- The Washington Times - Tuesday, July 7, 2009

The non-manufacturing sector of the U.S. economy shrank for the ninth month in a row in June. However, the pace of contraction has slowed significantly in recent months compared with the steep declines during the fourth quarter of last year and the first quarter of 2009, according to a report issued Monday by a private research organization.

The Institute for Supply Management (ISM) reported that its nonmanufacturing index registered 47 percent in June. Readings below 50 percent represent contracting activity.

The June index level reflected a three-point improvement over May. It was the biggest monthly jump since February of last year.

The nonmanufacturing sector represents an estimated 90 percent of the economy. It includes agriculture; mining; construction; and all service industries, such as retail and wholesale trade, finance and insurance, health, education, public administration, real estate and entertainment.

The business activity index in the nonmanufacturing sector jumped 7.4 points last month, reaching 49.8 percent. That indicates that the pace of contraction in this important sub-index was barely perceptible in June.

Seven of the 18 industries tracked by this ISM survey reported increasing business activity. Those expanding industries included real estate; accommodation and food services; arts, entertainment and recreation; information; and educational services.

New export orders entered expansionary territory last month, and the new orders index also showed significant improvement.

Last week, the ISM reported that its manufacturing index registered its slowest rate of contraction since August.

“The ISM surveys provide a rough guide to gross domestic product growth,” said Aaron Smith of Moody’s Economy.com.

The second-quarter averages for the two ISM indexes indicate that the American economy contracted during the April-June period at an annual rate that was half as steep as the 5.5 percent decline during the first quarter, Mr. Smith said.

Moody’s Economy.com expects the economy will return to growth during the third quarter.

“The overall message from the ISM index for service industries in June is that the economy is gradually pulling out of the recession in a slow-motion process, but there are still significant head winds,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

“Excess inventories still could be an impediment to moving to an expansion mode in the next two months.”

The employment index in the ISM’s nonmanufacturing report showed improvement in June. However, last week’s employment report revealed than nonmanufacturing employers shed 331,000 jobs in June, more than double the 163,000 jobs they jettisoned in May.

“Employment data last Thursday showed service-sector employment retreated in June, dashing hopes that the disaster in the labor market is moderating,” said Kim Whelan, an economic analyst in the economics group at Wells Fargo Securities.

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