Service sector shrinks in June - survey

Purchasing managers say non-manufacturing businesses in unexpected decline.

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By Kenneth Musante, staff writer

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NEW YORK ( -- Service sector business activity declined in June, according to a key survey released Thursday that showed continued economic weakness.

The Institute for Supply Management's (ISM) non-manufacturing index fell to a reading of 48.2 from 51.7 in May. Economists were expecting a reading of 51, according to a consensus of economists polled by

The ISM's index was retooled in January to account for business activity, orders, employment and supplier deliveries. A reading above 50 indicates growth in the sector, and a reading below 50 represents a sector-wide decline.

Though economists had expected to see service sector growth through June, they haven't been especially enthusiastic.

The ISM index was "pretty much consistent with what we're seeing with other indicators," said Michelle Meyer, economist with Lehman Brothers.

Job market sluggishness, coupled with oil prices that are up more than 50% from the previous year have put many businesses in the wringer.

Slow or no growth is "likely set to continue" until the beginning of 2009, said Meyer.

The ISM's closely watched index for manufacturing businesses, released on Tuesday, indicated slow economic growth through June as the manufacturing price measurement rose to its highest level since 1979.

Oil price pressure. "Most of the weakness in the economy now is due to oil," said Robert Brusca, economist with FAO Economics.

Crude oil is refined into fuel, one of the service industry's major expenses. ISM's non-manufacturing prices index, which tracks the amount companies pay to keep their businesses running, rose to 84.5 points in its 61st consecutive month of increases.

Labor lows. Meanwhile the ISM's employment index sank 4.9 points to 43.8, the non-manufacturing index's lowest employment measurement since February 2002.

On Thursday, the Labor Department reported a net loss of 62,000 jobs in June, unchanged from May and 2,000 more than economists had expected. The unemployment rate held at 5.5%.

The Labor Department said new unemployment claims rose to 404,000 in the last week of June, the highest level since March. To top of page

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