Ahead of the Bell: ISM service sector index

NEW YORK - Economists expect a trade group's measure of the health of the U.S. services sector contracted in June at its slowest pace in nine months.

The Institute for Supply Management's services index likely clocked in at 45.5 in June, according to analysts polled by Thomson Reuters. That would be up from 44 in May. Any reading below 50 indicates the services sector is shrinking.

If accurate, June would mark the ninth straight month of deterioration in the services sector. The reading, however, would be the index's best showing since September, when it posted a 50.

Service industries such as retailers, financial services, transportation and health care make up about 70 percent of the country's economic activity. Any turnaround in the sector requires improved consumer spending.

The ISM, a Tempe, Ariz.-based trade group of purchasing executives in 18 industries, is scheduled to release the report Monday at 10 a.m. EDT. The index is based on a survey of the institute's members and covers indicators such as new orders, employment and inventories.

New orders, which are essential for businesses' expansion, shrank faster in May than in April. The backlog in orders — or projects in the pipeline — also declined.

The country's restaurants, shops, professional and other service providers have been hurt as consumers save more and spend less.

The government said Americans' savings rate was the highest in more than 15 years in May. During that month, consumer spending rose only 0.3 percent, even as incomes increased 1.4 percent.

And after big jumps in the prior two months, the Conference Board said consumer confidence fell in June as unemployment grew to a 26-year high of 9.5 percent.

Newspaper publisher Gannett Co., hit with an accelerating slump in ad revenue, said last week it plans to cut 1,400 jobs in the next few weeks, about 3 percent of the work force. Social-networking site MySpace, owned by News Corp., last month announced 720 job cuts in the U.S. and overseas. Even Harvard University said it was slashing 275 staff jobs as its endowment shrank.

Economists are hopeful that economic activity will pick up again in the current July-September quarter as manufacturing declines slow and big banks are deemed healthy enough to pay back government bailout funds. Federal Reserve Chairman Ben Bernanke, and many private economists, expects the recession to end this year.

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