Fiscal recovery not in the bag

Job cuts by service companies raise red flag about economy

Cashier Denise Cruz checks out customers' purchases at a hardware store in Los Angeles Tuesday, Oct. 4, 2011. Service firms that employ 90 percent of the U.S. work force grew at a slower pace in September, evidence that the economy is growing but at a sluggish pace.

WASHINGTON — Service companies cut workers last month for the first time in 13 months, according to a private survey. The decline is a pessimistic sign right before the government reports on job growth in September.

The Institute for Supply Management said its measure of hiring for service firms, which employ 90 percent of the work force, fell below 50 for the first time since August, 2010.

Any reading below 50 suggests companies laid off workers. The economy lost jobs for two straight months the last time the gauge was below that level.

"The sharp drop in September is quite worrisome," Joshua Shapiro, an economist at MFR Inc., said in a note to clients. "If this was not an aberration, in all likelihood we are going to see private ... payrolls disappoint in the months ahead."

The service industry did expand in September for the 22nd straight month, according to the trade group of purchasing managers. But growth was slightly slower than the previous month. The trade group's growth index dipped from 53.3 to 53. Any reading above 50 suggests expansion.

Hotels, restaurants, and financial-service firms were among those companies that saw less business. Meager pay increases and higher food and gas prices have forced many Americans to spend more carefully.

There were some positive signs in the report. New orders rose to their highest level since May, and order backlogs grew for the first time in four months.

Still, economists said the report confirmed other data that show the economy is growing too slowly to lower the unemployment rate.

Payroll processor ADP said private companies added 91,000 jobs in September, essentially the same level of job growth as August.

Experts expect the economy added 56,000 jobs in September and that the unemployment rate stayed at 9.1 percent for a third straight month. The report will be released tomorrow.