October 3, 2007 / 4:24 PM / 12 years ago

WRAPUP 1-US job outlook mixed as service sector growth slows

NEW YORK, Oct 3 (Reuters) - Growth in the vast U.S. service sector slowed in September and the labor market appeared mixed, but activity was brisk enough to ease fears of a housing-led recession, according to economic reports released on Wednesday.

The Institute for Supply Management said its index on service activities slowed roughly in line with expectations, which led traders to curb their expectations of an aggressive rate-cutting campaign by the Federal Reserve. However, they remained confident of lower rates by year-end.

The ISM data and a separate report from employment services company ADP showed modest jobs growth last month. That countered some concerns that Friday’s government payrolls report could be a repeat of the August data, which showed the first decline in jobs in four years and prompted an aggressive half percentage-point rate cut from the Fed.

ISM said its index on service activities slipped to 54.8 in September, its lowest since March, from August’s 55.8. Analysts had expected the index likely fell to 55.0.

An ISM reading above 50 suggests an expanding service sector, which accounts for roughly 80 percent of the economy.

“Today’s data dispelled any lingering doubts about any hard landing next year. The economy continues to slow but at a measured pace, and orderly markets prevail and confidence has been restored. Today’s numbers reflect that,” said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York.

In the wake of the ISM service report, stocks pared some of their earlier losses, while bonds turned negative on a spike in the report’s inflation gauge. The dollar was steady to higher against major currencies.

MIXED JOBS DATA

Despite showing signs of fatigue, the service sector picked up its hirings last month after shedding jobs in August, according to the latest ISM data.

The employment component in the ISM non-manufacturing report rose to 52.7 in September from 47.9 in August. This followed an ISM report earlier this week showing a slight job improvement in the manufacturing sector in September.

A pair of private sector reports on Wednesday reinforced the view of improved labor conditions.

Private employers added 58,000 jobs last month, in line with forecast, according to the ADP National Employment Report. It also lowered its August reading to a 27,000 increase from the initial 38,000.

However, ADP said September marked the third straight month of weak private sector hiring.

Planned corporate layoffs fell almost 10 percent in September from August, led by job cuts tied to housing, said job consulting firm Challenger, Gray & Christmas. Last month’s announced layoffs were 28.5 percent less than a year ago.

Another report indicated workers have grown more pessimistic about the job market. The Hudson Employment Index, which gauges U.S. worker confidence, fell to 97.1 points in September, not far from its historic low of 96.8 set two years ago.

Meanwhile, the housing sector remained in its current slump with flagging demand for mortgages.

The Mortgage Bankers Association said its index on mortgage application activities slipped 2.7 percent in the week ended Sept. 28 despite a decline in interest rates on fixed-rate home loans. (Additional reporting by Burton Frierson, Lucia Mutikani, Ellen Freilich and Julie Haviv)

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