Services make up about two-thirds of the US economy, and the news will heighten fears that the US economic recovery is stalling.

While it is a positive sign that job cuts have slowed so significantly, the news is weakened by the fact that the economy seems to be in a no-growth state

John Challenger Challenger Gray

In its latest report on the sector, the Institute for Supply Management (ISM) said its monthly non-manufacturing index fell to 53.1 in July from 57.2 in June.

The reading also came in lower than analysts' forecasts for a fall to 54.6.

Any number above 50 indicates growth in the sector, while anything below 50 signals a contraction.

"In July, non-manufacturing business activity increased at a slower rate than in June," said the ISM survey coordinator, Ralph Kauffman.

"The reported growth represents the sixth consecutive month of expansion in non-manufacturing business activity, but the second consecutive month of reduced rates of expansion."

More jobs

Another index gauging new orders also fell, suggesting that the pace of recovery will continue to be lethargic.

However, there was one bright spot - the ISM's employment index showed that the pace of job losses is slowing.

According to separate research, US companies announced 80,966 layoffs in July, down from 94,766 in June - a 15% fall.

"While it is a positive sign that job cuts have slowed so significantly, the news is weakened by the fact that the economy seems to be in a no-growth state," said John Challenger, chief executive of Challenger Gray, the firm that compiled the research.

Double-dip fears

Last week preliminary US economic growth data for the April to June period suggested that the economy was losing momentum.

They showed that the economy grew at an annual rate of 1.1% during the second quarter - much slower than the 5% growth rate enjoyed during the previous three months.

The data sparked fears that the economy would experience a double-dip recession, where apparent recovery gives way to another slowdown.

Consistent falls in stocks on Wall Street have also added to the gloom, as investors remain pessimistic about the chances of a US rebound.

The ISM, formerly called the National Association of Purchasing Management, compiles its indices by surveying more than 370 purchasing executives in more than 60 service industries once a month.