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U.S. service sector grew in June, but at slower pace

WASHINGTON — The U.S. service sector, which employs nearly 90 percent of America’s work force, expanded for a 19th consecutive month in June. But growth slowed from May, a sign that the economy remains sluggish.

The Institute for Supply Management said Wednesday that its index for service companies dipped 53.3 in June from 54.6 in May. Any reading above 50 indicates expansion.

The private trade group measures activity for a range of industries including retail, health care, financial services and construction.

The index reached a five-year high of 59.7 in February. But since then growth has retreated. The index plunged to a low of 37.6 in November 2008 at the height of the financial crisis. The sector contracted for all but three months in 2009.

High gas and food prices have left consumers with less money to spend on discretionary goods, such as vacations, appliances and furniture. That has hurt retailers, restaurants and hotels. The index fell to 52.8 in April, the lowest reading since August.

Gas prices have declined since peaking in early May at a national average of nearly $4 per gallon ($1.05 a liter). That should make it easier for consumers to spend more on other goods. Gas prices averaged $3.56 a gallon nationwide on Tuesday, according to AAA.

A separate ISM index that tracks activity in the manufacturing sector expanded in June at a faster pace than the previous month, as supply disruptions stemming from Japan’s earthquake faded.

Still, most economists say the economy grew at a weak pace in the April-June period. Growth likely came in little better than the 1.9 percent annual pace recorded in the first three months of the year.

Many economists expect growth to rebound a bit in the second half of the year. It should rise to 3.2 percent in the July-December period, according to an Associated Press survey of 38 economists.

Growth must be stronger to significantly lower the unemployment rate, which was 9.1 percent last month. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.

Employers added only 54,000 net new jobs in May, much slower than the average gain of 220,000 per month in the previous three months.

The government reports Friday on hiring data in June. Economists expect the economy added only 90,000 jobs and the unemployment rate was unchanged, according to survey by FactSet.