ISM: Service Sector Shrinks in June, Inflation Soars

Thursday, July 3, 2008 10:26 AM

NEW YORK -- The U.S. service sector shrank unexpectedly in June, according to a report released Thursday, while inflation pressures soared to a record high for the survey's 11-year history.

The Institute for Supply Management's non-manufacturing index came in at 48.2 for June, versus 51.7 in May.

A reading below 50 signals contraction.

Economists had expected a reading of 51.0, according to the median of 76 forecasts in a Reuters poll.

ISM's measure of employment in the service sector also hit a record low, which could fan fears of low growth and high inflation known as stagflation.

The service sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.

The services report follows an ISM gauge on Tuesday that showed manufacturing expanded in June for the first time in five months, helped by a weak dollar. That report also showed inflation pressures soared to their highest since the stagflation-ravaged 1970s.

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