Service industries in the US expanded at a slower pace last month, indicating the economy started to cool entering the second half, economists said before reports this week.
The Institute for Supply Management’s index of non-manufacturing businesses, which make up about 90 percent of the economy, fell to 55 from 55.4 in May, according to the median of 59 estimates in a Bloomberg News survey ahead of tomorrow’s report. Readings above 50 signal expansion.
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 and a report later this week is forecast to show jobless claims are at a level that indicates firings remain elevated.
LOSING MOMENTUM
“The economy is showing some loss of momentum,” said Jim O’Sullivan, chief economist at MF Global Ltd in New York. “It’s going to be three steps forward and one step back, and right now we’re in the one-step-back phase. Ultimately we need further acceleration in payrolls.”
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.
First-time filings for unemployment insurance fell to 460,000 last week from 472,000, according to the median estimate in the Bloomberg survey before the Labor Department’s report on Thursday.
Claims around 450,000 are consistent with private companies adding about 100,000 jobs a month, according to JPMorgan Chase & Co chief economist Bruce Kasman.
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 Friday.
Including government, payrolls fell for the first time this year because of a drop in federal census workers. The jobless rate decreased to 9.5 percent from 9.7 percent as the labor force shrank.
The outlook for jobs is one reason consumer confidence sank more than forecast last month, 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.
CONSUMER CHALLENGES
“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 in 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 last month for General Motors Co and Ford Motor Co, the two largest US automakers.
The Standard & Poor’s Supercomposite Retailing Index has fallen 22 percent since a 19-month peak on April 26, compared with a 16 percent decline in the broader S&P 500 gauge from its 19-month peak on April 23.
The Tempe, Arizona-based group’s ISM services survey covers industries that range from utilities and retailing to healthcare, housing and finance.
Housing, which helped trigger the recession, is showing signs of renewed weakness following the end of a government tax credit of as much as US$8,000 for buyers. 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 US Federal Reserve policymakers renewed a pledge last month to keep interest rates near a record low.
MODERATE RECOVERY
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 last year.
The ISM reported on Thursday that factories expanded last month 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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