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Service sector expands in June

Economic strength seen even as jobless claims rise in week

NEW YORK -- The nation's economic slowdown may finally be coming to an end, with both the service and manufacturing sectors showing surprising strength in June even as prices for raw materials rise.

The Institute for Supply Management said yesterday its index of business activity in the nonmanufacturing sector, which includes banking, retail, and travel, registered 60.7 last month. The reading was higher than May's reading of 59.7 and Wall Street's expectation of 58.1.

It was the highest reading since April 2006, when it registered 61.1. A reading above 50 indicates expansion, while one below indicates contraction.

The reading followed the institute's Monday report that the manufacturing sector expanded at its fastest pace in at least a year. The index, which covers factories, plants, and utilities among others, registered 56, higher than the May reading of 55 and the market expectation of 55.4.

Separately, the Labor Department reported yesterday the number of newly laid off people signing up for jobless benefits rose last week. The level of claims, though slightly higher than economists were expecting, was still in a range that pointed to a sturdy job market.

The service industries covered by the institute's report represent about 80 percent of economic activity and span diverse fields including banking, construction, retailing, mining, agriculture, and travel. All 14 industries surveyed by the ISM reported growth, while none reported decreased business activity compared with May.

Strength in the new orders index, which registered 56.9, bodes well for growth in coming months, one economist said. The employment index, another forward-looking indicator of business confidence, rose to 55 in June from 54.9 in May.

The prices paid index grew more slowly than in the previous month, suggesting inflation may be moderating. The index fell to 65.5 in June from 66.4 in May.

The service economy report is the latest sign that the economy may be waking up from its nearly yearlong sluggishness.

"It's premature to say the economy is reviving in a consistent way, but I think it's safe to say the economy isn't going to weaken any further," said Mark Zandi, an economist with Moody's