Growth in the US service sector accelerated in September but unemployment lines lengthened, according to reports on Thursday that underscored an uneven and jobless recovery.
The Institute for Supply Management said its non-manufacturing index showed an eighth straight month of growth, rising to 53.9 in September from 50.9 in August. That placed the index firmly above the 50 level that divides growth from contraction and soothed some concerns the economy was headed back into recession.
Yet companies shed workers for the 19th straight month even as the service sector - which includes everything from banking to entertainment and makes up about three-quarters of the economy - expanded. The ISM employment index fell to 46.6 in September from 47.3 in August.
Job losses also caused new claims for unemployment benefits to rise to 417,000 last week, up from a revised 412,000. That was the sixth straight week above the 400,000 level, which is usually associated with a rise in the national unemployment rate, currently at 5.7 per cent.
"We have a very sluggish economic recovery, but I think the worst is behind us," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, North Carolina. "Still, businesses aren't really in the mood to hire more workers right now."
Reports all week showing job losses have heightened market concerns that the monthly employment report due today may show payrolls fell in September. The average forecast for economists polled by Reuters was for 5,000 new jobs created during the month - not enough to prevent the jobless rate from rising to 5.9 per cent.
Conflicting economic reports have created great uncertainty over whether growth is merely pausing or unraveling. The ISM report casts a ray of hope for the recovery.
"At a minimum, it shows that the slowing in the pace of economic activity that has become evident in recent weeks is not very dramatic yet," said Anthony Karydakis, senior economist at Banc One Capital Markets in Chicago.
Treasuries skidded lower after the ISM report, as most market participants were braced for a far weaker number. Stocks briefly made gains on relief that the US economy may only be pausing, not tipping back into recession. But the Dow Jones industrial average fell about 38 points or 0.5 per cent to close at 7,717 on profit worries.
News on the job market on Thursday was decidedly negative. The four-week moving average of jobless claims - seen as a more accurate measure because it smoothes out week-to-week fluctuations - rose for the eighth straight week to 423,000 in the week ended September 28, its highest level since early May, the Commerce Department said.
Continuing claims, a measure of the total number of unemployed workers collecting benefits, rose a sharp 29,000 during the September 21 week to 3.681 million. That was the highest level since mid-June.
"This is consistent with a plethora of evidence that even as the economy is managing sluggish growth, employment is stagnant," said Stephen Stanley, senior economist at Greenwich Capital Markets in Greenwich, Connecticut.
Most of the ISM survey's respondents were cautious about the outlook even as the new orders index - a barometer of future growth - rose to 52.3 in September from 51.6 in August.
"Cautious optimism prevails. Some members say their business is good, others say their business is not so good. It's still very much a mixed bag," said Ralph Kauffman, chairman of the survey committee, in a teleconference.
Another report released on Thursday showed caution in America's boardrooms. The Conference Board said its barometer of CEO confidence fell sharply in the third quarter to 54 from 61 in the second quarter.
It was the second straight quarterly decline in the index, compiled from a survey of 100 chief executives of US companies by the private business research group.
Separately, the government said factory orders were unchanged in August as strong demand for transportation equipment offset declines in many other sectors. Factory orders were flat at $326.63 billion, the Commerce Department said, but better than analysts' expectations for a drop of 0.5 per cent. July orders were revised downward, but nevertheless shot up 4.4 per cent during that month.
August durable goods orders, meanwhile, were revised upward to a decline of 0.4 per cent - not as bad as a previously reported drop of 0.6 per cent. But that was still a sharp pullback from the 8.5 per cent increase in July.