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Published: Thursday, 5/5/2011 - Updated: 3 years ago

Service-sector growth slows

Decreased demand exacts a toll

ASSOCIATED PRESS
Zen hotel maid Ereyda Yanez cleans a hotel bathroom where she works in Palo Alto, Calif. The U.S. service sector, which employs nearly 90 percent of the nation's work force, grew a 17th-straight month. Zen hotel maid Ereyda Yanez cleans a hotel bathroom where she works in Palo Alto, Calif. The U.S. service sector, which employs nearly 90 percent of the nation's work force, grew a 17th-straight month.
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WASHINGTON -- The U.S economy's service sector grew last month at the slowest pace since August, renewing concerns that more expensive gas and food may be weakening growth.

Service companies, which employ 90 percent of the nation's work force, still expanded for the 17th-straight month. But their growth slowed considerably because of a sharp drop in demand for their services, the Institute for Supply Management said Wednesday.

The private trade group of purchasing executives said its index of service-sector activity dropped to 52.8 last month. That's down from 57.3 in March and a five-year high of 59.7 in February. Any reading over 50 indicates expansion.

The trade group measures activity for a range of industries, including retail, health care, financial services, and construction. The index plummeted to 37.6 in November, 2008, at the height of the financial crisis. The sector contracted for all but three months in 2009.

Many companies and economists said the decline in April reflects the impact of rising gas and food prices. Gas prices averaged $3.98 Wednesday, up 1.5 cents from Tuesday and 32 cents higher than a month earlier, according to the AAA's daily price gauge. Retail food prices rose in March by the most in nearly three years, according to the government's latest report on inflation.

The spike in costs for basic necessities, such as gasoline, has left consumers with less money to spend elsewhere, leading to a decline in demand for services. The service-sector's measure of new orders plummeted to its lowest level since December, 2009.



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