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

Service industries in the U.S. probably grew at a faster pace in October, indicating the biggest part of the economy is holding up, economists said before a report today.

The Institute for Supply Management’s non-manufacturing index rose to 53.5 from 53 in September, according to the median estimate of 77 economists surveyed by Bloomberg News. Readings above 50 signal expansion. Productivity rebounded and jobless claims declined, other data may show.

Bigger gains in household demand for services, which cover about 90 percent of the economy, may depend on a pickup in hiring and dissipating risks tied to Europe’s debt crisis. Federal Reserve policy makers at the end of their meeting yesterday emphasized the need for faster economic growth.

“There is underlying demand in the economy,” said Lindsey Piegza, an economist at FTN Financial in New York. “The recovery will stay on track.”

The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 52 to 55. Last month’s projected reading would be the highest since May.

The ISM services survey covers industries ranging from utilities and retailing to health care and finance. A Nov. 1 report by the group showed manufacturing was close to stagnating in October as cooling global demand prompted factories to pare production and cut inventories.

Data from the Labor Department today showed productivity climbed last quarter for the first time this year as businesses tried to cut labor costs. The measure of employee output per hour rose at a 3.1 percent annual rate.

Jobless Claims

Another Labor Department report showed initial applications for unemployment benefits fell by 9,000 last week to 397,000, the fewest in a month.

Stock-index futures extended gains and Treasuries fell after the reports. The contract on the Standard & Poor’s 500 Index expiring next month climbed 0.8 percent to 1,243.8 at 8:43 a.m. in New York. The yield on the benchmark 10-year note rose to 2.04 percent from 1.99 percent late yesterday.

The jobless rate has been around 9 percent or higher for 30 months, showing the economy has to grow faster than it did in the third quarter to bring down unemployment. Hiring probably slowed in October and the jobless rate was 9.1 percent for a fourth consecutive month, economists forecast the payrolls report will show tomorrow.

Household Spending

“Household spending has increased at a somewhat faster pace in recent months,” the Fed said in a statement yesterday after a two-day policy meeting. “The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually.”

The Fed latest forecasts, also released yesterday, showed less optimism about the economy and employment in 2012 and 2013. Policy makers project growth next year of 2.5 percent to 2.9 percent, with unemployment in the 8.5 percent to 8.7 percent range. Joblessness in 2013 is forecast at 7.8 percent to 8.2 percent.

United Parcel Service Inc. (UPS), whose deliveries make it a proxy for the economy, is among companies seeing limited U.S. demand.

“It appears the U.S. economy has stabilized and continues to show modest growth,” Chairman and Chief Executive Officer Scott Davis said on a conference call with analysts on Oct. 25. “The outlook for the remainder of the year is for continued, slow growth.”

Stocks Climb

Stocks have climbed since the end of September on signs the rate of recovery has picked up. The Standard & Poor’s 500 Index rose 9.4 percent since Sept. 30.

Among other data today, the Commerce Department may report at 10 a.m. that factory orders fell 0.2 percent in September, reflecting a decrease in bookings for aircraft, economists in the Bloomberg survey projected. Orders for durable goods excluding airplanes and automobiles rose 1.7 percent in September, the most in six months, figures showed on Oct. 26.

                       Bloomberg Survey

================================================================
                           Initial    Prod- ISM Non-  Factory
                            Claims uctivity     Manu   Orders
                            ,000’s     QOQ%    Index     MOM%
================================================================

Date of Release              11/03    11/03    11/03    11/03
Observation Period          29-Oct     3Q P     Oct.    Sept.
----------------------------------------------------------------
Median                         400     3.0%     53.5    -0.2%
Average                        402     3.0%     53.6    -0.1%
High Forecast                  415     4.3%     55.0     1.0%
Low Forecast                   395     1.2%     52.0    -1.0%
Number of Participants          49       63       77       68
Previous                       402    -0.7%     53.0    -0.2%
----------------------------------------------------------------
4CAST                          412     3.0%     53.5     0.2%
ABN Amro                      ---      ---      53.5    -0.5%
Action Economics               400     4.0%     53.5     0.0%
Aletti Gestielle              ---      ---      52.9     ---
Ameriprise Financial           400     3.5%     54.0     0.0%
Banca Aletti                   398     3.0%     53.2    -0.2%
Banesto                       ---      ---      53.9     ---
Bank of Tokyo- Mitsubishi      410     ---      ---      ---
Bantleon Bank AG              ---      2.8%     53.9    -0.5%
Barclays Capital               395     3.1%     53.5    -0.1%
Bayerische Landesbank         ---      ---      53.5     0.3%
BBVA                           400     2.5%     53.5    -0.2%
BMO Capital Markets            400     2.5%     54.0    -0.4%
BNP Paribas                    405     3.8%     54.0     0.1%
BofA Merrill Lynch             400     3.0%     54.0    -0.3%
Briefing.com                   400     2.8%     53.0    -0.5%
Capital Economics             ---      3.0%     53.5     0.0%
CIBC World Markets            ---      ---      ---     -0.2%
Citi                           410     3.8%     53.5    -0.3%
ClearView Economics           ---      1.7%     52.2    -0.2%
Comerica                      ---      2.5%     54.0    -0.5%
Commerzbank AG                 400     ---      53.5    -0.2%
Credit Agricole CIB           ---      2.3%     ---     -0.2%
Credit Suisse                  410     4.0%     53.0    -1.0%
Daiwa Securities America      ---      3.5%     54.0     0.6%
Danske Bank                   ---      ---      54.0     ---
DekaBank                      ---      2.5%     53.5     0.0%
Desjardins Group               405     3.2%     53.0    -0.1%
Deutsche Bank Securities       395     3.5%     54.0     0.0%
Deutsche Postbank AG          ---      ---      54.0    -0.1%
DZ Bank                       ---      1.5%     53.5     0.0%
Exane                         ---      ---      53.3     0.1%
Fact & Opinion Economics       397     3.0%     53.7    -0.6%
First Trust Advisors           400     3.8%     53.6    -0.5%
FTN Financial                 ---      2.5%     55.0     ---
Goldman, Sachs & Co.          ---      4.0%     53.0    -0.4%
Helaba                         400     3.8%     53.0     0.0%
High Frequency Economics       400     1.2%     54.0    -0.5%
HSBC Markets                   400     ---      54.5     ---
Hugh Johnson Advisors         ---      ---      54.0     1.0%
IDEAglobal                     395     2.0%     55.0     0.5%
IHS Global Insight            ---      3.7%     53.0     ---
Informa Global Markets         405     2.9%     54.0     0.3%
ING Financial Markets          398     2.5%     54.0    -0.4%
Insight Economics              400     2.5%     54.0    -0.4%
Intesa-SanPaulo               ---      ---      54.0     ---
J.P. Morgan Chase              405     3.7%     53.5    -0.1%
Janney Montgomery Scott       ---      2.8%     53.0    -0.2%
Jefferies & Co.                395     3.0%     54.0    -0.3%
Landesbank Berlin              410     ---      52.0     0.2%
Landesbank BW                 ---      2.5%     54.0     0.0%
Maria Fiorini Ramirez          400     2.5%     54.5     0.0%
Market Securities             ---      ---      53.8     ---
MF Global                      400     3.8%     53.5    -0.1%
Mizuho Securities              410     2.5%     53.0    -0.4%
Moody’s Analytics              400     2.7%     53.7     0.3%
Morgan Keegan & Co.           ---      ---      ---     -0.6%
Morgan Stanley & Co.          ---      4.2%     ---     -0.2%
Natixis                       ---      2.1%     53.5     ---
Nomura Securities             ---      2.9%     54.8    -0.2%
Nord/LB                        400     2.7%     53.5    -0.3%
OSK Group/DMG                 ---      ---      53.0     ---
Parthenon Group                402     3.0%     52.3     0.1%
Pierpont Securities            405     3.8%     53.6    -0.4%
PineBridge Investments         415     2.9%     52.0    -0.2%
PNC Bank                      ---      2.0%     54.0     0.4%
Prestige Economics            ---      ---      53.5     ---
Raiffeisenbank International  ---      2.0%     ---      ---
Raymond James                  405     3.5%     54.2    -0.4%
RBC Capital Markets            405     ---      53.4     ---
RBS Securities                 405     4.0%     53.2     ---
Scotia Capital                 400     ---      ---     -0.2%
SMBC Nikko Securities         ---      2.5%     53.0    -0.2%
Societe Generale               410     3.9%     54.5     0.1%
Standard Chartered             400     ---      53.8     ---
State Street Global Markets    401     3.7%     53.8    -0.4%
Stone & McCarthy Research      401     3.0%     54.4    -0.2%
TD Securities                  395     3.0%     54.0    -0.5%
UBS                            400     3.6%     53.5     0.2%
University of Maryland         405     2.7%     53.5    -0.2%
Wells Fargo & Co.             ---      2.8%     54.0     0.0%
WestLB AG                     ---      2.8%     53.5     0.0%
Westpac Banking Co.            406     2.5%     53.0    -0.5%
Wrightson ICAP                 400     4.3%     52.5    -0.1%
================================================================

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

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

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