Service industries in the US, the largest share of the economy, probably stabilized last month after contracting for almost a year, economists said before a report this week.
The Institute for Supply Management’s index of non-manufacturing businesses, which reflects almost 90 percent of the economy, rose to 50, shows the median of 64 forecasts in a Bloomberg News survey ahead of figures tomorrow. Fifty is the dividing line between expansion and contraction.
The emerging recovery in manufacturing and housing spurred by government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers started spreading to the broader economy. Nonetheless, last week’s jobs report showing payroll cuts accelerated last month is a reminder that gains in sales may not be sustained as incentives expire.
“The economy is in a recovery, but the recovery in the labor market has lost some steam,” said Zach Pandl, an economist at Nomura Securities International Inc in New York. “The service sector, while on a sustainable path of growth, is only improving very gradually.”
The projected reading for the Tempe, Arizona-based ISM’s services gauge would be the first break-even point since September last year, when Lehman Brothers Holdings Inc filed for bankruptcy. The measure was 48.4 in August.
ISM’s factory index last Thursday showed manufacturing, which accounts for about 12 percent of the economy, expanded less than economists anticipated. The measure fell to 52.6 last month, the first drop this year, from 52.9 in August.
MORE JOB LOSSES
Job losses accelerated last month and the unemployment rate climbed to the highest level since 1983, Labor Department data showed on Friday. Payrolls fell by 263,000 following a 201,000 decline the prior month, while the unemployment rate rose to 9.8 percent from 9.7 percent. The US has lost 7.2 million jobs since the recession began in December 2007.
US stocks fell on Friday, capping the market’s first back-to-back weekly declines since July, as the bigger-than-estimated loss of jobs spurred concern the economy is struggling to recover. The Standard & Poor’s 500 Index retreated 0.5 percent to close at 1,025.21 in New York.
Economic growth next year probably won’t be strong enough to “substantially” bring down the unemployment rate, which may remain above 9 percent at the end of next year, Fed Chairman Ben Bernanke told lawmakers last Thursday.
Recent data signal the economy began growing in the third quarter. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, as the government’s US$3 billion cash-for-clunkers incentive to trade in older, less fuel-efficient cars helped auto sales.
Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as rising sales help trim the glut of properties on the market. The number of contracts to buy previously owned homes rose in August for the seventh straight month, lifted by tax credits for first-time buyers, a report from the National Association of Realtors showed last week.
Service companies seeing a pickup include Carnival Corp, the biggest cruise-line operator. The Miami-based company raised its full-year profit forecast because of better-than-expected ticket bookings.
BIGGER TRADE GAP
“Throughout the summer, booking volumes have continued to be quite strong which has enabled us to achieve higher last- minute prices,” Howard Frank, chief operating officer of Carnival, said on a Sept. 22 conference call.