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Sep 3, 11:29 AM EDT

US services firms expand rapidly, lifted by strong sales

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WASHINGTON (AP) -- U.S. services companies expanded at a healthy pace in August, lifted by robust consumer spending resulting from steady job gains.

The Institute for Supply Management said Thursday that its services index slipped to 59 from 60.3 in the previous month. July's reading was the highest since August 2005, and any reading over 50 indicates expansion.

The index remains at a high level despite the decline and suggests that Americans have been spending freely at retail stores, hotels, restaurants and other firms that make up the index. The ISM is a trade group of purchasing managers. Its services survey covers businesses that employ 90 percent of workers, including construction firms and financial services.

The figures also indicate that China's faltering economy and gyrations in the U.S. stock market have not yet harmed services firms, which make up the bulk of the U.S. economy.

Most of the U.S. service sector is "less exposed to weakening in foreign demand, and more exposed to what increasingly appears to be strengthening domestic demand," says Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

A measure of sales and production fell one point but remained at a solid level of 63.9 in August. A gauge of new orders also fell slightly.

Hiring also expanded, though at a much slower pace. The survey's measure of job gains fell to 56 from 59.3. That suggests job gains could slow a bit in August compared with July. The government will release the official jobs report for August on Friday.

Steady economic growth has meant that nearly 8 million more people are earning paychecks than three years ago, boosting consumer spending.

That's also fueled home sales, which has helped service businesses such as real estate firms and construction companies.

U.S. manufacturers are facing greater headwinds. The dollar has risen about 15 percent in value in the past year, which makes U.S. goods more expensive overseas, holding back exports. It also makes imports cheaper compared with U.S. products. That has caused manufacturers to stumble.

On Monday, the Institute for Supply Management reported that factories grew in August at the slowest pace in more than a year. Its manufacturing index slid to 51.1 in August from 52.7 in July.

Still, greater spending has bolstered the economy in recent months. Growth accelerated to a 3.7 percent annual pace in the April-June quarter, up from an anemic 0.6 percent rate in the first three months of the year.

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