Services firms expand at slowest pace in 17 months

WASHINGTON – Service businesses such as restaurants, hotels and financial companies experienced their weakest growth in 17 months in July.

The report Wednesday from the Institute for Supply Management confirms other data that show the economy is struggling two years after the recession officially ended.

The trade group of purchasing executives said its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.

A slumping service sector put Wall Street on track for another wild day of trading. The Dow Jones industrial average fell more than 150 points after the report was released. But a late-day rally erased all the earlier losses, and the Dow closed up 29 points to end an eight-day losing streak.

The ISM index covers 90 percent of the work force. It reached a five-year high of 59.7 in February, but has fallen since then. The July reading was the lowest since February 2010.

New orders to service companies, an indication of future business, increased but at the slowest pace since August 2009, according to the ISM report. Services firms are still hiring more workers, the report said. But employment growth dipped in July.

The report "suggests that the economy is not slipping into a recession but instead that growth is very weak," said Paul Dales, an economist at Capital Economics.

Separately, the Commerce Department reported that businesses cut orders for airplanes, autos and heavy machinery in June. Factory orders dropped 0.8 percent, the second decline in three months.

Demand for durable goods fell 1.9 percent in June. Durable goods are products that are expected to last at least three years.

A key measure of business investment plans increased slightly, a positive sign amid mostly gloomy data. But business demand for transportation equipment fell 8.6 percent. That was mostly because of a big decline in volatile orders for commercial aircraft. But orders for autos and auto parts also dropped.

The reports follow a slate of dismal economic news.

Economic growth slowed to less than 1 percent in the first six months of this year, the government said Friday.

Consumer spending, which fuels 70 percent of economic activity, fell in June for the first time since September 2009.

And manufacturers recorded their weakest growth in two years in July, according to the separate ISM manufacturing index that was released Monday.

As the economy has slumped, so has hiring. Employers added only 18,000 jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest level this year.

The Labor Department said Wednesday that unemployment rates rose in more than 90 percent of U.S. cities in June, mirroring the national slowdown in hiring.

The government will release the July jobs report Friday. Economists predict only 90,000 jobs were added last month and the unemployment rate was unchanged, according to a survey by FactSet. The economy needs roughly three times that many jobs to reduce the unemployment rate.

High gas prices and scant wage increases have left many Americans with little money to spend on discretionary goods, such as furniture, electronics, and appliances. Purchases of those products have fallen for three straight months.

Most economists have reduced their economic growth forecasts based on the recent string of weak data. Dales now expects growth of only 2 percent in the second half of the year, down from an earlier forecast of 2.5 percent.

The ISM, a trade group of purchasing executives based in Tempe, Ariz., compiles its service sector index by surveying about 375 purchasing executives across the country.

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AP Economics Writer Martin Crutsinger contributed to this report.