VOL. 123 | NO. 153 | Wednesday, August 6, 2008
Service Sector Shrinks as New Orders Fall
By ELLEN SIMON | AP Business Writer
NEW YORK (AP) – The U.S. service sector contracted in July – though less than expected – as new orders decreased and prices rose, stifling growth for truckers, retailers and insurers.
The Institute for Supply Management, a trade group of purchasing executives, said Tuesday its reading of the service sector was 49.5 in July, up from 48.2 in June. It beat economists’ prediction of a reading of 49.0, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR.
A reading below 50 signals contraction, while a reading above 50 indicates growth.
Economists, however, were more sanguine about the report. John Ryding of RDQ Economics described it as “partly a sentiment index. If things are not getting as bad at a slower rate, it can feel like improvement.”
“Qualitatively, it changes nothing about our assessment of the economy: Growth is at best weak and inflation pressures remain elevated,” he said. “That adds up to a one-word theme: stagflation.”
Improvement in the index was “so marginal, it’s impossible to say” what caused it, Ryding said.
The industries that reported growth include entertainment, recreation, scientific and technical services, utilities, hotels and restaurants.
The survey showed that prices continued to rise, as they have for the past five years, but the rate of increase was slower in July than it was in June.
In a good sign, companies said their order backlogs grew in July. New export orders fell, however.
David Noah, president of InterMart Inc., an eight-person import-export software company, said sales are flat and “it’s taking longer for companies to pull the trigger on a purchase.”
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