Service sector expands slightly in Aug: ISM

By Chris Reese

NEW YORK (Reuters) - The U.S. service sector expanded slightly in August, according to a report released on Thursday that also showed more contraction in employment and reduced inflation pressures.

The Institute for Supply Management said its non-manufacturing index came in at 50.6 for August from July's 49.5. A reading above 50 signals expansion. The August reading was the first expansion in the sector since 51.7 in May.

Economists expected an unchanged result of 49.5, according to the median of forecasts in a Reuters poll. The majority of the 79 forecasts ranged from 48.5 to 50.5.

While services moved into expansion territory, analysts said the index still pointed to anemic economic growth.

"Like most information released of late, the underlying trend of the ISM non-manufacturing data is consistent with an economy that is losing momentum," said Joshua Shapiro, chief U.S. economist at MFR Inc in New York, adding "we look for some retracement in the months ahead."

The employment activity index showed contraction in August for the seventh time in the last eight months, falling to 45.4 from 47.1 in July.

The prices paid index continued to show easing inflation pressures, falling to 72.9 in August from 80.8 in July and from 84.5 in June, which was the highest in the 11-year history of the index.

The new orders index rose to 49.7 in August from 47.9 in July.

U.S. Treasuries temporarily trimmed gains following the release of the report, while stocks remained relatively steady at lower levels.

The service sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

(Reporting by Chris Reese; Editing by Jonathan Oatis)