Service industries in U.S. expand at slowest pace since July

Service industries in the U.S. expanded in April at the slowest pace in nine months, adding to signs that the world’s largest economy is cooling.

The Institute for Supply Management’s non-manufacturing index declined to 53.1 last month from 54.4 in March, a report from the Tempe, Arizona-based group showed today. The median forecast in a Bloomberg survey called for a decline to 54. A reading above 50 indicates expansion in the industries that make up almost 90% of the economy.

The report, following the group’s factory index that showed less growth among manufacturers, indicates federal budget cuts and higher payroll taxes are filtering through the economy. At the same time, a rebounding housing market remains a source of strength and is helping keep the expansion from faltering.

“We are starting to see some of the drag from fiscal tightening,” Robert Dye, chief economist at Comerica Inc. in Dallas, said before the report. The figure is “consistent with an expanding service sector, but not robustly expanding.”

Estimates of the 71 economists in the Bloomberg survey ranged from 52 to 55.1 for the index, which accounts for almost 90% of the economy and includes industries from utilities and retail to health care, housing and finance. Before today, the gauge averaged 53.6 since the recession ended in June 2009.

Another report today showed employers added more workers in April than projected. The 165,000 increase in payrolls followed a revised 138,000 gain in March that was bigger than initially forecast.

Employment Measure

The ISM non-manufacturing survey’s employment gauge dropped to 52 in April, the lowest since November, from 53.3. The measure of new orders were little changed at 54.5 after 54.6. A gauge of business activity decreased to 55, the lowest since June, from 56.5. The index of prices paid fell to 51.2 from 55.9.

A measure of order backlogs decreased in April to 51.5 from 54.5 in the prior month.

“It’s just the reaction to how the level of activity has just softened a little bit month over month,” Anthony Nieves, chairman of ISM’s non-manufacturing survey committee, said today on a call with reporters. “We’ll watch how it trends out, but right now, it’s definitely showing that demand has come off a little bit.”

The ISM’s factory survey earlier this week showed manufacturing, which accounts for about 12% of the economy, expanded in April at the slowest pace in four months as across-the-board federal budget cuts started to pinch. The gauge fell to 50.7 from 51.3 the prior month.

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