NEW YORK (Steven C. Johnson) - The dominant services sector picked up steam unexpectedly last month, snapping a three-month streak of slower growth, though the pace of hiring slowed slightly, underscoring broader job market concerns.
But the surprise increase in the index from the Institute for Supply Management was cause for encouragement, analysts said, suggesting consumers were holding up better than some had thought in what appears to be stalling U.S. economy.
Last week, government data showed U.S. employers did not add any new jobs in August, leaving the jobless rate at or above 9 percent for a fifth consecutive month.
ISM SERVICES UP FROM 17 MONTH LOW
The ISM index rose to 53.3 in August, from a 17-month low of 52.7 in July. Economists polled by Reuters had expected 51.0. A reading above 50 indicates expansion.
"The unexpected rebound will help to ease recession fears following last week's news that payroll employment stagnated," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
But he said the index at that level "is consistent with only muted economic growth of about 1.5 percent."
And while new orders rose, suggesting continued demand, the employment index slipped to 51.6 in August, its lowest since September 2010, underscoring the difficulty facing the roughly 14 million Americans out of work.
It will be against this backdrop that President Barack Obama will detail new plans to spur job growth in a national speech on Thursday.
"Jobs growth is far below the level needed to bring the unemployment rate lower on a sustained basis," said Michael Woolfolk, currency strategist at BNY Mellon in New York.
The poor U.S. jobs outlook, along with a festering debt crisis in Europe, helped spark a stock market sell-off last month that has battered business and consumer confidence.
EUROPE, ASIA STRUGGLE, FED IN FOCUS
The report was also at odds with service sector readings beyond U.S. borders, which showed on Monday that growth had slowed sharply last month in the euro zone, Britain and China.
Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, called the ISM report "a pleasant surprise after a run of mostly horrible numbers."
"The bad news is that it probably does not tell us much about the future path of the economy, because the headline index is little more than a lagging indicator of the rate of growth of core retail sales, which have held up well in recent months."
Better services growth may relieve pressure on the Federal Reserve to embrace new stimulus measures, analysts said.
"At the margin, it's an argument against any further accommodation at this point, but this doesn't necessarily countervail the whole bulk of the other data," said Bill Jordan, economist at Ried Thunberg, a unit of ICAP.
The Fed will meet September 20-21 and Wall Street is betting officials will opt to buy more long-dated Treasuries to hold down long-term interest rates.
The central bank has already poured more than $2 trillion in to the financial system to boost lending and has said it could hold benchmark interest rates at record lows near zero until at least 2013.
(Additional reporting by Emily Flitter in New York)
Copyright 2011 Thomson Reuters. Click for Restrictions.
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.