Service firms grew at slightly faster pace

Service firms that employ 90 percent of the U.S. work force expanded at a slightly faster pace in August. But the sector remains too weak to help an economy that is barely growing and struggling to create jobs.

The Institute for Supply Management said Tuesday that its index for service companies rose to 53.3 in August, up from 52.7 in July. Any reading above 50 indicates expansion.

The service sector includes everything from restaurants and hotels to health care firms and financial service companies. It has grown in all but one month over the past two years. The index reached a five-year high of 59.7 in February.

Still, overall growth among service businesses has declined in four of the past six months. High gas prices and scant wage gains have left consumers with less money to spend on services.

The private trade group said its gauge of hiring for service companies fell last month to an 11-month low. That reflected Friday's grim government report that showed the economy added no net jobs in August.

"While the modest August bounce in the ISM index for services is good news, it does not change the overall picture of an economy that is slowly unwinding and losing momentum," said Brian Bethune, an economics professor at Amherst College.

Stocks tumbled before the service-sector report was released. The Dow Jones industrial recovered some losses in a late-afternoon rally to close 100 points down for the day.

Retail and wholesale trade, transportation services and hotels all showed strength in August, according to the ISM report. Educational service companies, recreation and entertainment firms, health care, finance and insurance businesses all reported declines.

Last week, ISM said its manufacturing index fell in August to a reading of 50.6, barely above the 50 threshold that separates contraction from growth.

The U.S. economy expanded in the first six months of the year at an annual rate of just 0.7 percent — the slowest growth since the recession officially ended two years ago.

Since then, consumer and business confidence has been sapped by a raft of bad economic news: lawmakers in Washington fought over raising federal borrowing limit, Standard & Poor's downgraded rating on long-term U.S. debt, the debt crisis in Europe worsened, and the stock market tumbled in late July and early August. The Dow is more than 12 percent lower than its close on July 21.

President Barack Obama will offer a plan to boost job growth during an address to a joint session of Congress on Thursday.

Still, the president is unlikely to win support for any stimulus spending from congressional Republicans, who say the president's economic policies have failed. They want further spending cuts and less government regulation.

The economy needs to add roughly 250,000 jobs a month to make a major dent in the unemployment rate, which has been above 9 percent in all but two months since May 2009.

Many economists believe that the economy will grow only 2 percent growth in the second half of this year, far below the pace needed to power significant job gains.