NEW YORK Higher oil prices caused service businesses to shrink in June, as falling new orders and rising costs hit the nation's coffee shops, paper mills and corner stores.
The Institute for Supply Management said Thursday that the services sector index fell to 48.2 in June from 51.7 in May. It missed economists' prediction of a reading of 51.0, according to the consensus estimate of Wall Street economists surveyed by Thomson Financial/IFR. A reading above 50 signals growth.
The sector had been growing modestly, while much of the rest of the economy stalled. June's decline in the sector, coupled with Thursday's employment report showing the sixth straight month of job losses, added to the recent streak of bad news about the economy.
Bruce Kane, a Smithtown, N.Y. home accessories manufacturers rep, said stores he sells to are afraid to place orders for Christmas. "Come September, with home heating oil prices, they don't know what the customer is going to do," he said.
The Dow Jones industrial average, which has declined more than 20 percent since its October highs, rose in morning trading, up 98.68 to 11,314.19. Broader indexes were also higher, with the Standard & Poor's 500 up 6.82 to 1,268.34 and the Nasdaq composite up 8.34 to 2,259.80.
Sharply higher prices paid led by fuel and food prices were the largest factor in the service index's decline. Oil briefly hit $146 a barrel in trading Thursday, an all-time high.
Randy Wester, who runs auctions of restaurants in Benson, N.C., said the restaurant owners he talks to daily are "barely breaking even."
"Very few of them are making any money," he said. "With food costs going up so much, no one is getting rich in the restaurant business."
Among the businesses reporting contraction in the survey were agriculture, forestry, hotels, restaurants, health care, finance, insurance and retail.
Growing industries included arts and recreation, mining, utilities and wholesale trade.