Slow service growth latest sign of weakness

By Burton Frierson

NEW YORK (Reuters) - Growth in the dominant U.S. service sector fell to a four-year low last month while the job market showed only modest improvement, according to reports on Wednesday that reinforced views of a weakening economy.

The Institute for Supply Management said its non-manufacturing index slid to 52.4 in March, down from February's 54.3 and confounding expectations for a rise. Despite the weakness, the ISM's inflation gauged jumped.

Meanwhile, U.S. private employers likely added 106,000 jobs in March, according a private report by ADP Employer Services. That was higher than February's 57,000 gain reported by ADP but still below market expectations.

However, the signs of service sector weakness held sway in the market, initially pushing stocks and the dollar lower but lifting government debt prices, which usually benefit during times of economic weakness.

It also coincided with unexpectedly weak factory orders data for February, released by the Commerce Department.

"It's looking pretty dark," said Richard Dekaser, chief economist at National City Corp. in Cleveland, after the ISM release.

"On the whole, it speaks to the sluggish pace that the economy is moving at in recent quarters."

The ISM services reading comes two days after it reported that manufacturing growth slowed in March while price pressures increased.

The service sector represents about 80 percent of U.S. economic activity, including everything from restaurants and hotels to banks and airlines.

The weakness in the March ISM manufacturing report was also reinforced by Wednesday's February factory orders data. New orders at U.S. factories rose just 1 percent in February, below expectations for a rise of 1.8 percent.

After revisions, January's fall in factory orders worsened to 5.7 percent, which was the biggest decline in more than six years. Orders for durable goods, items meant to last three years or more, were revised lower to a 1.7 percent gain in February from an initial rise of 2.5 percent reported last week.

However, there was some positive economic news. Planned U.S. job layoffs fell 42 percent to an eight-month low in March from February, though the outlook remained bleak in sectors related to the troubled housing market, a report by global outplacement consultancy Challenger, Gray & Christmas, Inc. showed.

Wednesday's data comes two days before the government's monthly jobs report, which is likely to be the biggest event on this week's calendar of economic releases.

According to the latest Reuters poll of economists, the U.S. Labor Department on Friday is expected to show that 120,000 nonfarm payroll jobs were created in March, up from 97,000 in February.