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Instant view: Service sector growth slows in July

NEW YORK (Reuters) - Service sector growth slowed in July but stayed above a level indicative of growth, the Institute for Supply Management said on Wednesday.

FACTORY ORDERS:

Factory orders were down in June due to weak demand for transportation equipment.

KEY POINTS: * The pace of growth in the U.S. services sector ticked down unexpectedly in July to the lowest level since February 2010. * The Institute for Supply Management said its services index fell to 52.7 last month from 53.3 in June. The reading fell shy of economists' forecasts for 53.6, according to a Reuters survey. * The Commerce Department said orders for manufactured goods fell 0.8 percent after a revised 0.6 percent increase in May. Economists had forecast a 0.7 percent decline after a previously reported 0.8 percent rise.

COMMENTS:

GREG SALVAGGIO, SENIOR VICE PRESIDENT, TEMPUS CONSULTING, WASHINGTON:

"They are not as bad as the manufacturing numbers were earlier this week. I think it's the same story. The U.S. economy is stagnating. Clearly the job outlook is deteriorating right now. So we are seeing the market very, very risk averse for the time being, thinking about the possibility of a double-dip, with some economists forecasting as much as a 50 percent probability of that.

"We have to look to the jobs report on Friday. If the number on Friday shows a rise in unemployment and less than 75,000 jobs created, I think the possibility of a QE3 is going to start emerging again."

JAMES O'SULLIVAN, CHIEF ECONOMIST, MF GLOBAL, NEW YORK

"It's weaker-than-expected, but it's not a collapse by any means. Combined with the manufacturing figures earlier, this is consistent with a just-under-2-percent growth pace for GDP. That said the ISM numbers and the GDP have not lined up so well this year, particularly in the first quarter when GDP was much weaker than the ISM numbers had suggested.

"These numbers suggest a weak start to second half, but we are still likely to see a pickup in the growth in the second half of the year.

"It's still too early for the Fed to raise expectations for another round of stimulus. It is too soon to give up on hopes on a rebound in the second half and inflation is still showing that it's picking up."

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:

"I don't think it had any newer information compared with what we've seen before so it's more confirmation of what we've already seen, which is that things are relatively slow. I don't buy the double-dip, but I call it muddling along. I think the interesting thing about this series of information that's coming through, especially in the last few days, the markets seem to be incorporating that, (as opposed to) a few weeks ago. I think they're incorporating this view."

ALAN LEVENSON, CHIEF ECONOMIST, T. ROWE PRICE, BALTIMORE:

"The manufacturing and non-manufacturing surveys often move together. The weakness in the manufacturing survey on Monday opened the door for a lower reading on this index.

"Given its record as a forecasting tool, I don't think it's different enough from what had been expected by us to change anyone's view of things. At the same time, I would make the point that these surveys are soft data, asking if things are better or worse, not how much better or worse."

NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS

"A number like that - it still is showing growth. But it doesn't give any indication of pulling out of the malaise that we have been in for a little while now, which is growth is positive but not strong enough to create many jobs, to bring the unemployment rate down. The best we can say is it didn't show a major break for the downside as we saw in manufacturing earlier this week."

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"I think as advertised by the ISM manufacturing board, the service component also slowed. I think this report will likely be received as not as bad as feared. But like manufacturing, the trend is undeniable. We have been slowing now since the beginning of the year. This will not quell the chatter in the market that we may be moving toward a recession.

"I don't think anyone should doubt the creativity of the Fed but I don't know what they have left in their bag of tricks. I don't think another QE is the remedy. We've had two rounds and here we are still looking at a slowdown.

"There has just been one bad number after another and it's beginning to weigh on sentiment in the markets."

RUDY NARVAS, SENIOR ECONOMIST, SOCIETE GENERALE, NEW YORK:

"It is slightly weaker than expected, most of the key gauges were down. It looks like this confirms that we are in a bit of a soft patch here, although not as soft as the manufacturing data, and if you look at what the respondents are saying it doesn't seem to be as tied to concerns about the debt ceiling, which the manufacturing survey seems to be pointing to.

"It is not pointing to recession, but we still have to see how the data turns out -- the data is a little bit all over the place these days and the risk is things are not looking as bright as they were in June or prior to that."

MARK LEHMANN, PRESIDENT OF JMP SECURITIES IN SAN FRANCISCO:

"The ISM number shows continued malaise in the economy. It continues to demonstrate that the recent outlook has dissipated. Every indicator we've had has confirmed that. The ADP report was a nice kicker, but not enough to overcome some of the things we've seen recently. There are more clouds than there were a few months ago, and the euphoria over the debt ceiling deal has disappeared, leaving us with weak growth prospects."

MARKET REACTION: STOCKS: U.S. stock indexes were little changed BONDS: U.S. bond prices cut losses FOREX: The dollar was little changed

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