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US Service Sector Expands Slightly Less Than Expected; Factory Orders Fall More Than Expected

Waitress Sheila Abramson at Langer's Delicatessen serves customers in Los Angeles, California.
Getty Images
Waitress Sheila Abramson at Langer's Delicatessen serves customers in Los Angeles, California.

The pace of growth in the vast U.S. services sector slowed in April to its weakest pace in nine months, an industry report showed on Friday.

The Institute for Supply Management said its services index fell to 53.1 last month from 54.4 in March, short of economists' forecasts for 54. It was the lowest level since July.

A reading above 50 indicates expansion in the sector.

The employment index pulled back to 52 from 53.3, though new orders held up better, ticking down a hair to 54.5 from 54.6.

Domestic demand looked stronger than demand from abroad as imports grew to 58.5 from 57.5, while exports fell to 53.5 from 56.5. Inventories rose to 56 from 51.5.

Earlier on Friday the U.S. Labor Department's non-farm payrolls report showed U.S. employment rose more than expected in April, and that hiring was much stronger than previously thought in the prior two months.

However other recent data has shown that after reaccelerating in the first quarter, the economy might have cooled again heading into the second quarter, a pattern seen in recent years that has become known as the "spring swoon".

In other data, new orders for U.S. factory goods recorded their biggest drop in seven months in March, but a gauge of planned business spending rose slightly, suggesting businesses are continuing to spend despite a slowdown in factory activity.

The Commerce Department on Friday said orders for manufactured goods dropped 4 percent. Economists polled by Reuters had forecast orders falling 2.6 percent after a revised 1.9 percent increase in February.

Factory orders were dented by the aircraft industry, which is prone to sharp swings.

Orders for non-defense capital goods excluding aircraft — a closely watched proxy for business spending plans — rose 0.9 percent instead of the previously reported 0.2 percent increase. While often looked at as a core reading for orders, this measure has also been quite volatile in recent months. In February, it fell 3.2 percent.

(Click here to track the U.S. stock market reaction to this economic report.)

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