Business/Finance

US service firms expanded in Nov. at slower pace

Monday, December 05, 2011

U.S. service companies, which employ 90 percent of the U.S. work force, expanded at slower pace in November and a measure of employment fell sharply.

The Institute for Supply Management said Monday that its index of service sector activity dropped to 52 from 52.9 in October. Any reading above 50 indicates expansion. The service sector has grown for two straight years. But the reading was the lowest since January 2010.

The trade group of purchasing managers surveys a range of businesses from restaurants to hotels to financial services firms.

Business activity and orders rose. But measure of employment dropped.

Weaker growth among service companies shows how the economy remains weak despite signs of improvement in other areas.

On Friday, the government said the unemployment rate fell to 8.6 percent last month, the lowest level in 2 1/2 years. Employers added 120,000 net new jobs and more jobs were generated in September and October than the government previously estimated.

About half the drop in the unemployment rate occurred because many of those out of work gave up searching for jobs. When the unemployed stop looking for work, they are no longer counted in the unemployment rate.

Still, the overall jobs report was positive and the latest sign that the economy is improving, despite a still-high unemployment rate, a debt crisis in Europe and slowing growth in China.

More jobs means consumers should have more income to spend while shopping, at restaurants, or on cable TV subscriptions and other services.

Holiday shopping is already off to a good start. Americans dropped a record $52.4 billion over the Thanksgiving weekend, according to the National Retail Federation, a trade group. A separate report from MasterCard found spending was up almost 9 percent from last year.

Other recent economic data have also been positive.

Factories are expanding. The Institute for Supply Management said Thursday that its separate index on manufacturing rose to 52.7 in November, up from 50.8 in October.

Car sales also rose sharply in November, normally a lackluster month for the auto industry. Chrysler, Ford, Nissan and Hyundai all reported double-digit gains on Thursday, compared to a year ago.

Those reports have caused many economists to forecast a pickup in growth in the final three months of the year, to about a 3 percent annual rate. That would be an improvement from growth of 2 percent in the July-September period.

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