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Service sector grows unexpectedly in August

September 05, 2008|From the Associated Press

NEW YORK — The U.S. service sector grew unexpectedly in August for the first time in three months as new orders improved and inflation moderated, a private trade group said Thursday. Tempering the good news, another report found the ranks of the jobless increased last week.

The Institute for Supply Management, a trade group of purchasing executives, said the service sector index rose to 50.6 in August from 49.2 in July. It beat economists' prediction of a reading of 50.0, according to a consensus estimate of Wall Street economists surveyed by Thomson Reuters.

A reading below 50 signals contraction; a reading above 50 indicates growth.

An improvement over July in production, new orders and deliveries boosted the index.

Although inflation remained elevated, with a reading of 72.9 out of 100, it fell sharply from July, when the reading was 80.8. Prices have been increasing for the last five years, according to the survey. Among the commodities up in price are food, plastic pipe, roofing materials, airfares and wine.

Real estate and rentals, mining, healthcare, education and utilities are all growing, according to the survey. Transportation, finance, hotels and wholesale trade are contracting.

Another report found that the number of newly laid-off workers seeking unemployment benefits jumped unexpectedly last week, reversing three weeks of declines.

The Labor Department reported that new applications for unemployment insurance rose to a seasonally adjusted 444,000, up 15,000 from the previous week. Economists had expected claims to drop to 420,000.

The increase indicates that the slowing economy is taking its toll on the job market. Many economists consider claims above 400,000 to be a sign of a weak economy. Initial claims stood at 320,000 in the same week last year.

The less volatile four-week moving average fell slightly to 438,000, down 3,250 from the previous week.

The number of people continuing to receive unemployment benefits also rose slightly to 3.44 million for the week that ended Aug. 23, up 6,000 from the previous week. That number doesn't include people who have exhausted their regular benefits and have requested extended assistance under an emergency program.

Separately, the Labor Department reported that productivity, the amount of output for every hour of work, rose at a 4.3% annual rate in the April-June quarter, a full percentage point higher than economists expected.

Labor costs fell 0.5%, the department said. The combination of higher productivity with lower costs should help contain inflation and give the Federal Reserve some breathing room on interest rates.

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