreased and that there were fewer orders in the pipeline, signs that service sector could weaken in the months ahead.

But the survey showed firms added jobs in October after cutting them in September. An index measuring employment rose to 53.3, after falling below 50 the previous month.

"This is yet more evidence that recession risks have faded, but that the outlook for growth remains weak," said Paul Dales, senior U.S. economist at Capital Economics, in a note to clients.

Despite high unemployment and weak wage growth, Americans spent more in September. That benefits restaurants, hotels, retailers and other services.

Economists worry that consumers won't be able to sustain the growth in spending, largely because their incomes aren't rising as fast. Americans have financed the extra spending by dipping into savings.

The government said the economy expanded at a 2.5 percent annual pace in the July-September quarter, the best quarterly growth in a year.

That's strong enough to calm fears of another recession. Still, growth would have to be nearly twice as high _ consistently _ to make a major dent in the unemployment rate, which has been stuck near 9 percent for more than two years.

The ISM's report comes a day before the government releases its October jobs report. Analysts expect employers added 100,000 net jobs, nearly the same as the 103,000 added in September. The unemployment rate is expected to stay at 9.1 percent for a fourth straight month.

Federal Reserve Chairman Ben Bernanke said Wednesday that growth is likely to be "frustratingly slow," after the Fed sharply lowered its economic projects for the next two years.

The Fed now says the economy will likely expand no more than 1.7 percent for all of 2011. That's down from its June forecast of 2.7 percent to 2.9 percent. And it predicted growth of only 2.5 percent to 2.9 percent next year. In June, the Fed estimated growth of 3.3 percent to 3.7 percent in 2012.

The Fed said it doesn't expect the unemployment rate to be any lower this year. And it sees unemployment averaging 8.6 percent by the end of next year. In June, it had predicted unemployment would drop in 2012 to as low as 7.8 percent.