Service Sector Slows but Employment Remains Bright Spot

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By Leah Schnurr

NEW YORK -- The pace of growth in the U.S. services sector slowed in June to its weakest level in more than three years as new orders nearly stalled, though a jump in employment provided an encouraging sign for the labor market.

The Institute for Supply Management said Wednesday its services index fell to 52.2 last month from 53.7 in May, short of economist forecasts for a gain to 54.

While a reading above 50 indicates expansion in the sector, June's decline brought growth to its lowest level since February 2010.

A slowdown in new orders offered little optimism for the growth outlook. The index tumbled to 50.8 from 56, making for the lowest level since July 2009, just a month after the recession ended.

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But employment was a bright spot, with the gauge climbing to 54.7 from 50.1. That boded well ahead of Friday's closely watched employment report from the Labor Department, which is expected to show the economy created 165,000 jobs last month.

Exports contracted to 47.5 from 50, though orders for imports fared better, rising to 53.5 from 49.5.

Growth in the vast services sector has been more resilient than its manufacturing counterpart in recent months and has stayed in expansion territory since the start of 2010. Still, the services index is nearly 4 points below this year's high of 56, which was hit in February.