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Activity in the US service sector grew at the slowest pace in five months, although firms across the sector signaled that the slowdown will be temporary and have stepped up hiring in anticipation of better business.
Preliminary index of purchasing managers in the services sector by Markit Economics reached 50.9 this month, up from 51.4 in June. Economists had expected the index to rise to 52.0. The preliminary value reflects about 85% of responses that come in the final reading.
While the decline was unexpected and marked the lowest growth rate since March, the index still points to expansion, with a reading above 50.
Markit report on services sector is a snapshot of domestic demand, which measures the health of bars and restaurants, dry cleaners, and salons. Head for the majority of American jobs, a sector offset a smaller, but much weaker manufacturing sector. In recent months, the growth rate slowed down, as the uncertainty in the economy and the elections in 2016 gave some consumers and businesses pause.
In July, many service providers have reported a modest increase in new orders, although some firms said that the muted economic conditions affected the activity. Underpinned by expectations of growth in the coming months is that companies in the service sector added jobs better pace in three months. Respondents indicated plans to expand the business and hope to improve the economic conditions at Markit said, adding that some experts expect that activity will increase after the presidential election later this year.
"The US service sector is stuck in low gear at the beginning of the third quarter," said Andrew Harker, senior economist at Markit, but "more encouraging was the rebound in business confidence following the June survey, suggesting that a return to a stronger growth will be possible after the soft current period comes to an end. "
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