ISM Non-Manufacturing Report on Business Showed Low Employment Stalling Economy

June report shows sixth consecutive month of growth, but employment contracts

The Institute for Supply Management's June non-manufacturing report on business released Tuesday, July 6, showed a slower rate of growth in U.S. businesses and a lack of job growth hampering economic recovery.

The June ISM report, which covers about 90% of the nation's economy, registered at 53.8%, 1.6 percentage points lower than the 55.4% registered in May, and a bit lower than economists' consensus expectations for a reading of 55.0.

The June figure reflected growth for the sixth consecutive month, but at a slightly lower rate than prior months in 2010. A reading above 50% indicates the non-manufacturing sector economy is generally expanding.

"Fifteen non-manufacturing industries reported growth in June. Respondents' comments are mostly positive about business conditions; however, there is concern about the effect of employment on the economic recovery," said Anthony Nieves, chairman of the ISM Non-Manufacturing Business Survey Committee, in the report.

The June employment index decreased 0.7 percentage point, reflecting contraction after one month of growth. Business activity decreased 3 percentage points, but nevertheless reflected growth for the seventh consecutive month. New orders fell 2.7 percentage points.

"The drop in stocks has got in the way, we think, and the index has slipped a bit this month. The details show small declines in all the key activity indexes," said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, in an analyst note. "None of these are disastrous though they are consistent with our view that the likely 3%-plus growth rate in the second quarter will not be matched in the third. We look for growth nearer 2% through the end of the year."

Read a story about the ISM manufacturing report in May from the archives of InvestmentAdvisor.com.

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