Service sector shrinks less than expected in June

A trade group's measure of the health of the U.S. services sector contracted less than expected in June, reaching its highest level in nine months.

The Institute for Supply Management on Monday said that its services index read 47 in June, up from 44 in May. Economists polled by Reuters had expected a reading of 45.5 last month.

Any reading below 50 indicates the services sector is shrinking, and June marked the ninth straight month of deterioration. But it was the best showing since September when the index was at 50.

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

The country's restaurants, shops, professional and other service providers have been hurt as consumers save more and spend less amid the longest recession since World War II.

The government said Americans' savings rate was the highest in more than 15 years in May, while the Conference Board said consumer confidence fell in June as unemployment grew to a 26-year high of 9.5%.

The ISM is a trade group of purchasing executives in 18 industries. Its index is based on a survey of members and covers new orders, employment, inventories and other indicators.

Business activity, new orders and employment all slid at a sharply slower pace in June than in May, according to the ISM survey. All three hit their highest levels since September, and business activity, at 49.8, is nearly in growth territory.

Real estate, finance and insurance, and food and hotel companies were among the six industries that actually reported growth last month.

The 11 sectors that posted declines included agriculture, retail, health care, educational services, and corporate support and management. Utilities were flat.

However, the prices businesses paid grew for the first time since October. Many commodities, including oil, have seen prices rise recently. The cost of future oil supplies last week hit their highest level in eight months.

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