US service sector activity, retail sales down

NEW YORK — Further evidence that the economic recovery will be a slow and bumpy one emerged Thursday with reports that service sector activity and retail sales unexpectedly shrank in November as consumers held back on purchases.

The government did report one positive sign: New jobless claims dropped for a fifth straight week. But productivity gains in the third quarter showed that employers are managing to squeeze more work out of fewer workers. That’s an ominous sign for the nearly 16 million Americans looking for jobs — and for many others who fear losing theirs.

The government is expected to report Friday that employers shed 130,000 jobs in November and that the unemployment rate will remain at 10.2 percent. Companies have been laying off fewer workers. But they have yet to ramp up hiring, and the jobless rate is expected to expected to keep climbing into next year.

The Institute for Supply Management’s service sector index dropped to 48.7 from 50.6 in October. Analysts polled by Thomson Reuters had expected a level of 51.1. Any reading below 50 signals contraction. The service sector had begun growing in September for the first time in 13 months.

The ISM measure tracks more than 80 percent of the country’s economic activity, including such diverse industries as health care, retail, financial services and transportation.

The trade group said employment shrank for the 22^nd time in the last 23 months, albeit at a slightly slower pace, and business activity shrank again after growing for the past three months. New orders, a sign of future growth, continued expanding, however.

Earlier this week, the ISM said its manufacturing index dipped to 53.6 in November from 55.7. “For the moment, both indices remain at levels consistent with a continuation of the economic recovery,” Paul Dales of Capital Economics wrote in a research note. “But it is perhaps worrying that the strength of that recovery may be starting to fade so soon.”

The service sector reading “underscores the difficult conditions facing the overwhelming majority of U.S. businesses,” said Josh Shapiro, economist at research firm MFR Inc. More than 80 percent of non-farm U.S. jobs are in the service sector.

Stocks gave back most their earlier gains after the ISM report disappointed investors. The Dow Jones industrial average added about 5points in late-morning trading, and broader indexes also edged up.

The nation’s retailers suffered last month as a modestly positive start to the holiday shopping season couldn’t offset weak spending the rest of the month.

After posting two straight sales gains after more than a year of declines, merchants posted an unexpected 0.3 percent decrease for November, compared with a year ago when business plummeted to historic lows as spooked shoppers clamped down after the financial meltdown.

Meanwhile, the Labor Department said newly laid-off workers seeking unemployment benefits unexpectedly fell for the fifth straight week. First-time claims for unemployment insurance dropped by 5,000 to a seasonally adjusted 457,000, the lowest total since the week of Sept. 6, 2008.

The four-week average of claims, which smooths out fluctuations, dropped for the 13^th straight week to 481,250, about 180,000 below the peak for this recession reached this spring.

That’s still above the level that signals new jobs to economists. Many analysts say claims need to fall to about 425,000 for at least a month to signal that employers are adding jobs. The nation’s economy has lost jobs for 22 straight months.

The continued job cuts amid slowly growing business means employers must squeeze more out of the workers they have. The government also reported that productivity surged in the third quarter by the largest amount in six years, while labor costs fell.

The Labor Department revised its estimate of growth in output per hour of work to an annual rate of 8.1 percent in July-September period, the biggest jump since 2003, from an initial estimate of 9.5 percent. Unit labor costs fell at a 2.5 percent rate, less than the 5.2 percent plunge first reported.

While that indicates inflation is remaining under control, it also signals that workers’ wages are getting squeezed, raising doubts about the durability of the economic recovery.