Service firms grew at slightly faster pace

WASHINGTON -- Service firms that employ 90 percent of the U.S. work force expanded at a slightly faster pace in August. But the sector remains too weak to help an economy that is barely growing and struggling to create jobs.

The Institute for Supply Management said Tuesday that its index for service companies rose to 53.3 in August, up from 52.7 in July. Any reading above 50 indicates expansion.

The service sector includes everything from restaurants and hotels to health care firms and financial service companies. It has grown in all but one month over the past two years. The index reached a five-year high of 59.7 in February.

Still, overall growth among service businesses has declined in four of the past six months. High gasoline prices and scant wage gains have left consumers with less money to spend on services.

The private trade group said its gauge of hiring for service companies fell last month to an 11-month low. That reflected Friday's grim government report that showed the economy added no net jobs in August.

Stocks tumbled before the service-sector report was released. The Dow Jones industrial average fell more than 200 points in midday trading. The losses followed steep declines in European indexes and also reflected growing fears that the U.S. economy could be at risk of another recession.

"While the modest August bounce in the ISM index for services is good news, it does not change the overall picture of an economy that is slowly unwinding and losing momentum," said Brian Bethune, an economics professor at Amherst College.

Retail and wholesale trade, transportation services and hotels all showed strength in August, according to the ISM report. Educational service companies, recreation and entertainment firms, health care, finance and insurance businesses all reported declines.