US service sector grew at a slower pace in August, but extends expansion streak to 8 months

Service sector grows at slower pace in August

NEW YORK — The U.S. service sector, the nation’s predominant job generator, expanded for the eighth straight month in August although the pace of growth slowed, according to a trade group survey.

The report released Friday provides another sign this summer that the recovery from the recession has slowed, making it difficult for employers to add back the millions of jobs lost during the downturn. The service sector accounts for about 80 percent of the nation’s jobs.

“Economic growth remains fragile,” said Paul Ashworth, an economist at Capital Economics.

The Institute for Supply Management said its service-sector index fell to 51.5 last month from 54.3 in July. Economists had expected a higher reading of 53.5. The August reading is the lowest since January.

Levels above 50 signal growth. The index bottomed at 37.2 in November 2008.

The index shows service company activity has expanded every month this year, and in 10 of the past 12 months. But the expansion has not been as fast as in the much smaller manufacturing sector. Companies that supply services, which range from hospitals to shops and banks, depend more on spending by consumers in the U.S.

Shoppers have kept a tight lid on spending as unemployment remains high, hitting 9.6 percent in August, and hiring has been slow because of uncertainty about the strength of the global economy in the coming months.

Retailers are still counting on discounts to pull in shoppers. Cheap-chic chain Target Corp. said Thursday that a key sales measure rose modestly in August, a month typically busy with back-to-school shoppers, but the gain wasn’t as steep as the decline during the same period last year.

Friday’s ISM report is consistent with a forecast of economic growth of less than 2 percent in the second half of the year, said HSBC Securities analyst Ryan Wang.

The outlook for the coming months is murky. The ISM survey’s gauge of future business, new orders, slowed in August to the weakest pace this year.

The Federal Reserve Chairman Ben Bernanke has said the central bank would consider further steps to boost the economy if necessary.

A measure of managers’ willingness to hire also shrank in August, even though the government said in a separate report that service companies added 67,000 jobs last month.

The ISM’s survey is skewed to bigger corporations. It surveys about 350 companies every month.

Of the 18 different industries ISM surveys every month, half reported growth in August, and half shrank.