Survey: US service firms grow slower, hire more

The Institute for Supply Management said Wednesday that its index of service-sector growth fell in June to 52.2. That's down from 53.7 in May and the lowest reading in more than three years. Any reading above 50 indicates expansion.

The index was dragged down by steep drops in new orders and a measure of the business outlook.

Still, a gauge of employment jumped to 54.7, up from 50.1 in May. That's the first increase in five months and suggests services firms hired more briskly last month.

The survey measures growth at businesses that cover most of the job market. They range from construction companies and health care firms to retail businesses and restaurants.

The ISM report comes a day before the government issues its June employment report. That is expected to show employers added 165,000 jobs last month, while the unemployment rate stayed at 7.6 percent.

Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. The housing rebound and a pickup in consumer spending helped increase the index earlier this year.

Spending at retail businesses rose in May, a sign that solid job growth has encouraged Americans to spend more. And the improving job market has lifted consumer confidence to a 5½-year high.

The ISM's survey of manufacturers, released Monday, found that factory activity expanded in June behind strength in new orders and production. That signaled that manufacturing might be picking up after a weak start to the year.

But a measure of employment fell sharply, suggesting that factories cut jobs in June for a fourth straight month.