Service sector growth accelerates in September

NEW YORK -- The U.S. service sector, the nation's predominant employer, expanded in September for a ninth straight month, although the growth has not been consistent enough to dent the high unemployment rate.

The Institute for Supply Management said Tuesday that its service-sector index rose last month to 53.2 from 51.5 in August. The rate hit a high point of 55.4 in March, stayed there in April and May, and has fluctuated since. Readings above 50 signal growth.

Weak consumer spending has kept the service industry, which employs about 83 percent of workers in the private sector, from gaining momentum after the recession ended. Economists say Tuesday's reading was better than expected, but not enough to change their outlook of high unemployment and slow job growth for the rest of the year.

Still, stocks jumped on hopes that the report points to an improving economy. The Dow Jones industrial average gained 193.45, or 1.8 percent, to 10,944.72.

Many expect Friday's employment report to show the jobless rate rose in September to 9.7 percent from 9.6 percent, and that 75,000 private-sector jobs were added. They predict the economy will growth at roughly a 2 percent rate for the rest of the year, not enough to lower unemployment.

"Obviously a rise is better than a fall, but we're still faced with an economy that is growing well below its trend rate and not fast enough to generate the job gains required to drive down the unemployment rate," Paul Ashworth, senior U.S. economist for Capital Economics, said about the service-sector survey.

The service-sector survey, along with a surprise move by the central bank of Japan to slash interest rates to near zero, helped to lift stocks. The Dow Jones industrial average rose 172 points in afternoon trading.

The survey polls about 350 companies in 18 industries, including health care, retail, utilities, education, financial services and shipping. In September, 11 of the industries reported growth. They were led by business management and administrative services, industries that provide information, and professional and scientific services. Three industries shrank and four had the same pace of activity.

There were a few promising signals for winter. A gauge of future business, the new orders index, grew more quickly in September than in August. That suggests demand for services has increased and business activity may grow in the next few months.

And, a measure of how willing employers are to fill vacant positions showed slim growth in September after a pullback in August. Still, that improvement, to 50.2 from 48.2, leaves the measure stuck in the same range it has been for months. It does not suggest employers are ready to hire enough to bring down the employment rate.

"It's still teetering on that threshold between expansion and contraction which continues to show that overall employment is still very weak," said Wells Fargo economist Anika Khan.

An analysis by Credit Suisse economist Jill Brown of ISM's employment measure in September suggests the economy added about 90,000 jobs in the service sector last month.

Brown predicts businesses and organizations added a net total of 75,000 jobs in September, just slightly more than the 67,000 private-sector jobs gained in August and in line with other economists' forecasts.

Private companies and other organizations would need to consistently add about 125,000 jobs each month to bring down the unemployment rate, Khan said.

Several large U.S. retail chains have said that they plan on hiring more holiday workers this year than they did in 2009, including Macy's Inc., Toys R Us, Pier 1, American Eagle Outfitters and Borders Group Inc. Still, those jobs are temporary, and the amount of new hires may not be enough to bring down the jobless rate.