Economy Service firms grew at slightly faster pace in Aug.

By Martin Crutsinger

AP Economics Writer

WASHINGTON (AP) -- U.S. service firms that employ 90 percent of the work force expanded at a slightly faster pace in August. But the sector remains too weak to help an economy that is barely growing and struggling to create jobs.

The Institute for Supply Management said Tuesday that its index for service companies rose to 53.3 in August, up from 52.7 in July. Any reading above 50 indicates expansion.

The service sector, which includes everything from restaurants and hotels to health care firms and financial service companies, has grown in all but one month over the past two years. The index reached a five-year high of 59.7 in February.

But overall growth among service businesses has declined in four of the past six months. High gas prices and scant wage gains have left consumers with less money to spend on services.

The private trade group said its gauge of hiring for service companies fell last month. That follows Friday's grim report that the economy added no net jobs in August.

Stocks tumbled before the report was released. The Dow Jones industrial average fell more than 250 points in the first hour of trading. The losses followed steep declines in European indexes and come as many fear that the U.S. economy could be at risk of another recession.

The U.S. economy expanded in the first six months of the year at an annual rate of just 0.7 percent -- the slowest growth since the recession officially ended two years ago.

Last week, ISM said its manufacturing index fell in August to a reading of 50.6, barely above the 50 threshold that separates contraction from growth.

Consumer and business confidence has been sapped by the political standoff over the federal debt limit, the downgrade in the U.S. government's credit rating and a debt crisis in Europe. The stock market tumbled in late July and early August and has fluctuated wildly since then. The Dow is nearly 14 percent lower than its close on July 21.

President Barack Obama will unveil his plan to reduce the country's unemployment during an address to a joint session of Congress on Thursday.

Still, Obama is unlikely to win support for any stimulus spending from congressional Republicans, who say the president's economic policies have failed. They want further spending cuts to restrain soaring deficits and less government regulation.

The economy needs to add roughly 250,000 jobs a month to make a major dent in the unemployment rate, which has been above 9 percent in all but two months since May 2009.

Many economists believe that the economy will grow only 2 percent growth in the second half of this year, far below the pace needed to power significant job gains.

Published: Wed, Sep 7, 2011


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