Business

Service sector shrinks at slower pace in June

The U.S. services economy -- from retailers and restaurants to real estate brokers -- contracted less than expected in June in its best showing since before the financial crisis struck last fall, according to a private trade group's gauge.

But with rising unemployment and constrained credit driving consumers to spend less and save more, one analyst says a sustained economic recovery likely is years, not months, away.

"It's going to take a long time before the economy is really back up to its potential," said Capital Economics analyst Paul Ashworth.

While the U.S. should see growth in the next few months, he said it could be 2011 or 2012 before the economy reaches a rate of activity that helps boost wages, he said.

The Institute for Supply Management on Monday said that its services index rose to 47 in June from 44 in May. Economists polled by Thomson Reuters had expected a June reading of 45.5.

Any reading below 50 indicates the services sector is shrinking, and June marked the ninth straight month of contraction. Still, it was the best showing since September when the index was at 50.

Service industries such as retailing, financial services, transportation and health care make up about 70 percent of the country's economic activity. Any turnaround in the sector requires improved consumer spending.

The country's restaurants, shops, professional and other service providers have been hurt as consumers save more and spend less amid the longest recession since World War II.

Business activity, new orders and employment contracted at a sharply slower pace in June than in May, according to the ISM survey. All three hit their highest levels since September.

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