Services Industry in U.S. Probably Grew at Slowest Pace Since January 2010
Service industries in the U.S. probably expanded in August at the slowest pace in more than a year, adding to concern the recovery is losing steam, economists said before a report this week.
The Institute for Supply Management’s non-manufacturing index fell to 51 last month, the lowest since January 2010, from 52.7 in July, according to the median of 59 forecasts in a Bloomberg News survey ahead of the Sept. 6 release. A reading of 50 is the dividing line between expansion and contraction. A Sept. 8 report from the Commerce Department may show the trade deficit shrank from the highest level since October 2008.
The recovery risks stalling without a pickup among the non- manufacturing industries that account for about 90 percent of the economy. A stagnant labor market and bleaker business and consumer sentiment may require more effort from President Barack Obama and Federal Reserve Chairman Ben S. Bernanke to spur growth.
“The economy has slowed up as attitudes have moved toward caution and some degree of pessimism,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “We don’t know whether this is going to be a hiccup or whether we’re basically going to talk ourselves into a downturn.”
A lack of jobs and an economy that slowed in the first half of the year have weighed on sentiment, prompting Americans to limit purchases of non-essential goods and services, and pushing down share prices. The Standard & Poor’s 500 Index has declined 9.2 percent since the end of the July.
“The operating landscape for our industry remains challenging given the volatility in the financial markets and the discretionary nature of furniture purchases,” Kurt Darrow, president and chief executive officer at La-Z-Boy Inc. (LZB), said on an Aug. 24 teleconference with analysts. “And as a result, we remain cautious regarding the consumer.”
The Monroe, Michigan-based maker of living-room recliners reported first-quarter revenue of $280.1 million, missing the average analyst estimate of $284.3 million in a Bloomberg survey.
The Conference Board’s index of consumer confidence slumped last month to the lowest level since April 2009, and the Bloomberg Consumer Comfort Index has been stuck below minus 40, the level associated with recessions, since the end of February.
U.S. payrolls were unchanged in August as employers became less confident about the strength of the recovery. The jobless rate held at 9.1 percent, and earnings and hours worked declined as well, reducing the incomes of consumers whose spending accounts for 70 percent of the economy.
Obama on Jobs
Obama has requested a joint session of Congress on Sept. 8 for an address to unveil his proposals to promote job growth. In a letter to House Speaker John Boehner, Obama said that the nation faces “unprecedented” economic challenges.
For its part, the Fed last month said it would keep its benchmark interest rate near zero at least through the middle of 2013, adding a specific time-frame to its low-rate pledge for the first time.
“Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Bernanke said Aug. 26 in Jackson Hole, Wyoming. “It is clear that the recovery from the crisis has been much less robust than we had hoped.”
The Fed on Sept. 7 will release its Beige Book assessment of economic conditions in each of its 12 U.S. districts.
Gains in exports probably exceeded an increase in imports in July, Steven Wood, president at Insight Economics LLC in Danville, California, said in an e-mail to clients. The trade gap shrank to $51 billion from the $53.1 billion deficit in June, according to economists’ median estimate ahead of the Commerce Department figures due Sept. 8.
A weaker dollar is helping support demand for American-made merchandise. The U.S. currency has fallen 3.5 percent since the end of 2010 against a trade-weighted basket of currencies from the country’s biggest trading partners.
Bloomberg Survey ============================================================== Release Period Prior Median Indicator Date Value Forecast ============================================================== ISM NonManu Index 9/6 Aug. 52.7 51.0 Trade Balance $ Blns 9/8 July -53.1 -51.0 Initial Claims ,000’s 9/8 3-Sep 409 405 Cont. Claims ,000’s 9/8 27-Aug 3735 3700 Cons. Credit $ Blns 9/8 July 15.5 6.0 Whlsale Inv. MOM% 9/9 July 0.6% 0.8% ==============================================================
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