Tue Jul 6, 2004
By Pedro Nicolaci da Costa

NEW YORK (Reuters) - Growth in the U.S. services sector slowed in June but remained strong, while jobs figures suggested Americans were still having a hard time finding work.

The Institute for Supply Management's non-manufacturing data showed new orders and employment components gaining ground, but the overall index fell to 59.9 in June from 65.2 in May. Economists had been looking for a dip to 63.0.

Taken in the context of a recent pullback in the economic data, some economists viewed the report as more evidence that growth, while still solid, has started to ebb.

"It did decelerate to a still-strong pace, but in line with last week's deceleration in jobs, car sales and consumption in general, so I have to believe that maybe it may be reflective of some moderation in the economy," said Peter Kretzmer, senior economist at Banc of America Securities.

Any number in the survey above 50 indicates growth in services, which include everything from restaurants and hotels to banks and airlines, accounting for about 80 percent of the U.S. economy.

A harbinger of growth, new orders edged up to 62.4 from 61.3 and more companies said they intended to take on new workers -- ISM's employment index rose to 57.4 in June from 56.3 in May.

Yet a separate report showed that while the number of planned layoffs had fallen in June, the level of planned hirings also declined.

Employment research firm Challenger, Gray and Christmas said planned layoffs in the United States slipped to 64,343 in June, down from May's 73,368.

But corporate hirings, which Challenger began tracking in May, fell to 38,377 workers, down 31 percent from May's 55,307.

"The decline in June job cuts is good news, but it would not be surprising to see a rise in monthly job-cut announcements during the second half of the year," John Challenger, the firm's chief executive officer said in a statement.

Last week, the Labor Department said June U.S. non-farm payrolls grew by 112,000 jobs, less than half the level economists had forecast. Also job gains in April and May were revised lower, painting a much less favorable employment picture.

At the very least, the negative jobs news helped soothe concerns that with inflation picking up and the job market looking better, the Federal Reserve would have to raise interest rates faster than originally anticipated.

It now looks as if the Fed may have plenty of leeway to honor its pledge to be "measured" in hiking rates.

Like the services data, recent consumption figures have also exhibited signs of a slowdown, with June car sales reported last week falling far short of forecasts and retailers' results lagging in general.

That has prompted many economists to revise down their growth forecasts for the second quarter to around 3.5 percent from earlier estimates ranging from 4 percent to 5 percent.

TRANSPORATION RECORD

A separate report showed U.S. transportation activity rose to a record high in April.

The Transportation Department said its index for the sector rose 0.8 percent to 124.4 in April from a revised 123.4 in March.

The rise was the largest in the 14-year period of the survey, which is released by the Transportation Department's statistics agency. April's rise followed a 1.2 percent gain the previous month.

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