Services Sector Slows, Lowest Level Since February 2010

The pace of growth in the services sector ticked down unexpectedly in July to the lowest level since February 2010, while the number of jobs created by the private sector also slowed, separate reports showed on Wednesday.

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.

A reading above 50 indicates expansion in the sector. The new orders gauge slipped to 51.7 from 53.6, while employment fell to 52.5 from 54.1.

"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," said Rudy Narvas, senior economist at Societe Generale in New York.

"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."

As well, new orders received by U.S. factories fell in June, pulled down by weak demand for transportation equipment.

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.

U.S. stocks fell to a new low for the year shortly after the data.

Earlier on Wednesday data showed employers added 114,000 jobs in July, coming in modestly above expectations, but still fewer than the month before.

Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 100,000 jobs. June's private payrolls were revised down to an increase of 145,000 from the previously reported 157,000. The report is jointly developed with Macroeconomic Advisers LLC.

The data comes ahead of the U.S. government's key jobs report on Friday, which is forecast to show the pace of job creation accelerated last month. The economy is expected to have gained 85,000 jobs, not enough to push the unemployment rate below its current 9.2 percent.

Also on the labor market front, the number of planned layoffs at U.S. firms jumped to a 16-month high in July as sectors which had been seeing fairly few layoffs unexpectedly bled jobs.

Employers announced 66,414 planned job cuts last month, up 60.3 percent from 41,432 in June, according to a report from consultants Challenger, Gray & Christmas, Inc.

Layoffs in the pharmaceutical and retail sectors overtook nonprofit and government job cuts last month.

Job cuts at Merck & Co., Borders, Cisco Systems, Lockheed Martin and Boston Scientific accounted for 57 percent of the July total, according to Challenger, making July the first month in seven in which the government sector did not shed the most jobs.

A round of data on the housing market gave a mixed picture of the sector. Home prices rose in June for a third straight month but were still down compared to a year earlier in a continued hangover from the expiration of last year's tax credit, according to data analysis company CoreLogic.

But a separate report showed applications for U.S. home mortgages rose last week as interest rates fell.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 7.1 percent in the week ended July 29.

(Additional reporting by Alexandra Alper and Chris Reese)