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Service companies' growth is weakest in 17 months

August 04, 2011
  • Technician Chris Shannon works on a car at a Pep Boys service center in Philadelphia. The U.S. service sector, which employs nearly 90% of the country's work force, grew in July, but at a slower pace than in June.
Technician Chris Shannon works on a car at a Pep Boys service center in Philadelphia.… (Matt Rourke, Associated…)

Service businesses such as restaurants, hotels and financial companies experienced their weakest growth in 17 months in July.

A report Wednesday from the Institute for Supply Management confirms other data that show the U.S. economy is struggling two years after the recession officially ended.

The trade group of purchasing executives said its index for service companies fell to 52.7 from 53.3 in June. Any reading above 50 indicates expansion.

The ISM index reached a five-year high of 59.7 in February, but has fallen since. The July reading was the lowest since February 2010.

New orders to service companies, an indication of future business, increased but at the slowest pace since August 2009, according to the report. Service firms are still hiring, the report said, but employment growth dipped in July.

The report "suggests that the economy is not slipping into a recession but instead that growth is very weak," said Paul Dales, an economist at Capital Economics.

Separately, the Commerce Department reported that businesses cut orders for airplanes, autos and heavy machinery in June. Factory orders dropped 0.8%, the second decline in three months.

Demand for durable goods fell 1.9% in June. Durable goods are products expected to last at least three years.

A key measure of business investment plans increased slightly, a positive sign amid mostly gloomy data. But business demand for transportation equipment fell 8.6%. That was mostly because of a big decline in orders for commercial aircraft, which are volatile. But orders for autos and auto parts also dropped.

The reports follow a slew of dismal economic news.

Economic growth slowed to less than 1% in the first six months of the year, the government said Friday.

Consumer spending, which fuels 70% of economic activity, fell in June for the first time since September 2009.

And manufacturers recorded their weakest growth in two years in July, according to the separate ISM manufacturing index, which was released Monday.

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