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In ominous sign, service sector workforces get smaller

WASHINGTON — Two days before the government’s much-anticipated jobs report, a snapshot of employment trends in the service sector flashed an ominous sign.

Hotels, restaurants, banks and other service companies, which employ 90 percent of Americans, reduced the size of their workforces in September, according to a survey of purchasing managers conducted by the Institute of Supply Management.

The Labor Department’s monthly jobs report will be released Friday. The last time it showed a net loss of jobs was in September 2010 — one month after the ISM’s monthly survey signaled the same trend.

“The sharp drop in September is quite worrisome,” said Joshua Shapiro, an economist at MFR Inc., in a note to clients. “If this was not an aberration, in all likelihood we are going to see private … payrolls disappoint in the months ahead.”

The ISM said Wednesday that its hiring index fell below 50 for the first time since August 2010. A reading below 50 suggests companies laid-off workers, while a reading above 50 suggests they added jobs.

The economy lost jobs for two straight months the last time the ISM’s gauge fell below 50.

The government’s August jobs report showed no net gain in hiring. Economists forecast the economy added 56,000 jobs in September.

The service industry did expand in September for the 22nd straight month, according to the trade group’s survey. But growth was slightly slower than the previous month.

Payroll processor ADP Wednesday offered a slightly more positive outlook on job growth in September. It said private companies added 91,000 jobs last month, essentially the same level of job growth as August.

The ADP numbers haven’t been consistent with the government’s figures on job growth. They also don’t measure government hiring.

Economists said the two reports confirmed other data that show the economy is growing too slowly to lower the unemployment rate, which is likely to stay at 9.1 percent for a third straight month.

“The economy continued to limp along in September but there is no suggestion in the data thus far that the economy is slipping into recession,” said John Ryding, an economist at RDQ Economics, in a note to clients.

Hotels, restaurants and financial service firms were among those companies that saw less business in September. Meager pay increases and higher food and gas prices have forced many Americans to spend more carefully.

There were some positive signs in the ISM report. New orders rose to their highest level since May, and order backlogs grew for the first time in four months.

Growth wasn’t broad-based in September. Nine sectors reported expansion, including utilities, transportation and warehousing, health care, and retail.

Eight sectors said they contracted, including educational services, real estate, hotels and restaurants, and financial services.

Many respondents to the survey said that uncertainty about the future direction of the economy was weighing on their business.

“It appears everyone is waiting to see what happens next,” said an executive in the hotels and restaurants sector. “No trust in the economy or the federal government to do what is needed.”