Apr 6, 10:55 AM EDT

US service firms grew at slightly slower pace in March on weaker sales; orders, hiring rise

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WASHINGTON (AP) -- U.S. service firms expanded at a slightly slower yet still healthy pace in March, an encouraging sign after multiple reports last week pointed to a slowing economy.

The Institute for Supply Management said Monday that its services index slipped to 56.5 last month, from 56.9 in February. Any reading over 50 indicates expansion.

A measure of sales fell last month and dragged down the overall index. But gauges of hiring and orders rose, evidence that services firms may see solid growth in the coming months.

That suggests that recent signs of a weakening economy could prove temporary. The services figures come after a disappointing jobs report last week, which echoed a slew of other weak economic data this month. Employers added just 126,000 jobs in March, the fewest in 15 months.

"Based on this survey, rumors of the demise of the US economy have been greatly exaggerated," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients.

At the same time, service firms covered by the report, which include health care providers, hotels, restaurants, construction companies, and banks, are less affected by some of the trends which have held back manufacturing. Factory output has slowed partly because of a rapid rise in the value of the dollar, which makes goods exports more expensive.

Manufacturing firms were also hit by a labor dispute at ports in California, which delayed the shipping of needed parts and components.

Fourteen of 18 services industries reported growth in March, led by real estate, hotels and restaurants, and transportation and shipping.

Still, many analysts now forecast that the economy barely expanded in the first three months of this year. Growth has slowed dramatically in the last six months.

The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 percent of the American workforce, including retail, construction, health care and financial services companies.

The ISM's manufacturing index, released last week, fell for the fifth straight month in March. In addition to the strong dollar, factories have been held back by cheaper oil, which has hurt orders for steel pipe and other equipment.

Home construction has been weak despite low mortgage rates. And Americans are still cautious about spending, even with a sharp plunge in gas prices since last June.

Growth has faltered as a result. The economy expanded at a 2.2 percent annual rate in the final three months of last year, down sharply from a blistering 4.8 percent in the six months from last April through November.

Most analysts expect it slowed even further in the January-March quarter. Harsh winter weather may have been partly to blame. But paychecks are still barely keeping up with inflation, even as the unemployment rate has fallen. That is likely weighing on spending and growth.

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