Service industries expanded in March at its slowest rate in the last seven months. Companies also added lesser workers than the estimates of economists. These are indicators that the economy of the United States is beginning to cool.
According to the Institute for Supply Management, its non-manufacturing gauge dropped to 54.4 from the one year high of 56. The reading was in line with its average over the past 12 months. Private employment increased 158,000 in March, which is the smallest advance since October.
The slower growth in services as well as the earlier reported decrease in the pace of manufacturing indicated the risk to the economy from the across the board spending cuts in the federal budget. Income gains and low borrowing costs could give a buffer for retailers. At the same time, the housing market rebound can benefit builders, realtors and lenders.
The Standard & Poor’s 500 Index dropped from its record level and Treasury yields fell after the release of the report. The S&P 500 fell 1.1 percent to 1,553.69. The yield on the benchmark 10-year Treasury note dropped to 1.81 percent from 1.86 percent yesterday.
The average forecast made by 73 economists in a poll made by Bloomberg saw a drop to 55.5 in the ISM index. A reading higher than 50 in the gauge means expansion in the sector that accounts for 90 percent of the economy.
15 non-manufacturing industries reported growth in March. These included real estate, finance and construction. Retailers predict the pace of sale to be sustained. Macy’s, which is the second largest department store chain in the United States, said sales at stores open at least a year will go up 3.5 percent in 2013.
The ISM non-manufacturing poll’s measure of new orders dropped to 54.6 from 58.2. The employment gauge dropped to 53.3 in March from 57.2, which is the largest decline in four years.