U.S. Economy: Services Expand Less Than Forecast (Update1)

By Courtney Schlisserman

Jan. 6 (Bloomberg) -- Service industries in the U.S. barely expanded in December, underscoring Federal Reserve forecasts that the economic recovery will be slow to develop.

The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy rose to 50.1 from 48.7 in November, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. Other reports today showed job cuts are diminishing.

Services from retailing to transportation are lagging behind the rebound in manufacturing as consumer demand is restrained by tight credit and 23 months of job losses. Economists surveyed last month projected the pace of growth will keep unemployment above 10 percent through the first half of this year, making it more likely central bankers will keep interest rates low for an “extended period.â€