Defying expectations, the U.S. service sector expanded at a slightly faster pace in August -- but remains too weak to help a sluggish economy that's not creating enough jobs.
August saw spotty growth and higher prices paid for raw materials, a survey of senior executives noted.
The Institute for Supply Management on Tuesday said that its service index rose to 53.3 percent in August, up from 52.7 percent in July.
Any reading over 50 percent is an indication that more firms are expanding rather than contracting. But despite this good news, the index is still well below its recent peak of 59.7 percent in February, when it reached a five-year high.
The service sector includes everything from restaurants and hotels to health care firms and financial service companies. It has grown in all but one month over the past two years. The sector employs about four of every five workers and it accounts for three-quarters of all economic activity.
The ISM report is one of the few indicators in recent weeks to show some kind of improvement in the U.S. economy.
But despite the gain, the report stated that Respondents' comments remain mixed. There is a degree of uncertainty concerning business conditions for the balance of the year.
Overall growth among service businesses has declined in four of the past six months. Faced with high gas prices and limited wage gains consumers have less money to spend on services.
The private trade group has said its gauge of hiring for service companies fell last month, and that follows an unpleasant report on Friday that the economy added no net jobs last month.
Stocks also took a tumble before the report was released, with the Dow Jones industrial average falling more than 250 points in the first hour of trading.
Those losses followed sharp declines in European indexes and come on the heels of fears that the U.S. economy could be at risk of another recession.
U.S. President Barack Obama intends to unveil his jobs plan during an address to a joint session of Congress on Thursday. The plan is aimed at reducing the country's unemployment rate, which now stands at 9.1 percent.
Obama has plans to rebuild America's infrastructure and boost hiring. There are more than a million unemployed construction workers across the nation who he wants to put back to work on the roads and bridges across the country that need rebuilding.
During a speech on Monday at a Labor Day event at a General Motors plant parking lot in Detroit, Obama said there are private companies with the equipment and the manpower to do the work. Obama also said he intends to work together with both Democrats and Republicans to make America's rebuilding a success.
I still believe both parties can work together to solve our problems, Obama said. And given the urgency of this moment, given the hardship that many people are facing, folks have got to get together.
Still, it is unlikely that Obama will win support for any stimulus spending from congressional Republicans, as they have claimed that his economic policies have failed. Republicans control the U.S. House and they have shown some resistance to any new spending that would add to the federal budget deficit. They also want less government regulation.
Another 250,000 jobs a month is needed to make a major dent in the unemployment rate, according to The Associated Press, which also reported that many economists believe that the economy will grow only 2 percent growth in the second half of this year, far below the pace needed to power significant job gains.