WRAPUP 3-U.S. service sector picks up, jobs still a worry

Tue Sep 6, 2011 2:43pm EDT

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 * U.S. service sector growth picks up unexpectedly
 * ISM index rises to 53.3 in August from 52.7 in July
 * Employment component dips to lowest since Sept. 2010
 * Europe, Asia flashing warning signs on growth
 (Updates with details)
 By Steven C. Johnson
 NEW YORK, Sept 6 (Reuters) - The dominant U.S. services
sector picked up steam unexpectedly last month, snapping a
three-month streak of slower growth, though a slower pace of
hiring underscored concerns about the broader job market.
 The surprise jump in the Institute for Supply Management's
non-manufacturing index was cause for some encouragement,
analysts said, as it suggested consumers were holding up better
than thought in what appears to be a stalling U.S. economy.
 Yet it probably will not be enough to relieve pressure on
President Barack Obama to spur more job creation. Obama is due
to detail a new jobs plan in a national speech on Thursday.
 Last week, government data showed the economy added no new
jobs in August, leaving the jobless rate at or above 9 percent
for a fifth consecutive month.
 "The unexpected rebound (in the ISM report) will help to
ease recession fears following last week's news that payroll
employment stagnated," said Paul Ashworth, chief U.S. economist
at Capital Economics in Toronto.
 But he said the ISM reading of 53.3 in August, while up
from July's 17-month low of 52.7, "is consistent with only
muted economic growth of about 1.5 percent."
 Economists polled by Reuters had expected a 51.0 reading. A
reading above 50 indicates expansion. For more see
[ID:nN1E7850B2].
 While new orders rose, suggesting continued demand, the
employment index slipped to 51.6, its lowest since September
2010, underscoring the difficulties facing the roughly 14
million Americans who are out of work.
 Ian Shepherdson, chief U.S. economist at High Frequency
Economics in Valhalla, New York, said the ISM employment
reading is consistent with monthly payrolls growth of about
50,000, well below what is needed to dent the jobless rate.
 He also warned that the report is "little more than a
lagging indicator of the rate of growth of core retail sales,
which have held up well in recent months."
 The services sector accounts for more than two-thirds of
the U.S. economy, economists estimate, and is an important
source of growth even for some big manufacturers such as
Lockheed Martin Corp (LMT.N), the world's largest defense
contractor.
 "There are signs that the economy continues to be under
stress," Lockheed Martin Chief Executive Robert Stevens said on
Tuesday.
 Speaking at the Reuters Aerospace and Defense Summit in
Washington, Stevens cited high U.S. unemployment and weak
economic growth. But he added, "It's not clear to me whether
that conveys a sense of a double-dip recession."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  INSTANT VIEW - US service sector      [ID:nN1E7850I5]
  Graphic - U.S. services sector:
  r.reuters.com/sec63s
  Graphic - U.S. and world services PMI:
  r.reuters.com/tec63s
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 The poor U.S. jobs outlook, along with a prolonged debt
crisis in Europe, helped spark a stock market sell-off last
month that has battered business and consumer confidence.
 That has increased pressure on the Obama administration,
particularly with the 2012 election just over a year off.
 Political clashes over the U.S. budget and debt burden,
which led Standard & Poor's to strip the country of its AAA
credit rating, also unnerved investors and consumers alike.
 Stocks .SPX pared some losses Tuesday after the
better-than-expected report but were still down more than 1
percent on rising concerns about the euro zone debt crisis.
Buying of safe-haven U.S. government debt US10YT=RR only
faded slightly after the report.
 EUROPE, ASIA STRUGGLE, FED IN FOCUS
 Firmer growth in the U.S. service sector was at odds with
readings from beyond U.S. borders. Data on Monday showed
service sector growth slowed sharply in the euro zone, Britain
and China, boosting fears of global recession. [ID:nL5E7K50RD]
 If the United States, the world's largest economy, can keep
out of recession, that outlook may improve, analysts said.
 Wall Street increasingly expects the Federal Reserve, which
already warned it may hold interest rates near zero until 2013,
to pour more money into the financial system to boost growth.
 "At the margin, (Tuesday's ISM data is) an argument against
any further accommodation at this point, but this doesn't
necessarily countervail the whole bulk of the other data," said
Bill Jordan, economist at Ried Thunberg, a unit of ICAP.
 Fed Chairman Ben Bernanke is scheduled to speak in
Minnesota on Thursday about the U.S. economic outlook. The
Fed's policy-setting committee will meet Sept. 20-21.
 (Additional reporting by Mike Miller in Washington and Emily
Flitter in New York; Editing by James Dalgleish)






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