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Service Sector Growth Slips, Factory Orders Below Forecasts

The pace of growth in the U.S. service sector eased in December, although employment in the
sector improved and a price index rose to its highest level since last August, according to a report.

Separately, data on factory orders, pending home sales and initial job claims were also released this morning. This information showed a lower-than-expected increase in factory orders and another decline in the number of pending home sales. Meanwhile, the number of initial job claims rose a bit more than had been expected.

"(ISM services) was a little better than expected, but otherwise the other numbers were kind of off the mark," said Beth Malloy, a bond market analyst at Briefing.com. "But overall unfortunately, it's not going to do a lot for bonds because we are all looking out for tomorrow, specifically the payrolls number."

The Institute for Supply Management's services index edged lower to 57.1 in December from 58.9 in November, broadly in line with market expectations. The median forecast of Wall
Street economists was for a slight decline to 57.0. A number above 50 indicates growth in the sector.

"Manufacturing bounced a little in December but the flip side of that is that the larger, more important services sector of the economy finished the year below the stronger pace that
we saw earlier in the year," Chris Rupkey, vice president and senior financial economist at Bank of Tokyo-Mitsubishi in New York, told Reuters.

"The economy is running at a sub-trend pace and this is consistent with real GDP being on the weak side of its 3% potential rate," Rupkey said.

The services sector makes up about 80% of U.S. economy activity, including businesses such as restaurants, hotels, hair salons, banks and airlines.

The ISM survey's prices-paid index rose to 59.1 in December from 55.6 in November. December's prices paid index was the highest since August 2006. The employment index also grew to 53.3 from 51.6, but new orders were down to 54.4 from 57.1.

Factory Orders Rise Less Than Expected

Orders for U.S.-made factory goods rose 0.9% in November on strong demand for computers, transportation equipment and defense goods, the Commerce Department said.

But excluding transportation, orders for U.S. goods fell by 0.5% in November, suggesting slack in the overall manufacturing sector.

Orders for durable goods rose 1.6% in November, down from the 1.9% estimated by the government a week ago. Orders for nondurables, meanwhile, were flat.

Pending Home Sales Fall Again

The number of pending sales for existing-homes fell 0.5% in November, the third straight decline, the National Association of Realtors said.

The pending home sales index, which is often seen as an indicator of future housing demand, fell to 107.0 in November from 107.5 in October. The index is based on sales contracts for existing homes signed in November. Sales of existing homes are reported in a separate release once the sale closes, usually within a month or two.

The real estate trade group said the index is pointing to stabilization in the housing market.

The pending sales index is down 11.4% from November 2005. In July, when the index hit a three-year low of 105.6, the year-over-year decline was 16%.

Sales of existing homes were down 10.7% year-on-year through November's sales at 6.28 million seasonally adjusted annualized units. December's sales figures will be released on Jan. 25.

The realtors' group continues to forecast a gradual improvement in home sales by the end of the year.

Regionally, pending home sales fell 2.8% in the Northeast, 1.1% in the South and 2.6% in the West. Pending home sales rose 4.8% in the Midwest. Pending sales are down about 16% year-over-year in the West.

Jobless Claims Rise More Than Expected

Earlier, the number of workers filing new claims for unemployment benefits took an unexpected leap upward to its highest level since late November, according to the Labor Department.

The Labor Department said 329,000 newly unemployed workers filed applications for jobless benefits, an increase of 10,000 from the previous week.

The total number of claims was the largest since 358,000 claims were filed the week of Nov. 25 and the advance was well above the increase analysts had been expecting.

But even with the latest increase, the third consecutive weekly rise, claims continue to be at a level indicating a generally healthy labor market despite a slowing economy. The four-week moving average for weekly claims edged up to 317,500, compared to 316,250 the previous week. It was the highest level for the four-week average since Dec. 16.

Employers have been reluctant to lay off existing workers although they have trimmed plans to hire new workers in the face of the serious housing slump that has depressed overall economic growth.

Analysts believe that when the unemployment report is released on Friday it will show that the jobless rate remained stable at 4.5% in December as businesses created 110,000 new jobs. That would be down from 132,000 jobs added in November.

Challenger Shows Drop In Job Cuts

The government data painted a much different picture than surveys by two private firms.

Employment consultant Challenger, Gray & Christmas said its measure of announced corporate job cuts fell to below 1 milllion for the first time since 2000.

Planned U.S. job layoffs fell 29% in December from the previous month, bucking a typical spike in fourth-quarter job cuts, according to Challenger.

Announced layoffs totaled 54,643 in December, down from 76,773 in November and 49% lower than the 107,822 announced a year earlier, Challenger said. For the 2006 full year, planned job cuts totaled 839,822, down about 232,000 from 2005, Challenger said.

"I do think this is a sign of an ideal soft landing," said Chief Executive John Challenger, in an interview on CNBC's "Squawk Box." "The economy is slowing, but jobs have been strong. In fact, we have seen real wages going up for average Americans. It is really quite a benign time. The economy is near full employment, companies just can't afford to lay off their people."

Separately, online recruiting firm Monster Worldwide said its gauge of U.S. online job demand fell in December, in line with a seasonal slowdown in hiring.

Monster said its employment Index fell 8 points to 167, down from 175 in November. It was 145 a year ago, reflecting a 15% increase for 2006.

The Monster Employment index is a monthly analysis based on a review of more than 1,500 career sites, job boards and other Web sites.