Oct. 5 (Bloomberg) -- Service industries in the U.S. probably stabilized last month after 11 straight drops as the emerging recovery spread from housing and factories to the broader economy, economists said before a report today.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50 from 48.4 in August, according to the median forecast in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction.

Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.

“We’re seeing an improvement in services as components such as housing and retail are faring better,” said Lindsey Piegza, an economist at FTN Financial in New York. “While this is a positive sign for the economy, we expect a mild recovery” because of the weak job market, she said.

The projected reading for the Tempe, Arizona-based ISM’s services gauge, due at 10 a.m. New York time, would be the first break-even point since September 2008, when Lehman Brothers Holdings Inc. filed for bankruptcy. Estimates of 64 economists surveyed by Bloomberg ranged from 45 to 52.1.

Factories, Jobs

ISM’s factory index on Oct. 1 showed that the manufacturing industry, which accounts for about 12 percent of the economy, expanded less than economists anticipated in September. The measure slipped to 52.6, the first drop this year, from 52.9 in August.

Employers unexpectedly cut more jobs last month than in August and unemployment climbed to the highest level since 1983, Labor Department data showed on Oct. 2. Payrolls fell by 263,000, following a 201,000 decline the prior month, while the jobless rate rose to 9.8 percent from 9.7 percent. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

U.S. stocks fell on Oct. 2, 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.

Tepid Growth

Economic growth next year probably won’t be strong enough to “substantially” bring down the rate, which may remain above 9 percent at the end of 2010, Fed Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Recent data signal growth resumed in the third quarter, after shrinking in the first half of 2009. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, led by the government’s $3 billion incentive program to trade in older, less fuel-efficient cars.

Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as steadier demand trims the property glut. The number of contracts to buy previously owned homes rose in August for a seventh month, lifted by the first- time buyer credits, data from the National Association of Realtors showed last week.

Macy’s Inc., the second-largest U.S. department store chain, is among retailers that are seeing more stable sales and planning to hire staff for the holiday season.

Seeing ‘Stabilization’

“We are seeing some stabilization ourselves,” Chairman and Chief Executive Officer Terry Lundgren said in a Sept. 8 interview on Bloomberg Television. “We have a much better handle now on where we are headed.”

Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, said last week that higher demand for hotel rooms in New York City may signal the U.S. is beginning to emerge from the recession.

“Occupancy is starting to come back, yes, at low rates, but if this recovery looks like a normal recovery we would see in a couple of quarters rates come back as well,” Van Paasschen said in an Oct. 1 interview. “I am just not sure if this is a normal recovery.”

                        Bloomberg Survey

=====================================
                          ISM Non-
                              Manu
                             Index
=====================================

Date of Release              10/05
Observation Period           Sept.
-------------------------------------
Median                        50.0
Average                       49.7
High Forecast                 52.1
Low Forecast                  45.0
Number of Participants          64
Previous                      48.4
-------------------------------------
4CAST Ltd.                    49.5
Action Economics              50.0
Aletti Gestielle SGR          50.5
Ameriprise Financial Inc      49.5
Argus Research Corp.          49.0
Bank of Tokyo- Mitsubishi     50.4
Bantleon Bank AG              50.3
Barclays Capital              50.0
Bayerische Landesbank         49.5
BBVA                          49.5
BMO Capital Markets           50.0
BNP Paribas                   50.0
BofA Merrill Lynch Resear     49.3
Briefing.com                  49.0
C I T I C Securities          49.0
Capital Economics             50.0
CIBC World Markets            50.0
ClearView Economics           49.5
Commerzbank AG                51.0
Credit Suisse                 50.0
Daiwa Securities America      50.0
Danske Bank                   50.5
DekaBank                      49.5
Desjardins Group              49.5
Deutsche Bank Securities      50.0
Deutsche Postbank AG          49.5
DZ Bank                       49.5
First Trust Advisors          50.4
Fortis                        50.0
FTN Financial                 48.5
Helaba                        49.2
Herrmann Forecasting          50.1
IDEAglobal                    50.0
Informa Global Markets        49.5
ING Financial Markets         49.0
Insight Economics             49.0
Intesa-SanPaulo               49.5
J.P. Morgan Chase             50.0
Janney Montgomery Scott L     49.0
Jefferies & Co.               50.0
Johnson Illington Advisor     50.0
Landesbank Berlin             48.5
Maria Fiorini Ramirez Inc     50.0
Moody’s Economy.com           49.0
National Bank Financial       50.0
Natixis                       45.0
Newedge                       49.8
Nomura Securities Intl.       50.0
Nord/LB                       50.5
PNC Bank                      48.6
Prestige Economics            49.5
RBC Capital Markets           49.8
Schneider Foreign Exchang     49.0
Societe Generale              50.0
Standard Chartered            50.5
Stone & McCarthy Research     50.4
TD Securities                 50.0
UniCredit Research            50.0
University of Maryland        51.0
Wells Fargo & Co.             49.8
WestLB AG                     50.0
Westpac Banking Co.           49.5
Woodley Park Research         52.1
Wrightson Associates          50.0
=====================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: October 5, 2009 00:01 EDT