Service sector expands at a faster pace than expected in August

The sector, which covers industries ranging from utilities, transportation, healthcare and finance, has grown for 21 straight months. The index reached a five-year high of 59.7 percent in February before slipping during the spring. 

More than two years after the recession ended, the economy continues to struggle to pick up the pace of growth. 

Anthony Nieves, chairman of the ISM, said the report indicated “continued growth at a slightly faster rate in the non-manufacturing sector.”

ISM’s most recent data shows manufacturing grew in August at the slowest pace since July 2009 as orders and production contracted. The ISM factory index fell to 50.6 percent from 50.9 percent a month earlier.

Business activity dropped to 55.6 percent from 56.1 percent, reflecting growth for the 25th consecutive month, although at a slower rate than in July.

New orders increased by 1.1 percentage points, to 52.8 percent, from 51.7 percent in July. 

The prices index was up 7.6 percentage points to 64.2 percent, from 56.6 percent, as prices increased at a faster rate in August than in July. 

A public administration survey respondent said, “Overall prices paid are increasing, while sales are still slightly behind projections.”

The employment index decreased to 51.6 percent, the lowest level since September 2010, from 52.5 percent, indicating growth in employment for the 12th consecutive month, but at a slower rate than in July. 

Nationwide, employment stagnated in August as private payrolls added only 17,000 jobs, while the jobless rate held at 9.1 percent.

President Obama will address a joint session of Congress on Thursday to present his jobs plan, which is expected to include an extension of the payroll tax cut, unemployment benefits and tax incentives for businesses that pick up hiring.

“Customer traffic is trending lower, but spending per person continues to increase,” said one respondent in the arts, entertainment and recreation sector. “Labor cost savings realized through attrition, as fewer replacements are hired. The outlook for the remainder of 2011 is cautiously optimistic, with increased investment in marketing. ‘Sticky prices’ are keeping operating expenses elevated even as commodity supply eases.” 

The ISM, a trade group of purchasing executives based in Tempe, Ariz., compiles its service sector index by surveying about 375 purchasing executives across the country.