July 6, 2005

Service sector grows stronger; job gain

By Richard Leong

NEW YORK (Reuters) - Expansion in the vast U.S. service
sector picked up in June as employers added jobs, a survey
showed on Wednesday, hinting at a strong number in Friday's
payrolls report for last month.

The Institute for Supply Management said its
non-manufacturing index climbed to 62.2 from May's 58.5 after
slipping in April and May. Analysts had predicted the
non-manufacturing gauge likely dipped to 58.

The employment component of the ISM non-manufacturing index
rose to 57.4 percent for June, the third-highest ever, from
May's 53.4.

The solid rise in the sector's job growth boosted the
likelihood of a hefty increase in Friday's U.S. June nonfarm
payroll report after a moderate rise in May, analysts said.

"Employment improved, which is consistent with our view
that we will see a rebound in payrolls growth in June," said
Elisabeth Denison, an economist at Dresdner Kleinworth

Consulting firm Challenger, Gray & Christmas said planned
lay-offs jumped to 110,996 in June, the highest monthly total
since January 2004 and up from 82,283 in May. However, analysts
said there is not a strong correlation between the lay-off
number and the monthly payroll report.

Analysts polled by Reuters on average forecast that nonfarm
payrolls added 189,000 jobs in June, up from a 78,000 increase
in May.

The survey of purchasing managers at service companies
across the nation showed improvements in hiring and supplier
deliveries. But declines in the index's components on backlog
orders and new export orders offset the overall index's
surprise rebound.

"The headline was stronger than expected," said Denison.
"But the new orders component was pretty flat and the backlog
orders were down, so we don't see a lot of strength on the
capital spending side."

Growth of the service sector, which accounts for 80 percent
of the U.S. economy, is vital in creating jobs. Job growth has
been uneven at this point of the economic cycle, economists


Americans were in a spending-and-borrowing mood heading
into the July Fourth holiday weekend, despite a resurgence in
gasoline prices.

Two separate reports showed shopping gains for the week
ended July 2, boosted by hot weather and heavy promotions on
summer items.

The International Council of Shopping Centers and UBS said
chain store sales climbed 0.5 percent last week, rebounding
from a 0.6 percent decline the prior week.

Major U.S. retailers posted a 6.6 percent sales increase on
a year-over-year basis for the week ended July 2, according to
Redbook Research.

Historically low mortgage rates also enticed a fresh round
of loan applications for refinancing and home purchases, an
industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage application activity rose for the
first time in three weeks. The index was up 9.6 percent to
853.4 in the week ending July 1.