Service industries in the US probably shrank last month for a second straight month, signaling the slowdown in growth broadened, economists said before a report this week.
The Institute for Supply Management’s non-manufacturing index, covering almost 90 percent of the economy, rose to 48.8 from 48.2 in June, the median forecast of economists surveyed by Bloomberg News said. A reading of 50 is the dividing line between contraction and expansion.
Other reports this week may show home sales declined and consumer spending slowed, indicating the real-estate recession and soaring fuel costs are rippling through the economy. Concern over the outlook for both growth and inflation will prompt Federal Reserve policy makers to keep interest rates unchanged at the conclusion of their meeting tomorrow.
“There are downside risks to the economy on the housing front, the manufacturing front and household spending,” said Dana Saporta, an economist at Dresdner Kleinwort in New York. “The Fed has little choice but to stand pat.”
The Tempe, Arizona-based purchasing managers’ group is scheduled to release its services report tomorrow. The institute said on Friday that its manufacturing index dipped to 50 last month from 50.2, signaling factory activity stalled.
Consumers are trimming spending as gas prices remain near US$4 a gallon (US$1.06 a liter), home values fall, credit becomes more difficult to obtain and the job market weakens.
Employers cut 51,000 workers from payrolls last month, the seventh straight decline, and the unemployment rate rose to 5.7 percent, the Labor Department said on Friday. The rate has jumped by 0.7 percentage point since April, the biggest three-month gain since the end of the last US recession in 2001.
“My outlook is cautious — the consumer clearly is pulling in and is not spending as much,” Stephen Holmes, chief executive officer at Wyndham Worldwide Corp, said in an interview on Thursday. “We are assuming this will be an issue and a challenge and a headwind for our industry throughout 2009.”
Wyndham franchises Ramada and Super 8 hotels. US revenue per available room declined 3.7 percent in the quarter.
A report today is projected to show consumer spending slowed in June as the boost from tax rebates waned. Purchases increased 0.4 percent after a 0.8 percent rise in May, economists surveyed by Bloomberg said. Incomes probably dropped 0.2 percent as fewer rebate checks reached taxpayers.
Economists anticipate spending will continue to weaken in coming months as the housing and labor markets remain depressed.
Pending home resales fell 1 percent in June, the fourth decline in six months, economists project a report from the National Association of Realtors will show on Thursday.
The figure is considered a signal of future home sales because it is based on contract signings. The Realtors group said on July 24 that its existing home sales measure, which is recorded at the time a contract closes, fell in June to a 10-year low.
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