Sharp slowdown in the vast U.S. services sector

US economy showed more signs of weakness this week on reports showing a big drop in different services sectors and less hiring by private companies during the month of April.

By Leah Schnurr
updated 5/4/2011 11:50:18 AM ET

NEW YORK — Signs of weakness in the U.S. economic recovery mounted as reports on Wednesday showed a sharp slowdown in the vast services sector and less hiring by private companies in April.

The Institute for Supply Management said its services sector purchasing managers' index fell to its lowest level since August 2010, coming in at 52.8 last month from 57.3 in March. The reading was well below economists' forecasts for 57.4. A reading above 50 indicates expansion in the sector.

The ADP Employer Services report showed private payrolls rose by 179,000 jobs last month, less than economists' expectations for a gain of 198,000. March's figure was revised up modestly.

Economists said the jobs figure was a mild disappointment ahead of the government's much more comprehensive labor market report on Friday. That report is also expected to show payroll growth eased last month. Higher gasoline prices and slower economic growth in the first quarter likely tempered hiring.

In the ISM report, respondents were concerned about rising fuel and commodity prices, as well as ongoing uncertainty about the economy, ISM said. The report's new orders index tumbled to its lowest level since December 2009, falling to 52.7 from 64.1. The services sector makes up about 80 percent of the U.S. economy.

"It's a weak indication not only in the headline figure, but also in the worst possible place: the orders component," said Pierre Ellis, senior economist at Decision Economics in New York.

"This is a sector that is supposed to be relatively smooth in terms of growth so if it turns out to be more than transitory, this would be a clear indication of de-stabilization in the economy."

U.S. stocks added to losses following the ISM data, as did the U.S. dollar, while Treasuries extended gains.

Earlier on Wednesday, a separate report showed the number of planned layoffs at U.S. firms fell in April to the lowest monthly amount for the year so far and were outpaced by a rise in plans to hire.

Employers announced 36,490 planned job cuts last month, down 12 percent from 41,528 in March, according to a report from consultants Challenger, Gray & Christmas, Inc.

Copyright 2011 Thomson Reuters. Click for restrictions.

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