NEW YORK — The economy’s service sector grew slightly in January, while the pace of job losses slowed, signaling a recovery still struggling to gain strength.
The Institute for Supply Management said Wednesday its service sector index rose to 50.5 last month, from a downwardly revised 49.8 in December. Economists polled by Thomson Reuters had expected a higher level of 51. Still, it was the index’s strongest reading since May 2008.
Any reading above 50 signals growth. That threshold was broken in September for the first time in 13 months. But the service sector’s recovery has been bumpy since, having shrunk in November and December. That’s a concern for the broader economic rebound.
“Outside the factory sector, the economy is hardly growing, largely because of continued weakness in construction and lackluster retail activity,” Sal Guatieri of BMO Capital Markets said in a note to investors.
With consumers squeezed by job losses and flat wages, the recovery “remains at risk” if government programs that support the housing market end this spring as scheduled, Guatieri said.
Overseas sales and the restocking of inventories have helped manufacturing grow faster than the service sector, aiding overall U.S. economic output. On Monday, the ISM said its manufacturing index jumped to 58.4 in January — its strongest point since 2004 — from 54.9 in December.
The service sector relies more on U.S. consumers, whose spending powers about 70 percent of the economy but “who are broke,” said Ian Shepherdson of High Frequency Economics.
Of the 18 industries ISM surveyed, only four grew: Information; wholesale trade; utilities; and “other” services, which include smaller sectors such as advocacy, dry cleaning and machinery repair. Eleven industries were still shrinking, led by arts and entertainment, mining, retail and transportation. Three categories neither shrank nor grew in January: agriculture, construction and real estate.
Elements of the report suggested more growth in the future. New orders, a signal of business activity to come, picked up in January, expanding for the fifth straight month. Business activity also expanded in January, though more slowly than in December.
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