Dominant US service sector slides to 3-year low: survey
Help wanted sign (AFP Photo/Joe Raedle)

The US services sector, the principal driver of American economic growth, slid last month to its slowest pace in nearly three years, according to an industry survey released Monday.

The unexpected slowdown marked the second consecutive monthly decline after months of a slowing trend. It was driven by a steep drop off in production and inventories, according to the Institute for Supply Management.

The survey did not capture reaction to the latest snap deterioration in US-China trade relations or Monday's decline in the value of the Chinese yuan, which fell to its lowest level against the dollar since 2010, breaking through the key threshold of 7 to the dollar.

But the services slowing growth was likely to fuel concerns that the risk of recession are growing.

ISM's monthly non-manufacturing index slowed in July to 53.1 percent from 55.1 percent in June, the lowest since August 2016, and well below September's 12-month peak of 60.8 percent. Economists had expected a slight improvement for June.

The sector continues to grow -- any reading above 50 percent indicates growth -- but at a slower pace, and the drop coincides with weakening index for the manufacturing sector.

Business activity and inventories both slowed five points, while new orders, order backlogs, export orders all retreated as well.

Anthony Nieves, chair of ISM's services sector survey, told reporters the survey was concluded before President Donald Trump's announcement last week that he would add punitive duties to another $300 billion in Chinese imports -- escalating his year-long trade war with Beijing.

"Now with this retaliation, it definitely could affect the psyche, the confidence," he said. "With the consumer goods especially being impacted, the retail industry will feel it."

However, he noted the index typically slows in the summer months, while rising wages, low unemployment and high consumer confidence should support steady retail spending.

"I'm not trying to be the consummate optimist here but I don?t want to be a pessimist either and say that things are gloom and doom because we're far from it," Nieves said.