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Service Industries in U.S. Probably Grew at Slowest Pace in More Than Year

Service industries in the U.S. probably expanded in August at the slowest pace in more than a year, showing the recovery is losing momentum, economists said before a report today.

The Institute for Supply Management’s non-manufacturing index fell to 51 last month, the lowest level since January 2010, from 52.7 in July, according to the median estimate of 59 economists surveyed by Bloomberg News. A reading of 50 is the dividing line between expansion and contraction in the largest part of the economy.

Dimming job prospects, slower income growth and rising pessimism about the economic outlook may sap consumers’ ability and willingness to spend. Without a pickup among the non- manufacturing industries that account for about 90 percent of the economy, the recovery may falter.

“We don’t see any impetus for stronger growth,” said Scott Anderson, senior economist at Wells Fargo Securities LLC in Minneapolis. That “raises the possibility that the economy stalls out.”

The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates in the Bloomberg News survey ranged from 49 to 53.5.

The ISM services survey covers industries ranging from utilities and retailing to health care and finance. Today’s report follows the group’s Sept. 1 figures that showed manufacturing expanded in August at the slowest pace since July 2009.

Weaker Sentiment

A struggling labor market and economic growth that slowed in the first half of the year have weighed on sentiment, prompting Americans to limit purchases of non-essential goods and services.

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 since the end of February, the level associated with recessions.

Employment unexpectedly stagnated in August as employers became less sanguine about the strength of the recovery. Private payrolls, which exclude government agencies, rose 17,000 in August, the smallest gain since a decrease in February 2010. The jobless rate held at 9.1 percent, and earnings and hours worked declined, reducing the income of consumers whose spending accounts for 70 percent of the economy.

President Barack Obama has requested a joint session of Congress on Sept. 8 to unveil his proposals to promote job growth. Obama said in a letter to House Speaker John Boehner that the nation faces “unprecedented” economic challenges.

Real Spending

Rising prices have also hurt consumer buying power. An Aug. 29 Commerce Department report showed that the income left after taking out taxes and adjusting for inflation dropped 0.1 percent in July, the first decrease since September 2010.

“I continue to see customers who are still struggling,” Rick Dreiling, chief executive officer of Goodlettsville, Tennessee-based Dollar General Corp. (DG) said in Aug. 30 call with analysts. “The macroeconomic environment has remained difficult for consumers who continue to face high unemployment rates, high gasoline and high food costs.”

The Standard & Poor’s Supercomposite Retailing Index, with 92 members including Staples Inc. and Macy’s Inc., has fallen 8.2 since the end of July.

                        Bloomberg Survey

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

Date of Release              09/06
Observation Period            Aug.
-----------------------------------
Median                        51.0
Average                       51.1
High Forecast                 53.5
Low Forecast                  49.0
Number of Participants          59
Previous                      52.7
-----------------------------------
4CAST                         51.0
ABN Amro                      51.0
Action Economics              53.0
Aletti Gestielle              50.8
Ameriprise Financial          50.8
Banesto                       52.0
Barclays Capital              51.5
Bayerische Landesbank         52.0
BMO Capital Markets           51.5
BNP Paribas                   50.5
Briefing.com                  52.0
Capital Economics             51.0
CIBC World Markets            51.5
ClearView Economics           52.5
Comerica Inc                  49.0
Commerzbank AG                51.0
Credit Suisse                 50.0
Danske Bank                   51.1
DekaBank                      50.5
Desjardins Group              51.0
Deutsche Postbank AG          52.0
Exane                         51.0
First Trust Advisors          51.2
Helaba                        51.0
HSBC Markets                  49.5
Hugh Johnson Advisors         53.5
IDEAglobal                    52.0
Informa Global Markets        51.5
ING Financial Markets         51.2
Insight Economics             51.0
Intesa-SanPaulo               51.5
J.P. Morgan Chase             51.0
Janney Montgomery Scott       49.7
Jefferies & Co.               51.0
Landesbank Berlin             51.0
Landesbank BW                 51.2
Manulife Asset Management     50.0
Moody’s Analytics             52.0
Natixis                       50.7
Nord/LB                       51.0
OSK Group/DMG                 52.5
Parthenon Group               50.5
Pierpont Securities           51.3
PNC Bank                      49.0
Prestige Economics            51.2
Raymond James                 52.0
RBC Capital Markets           50.0
Scotia Capital                51.5
SMBC Nikko Securities         50.0
Societe Generale              52.3
Standard Chartered            51.5
State Street Global Markets   50.8
Stone & McCarthy Research     50.6
TD Securities                 51.0
University of Maryland        53.0
Wells Fargo & Co.             50.1
WestLB AG                     51.1
Westpac Banking Co.           50.5
Wrightson ICAP                51.0
===================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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