Institute for Supply Management's U.S. service industry growth index dipped slightly in September, registered growth for 22nd straight month, but service companies reduced workers for the first time in 13 months
October 5, 2011
– Service companies cut workers last month for the first time in 13 months, according to a private survey. The decline is a pessimistic sign two days before the government reports on job growth in September.
The Institute for Supply Management said its measure of hiring for service firms, which employ 90 percent of the work force, fell below 50 for the first time since August 2010.
Any reading below 50 suggests companies laid off workers. The economy lost jobs for two straight months the last time the gauge was below that level.
"The sharp drop in September is quite worrisome," said Joshua Shapiro, an economist at MFR Inc., in a note to clients. "If this was not an aberration, in all likelihood we are going to see private ... payrolls disappoint in the months ahead."
The service industry did expand in September for the 22nd straight month, according to the trade group of purchasing managers. But growth was slightly slower than the previous month. The trade group's growth index dipped from 53.3 to 53. Any reading above 50 suggests expansion.
Hotels, restaurants and financial service firms were among those companies that saw less business. Meager pay increases and higher food and gas prices have forced many Americans to spend more carefully.
There were some positive signs in the report. New orders rose to their highest level since May, and order backlogs grew for the first time in four months.
Still, economists said the report confirmed other data that show the economy is growing too slowly to lower the unemployment rate.
"The economy continued to limp along in September but there is no suggestion in the data thus far that the economy is slipping into recession," said John Ryding, an economist at RDQ Economics, in a note to clients.
Separately, payroll processor ADP said private companies added 91,000 jobs in September, essentially the same level of job growth as August.
The ADP numbers haven't been consistent with the government's figures on job growth. They also don't measure government hiring.
In August, the Labor Department said the economy added no net jobs, the weakest showing since September 2010.
Economists expect the economy added 56,000 jobs in September, while the unemployment rate stayed at 9.1 percent for a third straight month. The report will be released Friday.
Federal Reserve Chairman Ben Bernanke said Tuesday that the economic recovery "is close to faltering" and the biggest factor depressing consumer confidence is poor job growth.
The ISM report showed that growth wasn't broad-based in September.
Nine sectors reported expansion, including utilities, transportation and warehousing, health care, and retail.
Eight sectors said they contracted, including educational services, real estate, hotels and restaurants, and financial services.
Many respondents to the survey said that uncertainty about the future direction of the economy was weighing on their business.
"It appears everyone is waiting to see what happens next," said an executive in the hotels and restaurants sector. "No trust in the economy or the federal government to do what is needed."
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