RTTNews - Activity in the service sector continued to contract in August, according to a report released by the Institute for Supply Management on Thursday, although the index of activity in the sector increased by a little more than economists had been expecting.

The ISM said its index of activity in the service sector rose to 48.4 in August from 46.4 in July, with a reading below 50 indicating a contraction in the sector. Economists had been expecting a slightly lower reading of 48.0.

Respondents' comments are mixed about business conditions and the overall economy, said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee. However, there is an increase in comments indicating that there are signs of improvement going forward.

While the headline index indicated the 11th consecutive month of contraction, Nieves noted that the non-manufacturing business activity index rose to 51.3 in August from 46.1 in July. With the increase, the index reflected growth for the first time since September of 2008.

The report also showed that the new orders index rose to 49.9 in August from 48.1 in July, indicating a very slow pace of contraction. The employment index also edged up to 43.5 in August from 41.5 in the previous month.

At the same time, the inventories index fell to 43.0 in August from 47.0 in July, indicating a faster pace of contraction in inventories.

On the inflation front, the ISM said that the prices index jumped to 63.1 in August from 41.3 in July, signifying a substantial increase in the prices paid by non-manufacturing organizations for purchased materials and services.

The ISM released a separate report on Tuesday showing that activity in the manufacturing sector expanded in the month of August following eighteen consecutive months of contraction.

The group said its manufacturing index jumped to 52.9 in August from 48.9 in July, with a reading above 50 indicating an expansion in the sector. With the increase, the index rose to its highest level since June of 2007.

On average, economists had been expecting a more modest increase by the index to a reading of 50.2, which would have still indicated modest growth in the sector.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee said, The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July.

While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth, Ore added.

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