Market Commentary and Intraday News

Ahead of the Bell: US Economy-Services

319 days ago

(AP:WASHINGTON) U.S. service companies, which employ 90 percent of Americans, likely grew in July but at a sluggish pace.

Economists forecast that the Institute for Supply Management's service index edged up slightly to 52.5 in July, according to a survey of economists by FactSet.

That reading would be only a slight improvement from June, when the index slipped to 52.1, the slowest pace in nearly 2 and a half years. The June report was viewed as further evidence that the economy had weakened in the spring.

Through June, service companies had grown for 30 straight months. Service companies include retail, construction, financial services, health care and hotels, among other industries.

Service companies have weakened at a time when the broader economy has lost steam as well.

Overall economic growth, as measured by the gross domestic product, slowed to an annual rate of 1.5 percent in the April-June quarter, down from an already lackluster pace of 2 percent in the January-March period.

U.S. employers have scaled back on hiring and for those who are working, paychecks are barely keeping pace with inflation, making consumers less confident in the economy.

Consumer spending, which drives 70 percent of economic activity, has been weak in recent months. Consumers spent no more in June than they did in May, a month when spending actually fell. However, there was a glimmer of hope that things might be looking up for retailers.

Many major retailers reported better-than-expected results in July, saying that sales had been helped by hot weather and summer clearance sales. A tally by the International Council of Shopping Centers of 20 major retailers found revenue in stores open at least a year rose 4.6 percent in July, compared to activity in July 2011.

A separate ISM report this week showed that manufacturing shrank for the second straight month in July. The ISM said its manufacturing index stood at 49.8, little changed from a June reading of 49.7, which had been the first time the survey showed manufacturing contracted in three years.

In recent months, factory activity has weakened along with the broader economy. Manufacturers have been hurt not only by a slowdown in consumer spending in the United States but by Europe's economic problems and slower growth in China and other emerging markets which has dampened demand for U.S. exports.

The Federal Reserve at a meeting this week decided to hold off providing further support to the economy but signaled that more help could be on the way if economic growth does not revive. Many private economists believe the central bank will decide to launch another round of bond buying at the Fed's next meeting in September.

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