Tuesday, July 6, 2010

Service Industries in U.S. Expand Less ......

Service Industries in U.S. Expand Less Than Forecast (Update2)

By Shobhana Chandra

July 6 (Bloomberg) -- Service industries in the U.S. expanded in June at a slower pace than forecast, indicating the economy was beginning to cool entering the second half.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, fell to a four-month low of 53.8 from 55.4 in May. The June figure was less than the median forecast of 55 in a Bloomberg News survey. Readings above 50 signal expansion. Orders slowed for a third month and employment declined.

Companies such as Bed Bath and Beyond Inc. may find it harder to boost sales without faster job growth as government stimulus wanes. Private hiring last month rose less than forecast, consumer confidence plunged and home purchases fell, indicating the recovery from the worst recession since the 1930s is vulnerable.

“The economy has entered a soft patch,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose forecast of 53.9 was the closest to today’s reading among economists in the Bloomberg survey. “Households are continuing to soldier on, albeit without much vigor.”

Stocks rose from a 10-month low, rebounding from a 5 percent drop for the Standard & Poor’s 500 Index last week, which took the gauge to its cheapest valuation since March 2009. The S&P 500 rose 1.8 percent to 1,041.12 at 10:39 a.m. in New York.

Forecasts in the Bloomberg survey of 59 economists for the Tempe, Arizona-based ISM’s index ranged from 52 to 56.6.

New Orders, Employment

The group’s index of new orders for non-manufacturing industries declined to 54.4 in June, the lowest this year, from 57.1 a month earlier. The employment gauge fell to 49.7 last month from 50.4.

Export orders dropped to 48 in June, the lowest since February, from 53.5. A gauge of prices-paid fell to 53.8 from 60.6.

The figures on services follow reports last week that showed a slowdown in manufacturing and weakness in housing, at the same time Europe grapples with a debt crisis and China tries to slow its economy.

Employment at companies rose 83,000 last month, less than the 110,000 increase forecast by economists in a Bloomberg survey, Labor Department figures showed on July 2. Including government, payrolls fell for the first time this year because of a drop in federal census workers. The jobless rate dropped to 9.5 percent from 9.7 percent as the labor force shrank.

Consumer Confidence

The outlook for jobs is one reason consumer confidence sank more than forecast in June, according to a Conference Board report. It raises the risk household spending, which accounts for about 70 percent of the economy, will falter.

Bed Bath & Beyond, a Union, New Jersey-based retailer, last month forecast current-quarter and annual earnings that trailed analysts’ estimates.

“It appears the consumer continues to face economic challenges, and the pressures of the macroeconomic environment still persist,” Leonard Feinstein, the company’s co-chairman, said on a conference call on June 23.

Concerns about unemployment and reluctance to make large purchases were also reflected last week in lower-than- anticipated auto sales in June for General Motors Co. and Ford Motor Co., the two largest U.S. automakers.

The ISM services survey covers industries that range from utilities and retailing to health care, housing and finance.

Housing Weakness

Housing, which helped trigger the recession, is showing signs of renewed weakness following the end of a government tax credit of as much as $8,000. The absence of faster job growth and rising foreclosures are depressing property prices.

Economic data in recent weeks and Europe’s sovereign debt crisis underscore why Federal Reserve policy makers renewed a pledge last month to keep interest rates near a record low. Central bankers said the recovery is “likely to be moderate for a time,” according to their statement. Consumer spending still “remains constrained” by joblessness and “tight credit,” they said.

Services have been lagging behind manufacturing, which led the economic recovery that began in the middle of 2009. The ISM reported on July 1 that factories expanded in June at the slowest pace this year as orders and exports cooled, adding to concern financial-market turmoil sparked by Europe’s debt problems will hurt global growth.

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