Service Sector Grows in June; Factory Orders Rise

The vast services sector grew for a fifth straight month in June but at a slower pace while May factory orders rose more than expected, two reports Wednesday showed, suggesting it may take longer for the U.S. economy to fire on all cylinders.

That was underscored by a mixed picture for the labor market, following news that service sector layoffs accelerated in June even as jobless benefit claims hit a 15-month low in the latest week. That raised concerns that the June employment report, expected Friday, could show weaker payroll growth than predicted.

The Institute for Supply Management, a private research group, said Wednesday that its monthly non-manufacturing index fell to 57.2 in June from 60.1 in May, below analysts’ forecasts, for a dip to 58.8. A number above 50 indicates growth; anything below 50 denotes contraction.

Factory orders climbed for the third straight month, by 0.7% in May to $321 billion, boosted by demand for machinery and computer products, the Commerce Department said. That matched a 0.7% rise the prior month and beat analysts’ expectations of a 0.5% gain.

Weekly jobless benefit claims fell 11,000 in the week ended June 29 to 382,000, their lowest level since March 2001 at the outset of last year’s downturn, the government said.

Over the last four weeks, new claims have averaged 392,000, down for the 10th consecutive week. But Americans still are having trouble finding jobs, pushing up the measure of the total number of people claiming benefits to 3.7 million in the latest week available.

Adding to the bad news, ISM’s employment index for the service sector showed another decline. The index slipped sharply to 44.3 in June from 49.5 in May, marking the 16th straight month of job losses and raising some concerns that a jobs recovery may take longer than was initially thought.

The rise in factory orders was the second report this week showing good news for manufacturing after ISM said Monday that its monthly manufacturing index rose to 56.2 in June--the fastest pace since February 2000--from 55.7 in May.

Machinery demand rose 2.1% in May while orders of computers and electronic products rose 0.6%, the government said Wednesday. Non-defense capital goods excluding aircraft, a barometer of business investment seen as crucial to a strong recovery, rose 1.2%.

New orders for durable goods rose 0.9% compared with 0.5% in April. Nondurable goods climbed 0.4%, led by an increase in beverage and tobacco products.

Excluding transportation, factory orders also were up 0.7% and excluding defense, they gained 0.8%.