U.S. service-sector growth cools

WASHINGTON - U.S. service-sector companies grew in November at the weakest pace since June, the Institute for Supply Management said Wednesday.

The institute’s service sector index fell to 53.9 in November, down from 55.4 in October. Any reading above 50 indicates expansion. The index hit an eight-year high of 58.6 in August.

The report was one of three released Wednesday, including a Commerce Department report on new-home sales in October and a measure of payroll growth in November.

A measure of sales in the service-sector report fell sharply last month to 55.5 from 59.7. While that is still above 50, the decline suggests consumers were more reluctant to spend than they were earlier this year. The sales figure reached 62.2 in August.

And a gauge of hiring in the institute report fell to the lowest level since May. That’s a sign job gains may have slowed in November. The government will report last month’s hiring figures Friday.

Economists weren’t overly concerned by the declines. They noted that the level of the index still points to steady growth. The government’s report on gross domestic product, the broadest measure of goods and services, will be released today.

“The fall … is a bit disappointing, but the survey is still consistent with decent GDP and jobs growth in the fourth quarter,” said Paul Dales, an economist at Capital Economics.

Eleven of the 17 industries tracked by the survey expanded last month, including transportation and warehousing, retail, and finance. Six contracted, including mining, restaurants and hotels and construction.

Growth in the service industry has been steady this year. The Institute for Supply Management’s index has averaged 55 over the past 12 months.

The survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms. Nearly 86 percent of job gains in the past three months have been in the service sector.

Many of those jobs created have been in lower-paying industries, such as retail, restaurants and hotels. That’s a big reason that workers’ paychecks have barely kept ahead of inflation.

Consumers’ spending drives nearly 70 percent of economic activity and typically has a large influence on the institute’s services index. Recent reports on spending have painted a mixed picture.

Spending at retail businesses rose 0.4 percent in October, after no change in September. That was a sign Americans were willing to shrug off the government shutdown and keep shopping.

Americans ramped up purchases of new homes in October after three months of soft sales, evidence that the housing recovery is improving fitfully.

Sales of new homes grew 25.4 percent to a seasonally adjusted annual rate of 444,000, the Commerce Department said Wednesday. That was the largest monthly percentage increase since May 1980.

But the increase came after sales had fallen 6.6 percent in September to a 354,000 annual rate, the weakest since April 2012. And sales in August and July were revised lower to 379,000 and 373,000, respectively.

Sales had slowed over the summer after mortgage rates rose sharply and a limited number of homes for sale increased prices. The combination made home buying less affordable.

New-home sales have risen 21.6 percent higher for the 12 months ended in October. Still, the pace remains well below the 700,000 consistent with a healthy market.

“The report suggests sharp weakening through September and then a rebound in October, but the volatility in the data argues against putting much emphasis on a single month,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics.

Prices for new homes eased in October. The median price fell 4.5 percent to $245,800 from September and has declined slightly over the past 12 months.

The number of new homes available for sale was 183,000 in October. That’s still relatively lean - at the August sales’ pace of 379,000 a year, it would almost take five months to exhaust the supply.

In the third report released Wednesday, the ADP Research Institute said companies increased payrolls in November by the most in a year.

The 215,000 increase in employment exceeded the most optimistic forecast in a Bloomberg survey and followed a revised 184,000 gain in October that was larger than initially estimated. The median forecast of economists called for a 170,000 advance.

Stronger job growth helps provide working Americans with the income gains needed to increase consumer spending at the same time retailers seek to spur Christmas sales with discounted merchandise. Federal Reserve policymakers are watching labor-market progress as they debate when to scale back record monetary stimulus.

“Not only is the job market healthy, but it’s improving going into year-end,” said Brian Jones, senior U.S. economist at Societe Generale in New York, whose forecast for a 210,000 gain was the highest in the Bloomberg survey. “We’re optimistic on growth next year, continued improvement, further reductions in the [unemployment] rate.” Information for this article was contributed by Christopher S. Rugaber; by Josh Boak of The Associated Press; and by Jeanna Smialek of Bloomberg News.