Service Industries in U.S. Probably Expanded at Faster Pace

A pickup at service industries in September probably wasn’t strong enough to quicken the U.S. recovery, economists said before a report today.

The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 52 from 51.5 in August, according to the median forecast of 75 economists surveyed by Bloomberg News. The gauge, where readings greater than 50 signal growth, averaged 55.3 during the six-year expansion that ended in December 2007.

“The economy is still in a vulnerable state,” said Aaron Smith, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. A lack of jobs and the drop in home prices mean consumer spending will be slow to recover, he said.

A jobless rate that is projected to average more than 9 percent through 2011 indicates household spending will not propel the economy as it has after past recessions. A halting recovery is one reason why some Federal Reserve policy makers say they are prepared to do more to stimulate growth.

The Tempe, Arizona-based purchasing managers’ group is scheduled to issue the report at 10 a.m. New York-time. Estimates ranged from 50 to 53.3.

The services survey covers industries that range from utilities and retailing to health care, housing, finance and transportation. The group’s factory survey, released Oct. 1, showed manufacturing expanded last month at the slowest pace since November as orders and production cooled.

Photographer: Ronda Churchill/Bloomberg

Best Buy Co. Chief Executive Officer Brian Dunn told reporters, “We know it is a tough environment out there.” Close

Best Buy Co. Chief Executive Officer Brian Dunn told reporters, “We know it is a tough... Read More

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Photographer: Ronda Churchill/Bloomberg

Best Buy Co. Chief Executive Officer Brian Dunn told reporters, “We know it is a tough environment out there.”

More Promotions

Best Buy Co., the world’s largest consumer-electronics retailer, announced Sept. 28 it plans to offer a promotion on every Friday in October to spur sales of phones. The Richfield, Minnesota-based company also plans to keep holiday hiring even with last year, adding about 29,000 seasonal employees.

“We know it is a tough environment out there,” Best Buy Co. Chief Executive Officer Brian Dunn told reporters Sept. 28. “It will be hard fought.”

Charles “Wick” Moorman, chief executive officer of Norfolk Southern Corp., the second-largest U.S. railroad by market capitalization, is projecting the recovery from the worst recession since the 1930s, while muted, will continue.

“We saw a fairly sharp snap-back as 2009 went on and early in 2010 that seems now to have slowed,” Moorman said in a Sept. 29 interview on Bloomberg Television. We’re just going to continue to see a slow-growth economy for some time to come.”

Moorman said his company is adding workers mainly to replace those leaving the railroad, with “some slight hiring” to meet growing demand. The Norfolk, Virginia-based company’s payroll remains down about 2,000 from where it was when the recession began, he said.

Rising Joblessness

The Labor Department later this week may report unemployment rose to 9.7 percent in September from 9.6 percent the prior month, according to the median estimate of economists surveyed. Companies added 75,000 workers to payrolls, according to the survey median, not enough to keep up with a growing labor force.

Economists surveyed last month projected the unemployment rate will average 9.6 percent this year and 9.2 percent in 2011, after averaging 9.3 percent in 2009. That would be the longest span of joblessness above 9 percent since 1941.

The labor market is also a reason why Fed policy makers may respond with more stimulus. The outlook for job growth and inflation is “unacceptable,” and more monetary easing is probably needed to spur growth and avert deflation, Fed Bank of New York President William Dudley said in a speech Oct. 1.

Some retailers are more optimistic about the holiday shopping period. The International Council of Shopping Centers on Oct. 1 projected sales for November and December will climb 3 percent to 3.5 percent, the best performance since 2006. The New York-based trade group tracks sales at stores open at least a year at more than 30 chains.

Investors may be equally upbeat as retailing shares outperformed the broader market last month. The Standard & Poor’s Supercomposite Retailing Index gained 15 percent in September compared with an 8.8 percent increase in the S&P 500.

                  Bloomberg Survey

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

Date of Release              10/05
Observation Period           Sept.
-----------------------------------------
Median                        52.0
Average                       51.9
High Forecast                 53.3
Low Forecast                  50.0
Number of Participants          75
Previous                      51.5
-----------------------------------------
4CAST Ltd.                    52.5
ABN Amro Inc.                 52.0
Action Economics              52.0
Aletti Gestielle SGR          52.5
Ameriprise Financial Inc      52.0
Banesto                       52.2
Bank of Tokyo- Mitsubishi     52.2
Bantleon Bank AG              52.5
Barclays Capital              53.0
Bayerische Landesbank         51.5
BBVA                          52.0
BMO Capital Markets           52.0
BofA Merrill Lynch Resear     51.5
Briefing.com                  51.0
Capital Economics             51.0
Citi                          51.0
Commerzbank AG                52.0
Credit Agricole CIB           52.0
Credit Suisse                 51.0
Daiwa Securities America      52.0
Danske Bank                   51.9
Desjardins Group              51.5
Deutsche Bank Securities      51.0
Deutsche Postbank AG          51.8
Exane                         52.5
First Trust Advisors          53.0
FTN Financial                 52.0
Goldman, Sachs & Co.          52.0
Helaba                        50.5
High Frequency Economics      50.0
HSBC Markets                  53.0
Hugh Johnson Advisors         53.0
IDEAglobal                    53.0
IHS Global Insight            53.3
Informa Global Markets        52.5
ING Financial Markets         52.0
Insight Economics             50.0
Intesa-SanPaulo               52.5
J.P. Morgan Chase             51.5
Janney Montgomery Scott L     50.7
Jefferies & Co.               52.0
Landesbank Berlin             52.5
Landesbank BW                 52.0
Maria Fiorini Ramirez Inc     52.5
MF Global                     52.5
MFC Global Investment Man     50.5
Mizuho Securities             51.0
Moody’s Analytics             51.5
National Bank Financial       51.5
Natixis                       51.3
Newedge                       52.2
Nomura Securities Intl.       51.8
Nord/LB                       52.0
Pierpont Securities LLC       52.0
PineBridge Investments        52.5
PNC Bank                      52.5
Prestige Economics            52.0
Raymond James                 52.0
RBC Capital Markets           51.0
RBS Securities Inc.           52.0
Scotia Capital                50.5
Societe Generale              52.0
Standard Chartered            52.0
State Street Global Marke     52.1
Stone & McCarthy Research     52.6
TD Securities                 51.0
Thomson Reuters/IFR           52.4
UBS                           53.0
UniCredit Research            51.8
University of Maryland        52.0
Wells Fargo & Co.             52.5
WestLB AG                     51.0
Westpac Banking Co.           51.0
Woodley Park Research         51.7
Wrightson ICAP                52.5
=========================================

To contact the reporter on this story: Courtney Schlisserman at cschlisserma@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net

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