Service Industries in U.S. Probably Grew at Slower Pace

Service industries in the U.S. probably grew in June at a slower pace, a sign the world’s largest economy is struggling to maintain momentum, economists said before a report today.

The Institute for Supply Management’s index of non- manufacturing businesses, covering about 90 percent of the economy, fell to 53 from 53.7 in May, according to the median forecast of 63 economists surveyed by Bloomberg News. Readings above 50 signal expansion. Initial jobless claims last week stayed close to the highest level of 2012, other data may show.

Companies from Family Dollar Stores Inc. (FDO) to FedEx Corp. (FDX) are seeing waning demand, underscoring concern about Europe’s debt crisis, cooling global markets and an absence of U.S. fiscal policy clarity that’s also hurting manufacturing. Limited hiring and income growth indicate households will be reluctant to step up purchases, which account for about 70 percent of the economy.

“The outlook for consumer spending stays pretty soft,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York. “There is slow to no wage growth. Economic growth is still frustratingly slow.”

The Tempe, Arizona-based ISM’s non-manufacturing report is due at 10 a.m. Bloomberg survey estimates ranged from 51.5 to 54.2.

Fewer Americans than forecast filed first-time claims for unemployment insurance payments last week. Applications for jobless benefits decreased by 14,000 in the week ended June 30 to 374,000, the fewest since mid-May, Labor Department figures showed today. Economists forecast 385,000 claims, according to the median estimate in a Bloomberg News survey.

The ISM services survey covers industries that range from utilities and retailing to health care, housing and finance.

Manufacturing Decline

The report follows July 2 data that showed a slowdown in overseas markets including China is limiting American exports and damping prospects for manufacturers. The ISM factory index fell to 49.7 in June, the first contraction in almost three years and worse than the most-pessimistic forecast in a Bloomberg survey.

Sales are also softening in part because of the lack of progress in the labor market. The payrolls tally in June probably crowned the weakest quarter for employment in more than two years, economists in the Bloomberg survey forecast ahead of a Labor Department report due tomorrow. The jobless rate, which has exceeded 8 percent for 40 consecutive months, may have held at 8.2 percent in June.

Family Dollar, the owner of more than 7,200 discount shops in the U.S., narrowed its profit forecast for fiscal 2012 after third-quarter sales trailed analysts’ average estimate.

‘Economic Headwinds’

“It is clear that consumers continue to face difficult economic headwinds,” Chief Executive Officer Howard Levine said on a June 28 conference call with analysts. Discretionary purchases like home goods and apparel continue to be “challenged,” he said.

Retail shares have weakened more than the broader market. The Standard & Poor’s Supercomposite Retailing Index of 92 companies is down 5.3 percent since the end of April compared with a 1.7 percent drop in the S&P 500 (SPX) Index.

Demand remains soft, according to FedEx, which is considered an economic bellwether because it carries everything from mobile devices to pharmaceuticals. The Memphis, Tennessee- based company, operator of the world’s largest cargo airline, pledged “significant cost reductions” as slowing economic growth pressures profits.

“We now realize we’ve got to adjust the networks that we built for higher gross domestic product growth than we’re actually seeing,” Chief Financial Officer Alan Graf said on an earnings call last month.

To combat flagging growth, Federal Reserve policy makers said they are ready to take more steps should the U.S. expansion slacken. Fed officials said in a policy statement on June 20 that they expect “economic growth to remain moderate over coming quarters and then to pick up very gradually.”

                        Bloomberg Survey

================================================================
                               ADP  Initial    Cont. ISM Non-
                           Payroll   Claims   Claims     Manu
                            ,000’s   ,000’s   ,000’s    Index
================================================================

Date of Release              07/05    07/05    07/05    07/05
Observation Period            June   30-Jun   23-Jun     June
----------------------------------------------------------------
Median                         100      385     3300     53.0
Average                        101      386     3299     52.8
High Forecast                  150      400     3365     54.2
Low Forecast                    50      371     3220     51.5
Number of Participants          35       45       14       69
Previous                       133      386     3296     53.7
----------------------------------------------------------------
4CAST                           80      390     ---      53.0
ABN Amro                       100      380     ---      53.0
Action Economics                90     ---      ---      53.5
Aletti Gestielle              ---      ---      ---      53.0
Ameriprise Financial            50      385     3300     52.5
Banca Aletti                  ---       390     ---      ---
Bantleon Bank AG              ---      ---      ---      52.7
Barclays                      ---       385     ---      52.5
Bayerische Landesbank          110     ---      ---      52.5
BBVA                           100      383     3290     53.1
BMO Capital Markets             90     ---      ---      52.7
BNP Paribas                     95      390     ---      52.5
BofA Merrill Lynch             115      390     ---      53.0
Briefing.com                   110      385     3275     53.0
Capital Economics             ---      ---      ---      53.5
Citi                          ---       390     3330     52.5
ClearView Economics           ---      ---      ---      53.2
Comerica                      ---      ---      ---      53.0
Commerzbank AG                  90      385     ---      53.0
Credit Agricole CIB           ---      ---      ---      52.0
Credit Suisse                 ---       390     ---      53.5
Daiwa Securities America      ---      ---      ---      53.0
Danske Bank                   ---      ---      ---      53.0
Desjardins Group              ---       385     ---      53.0
Deutsche Bank Securities       100      386     ---      52.0
Deutsche Postbank AG          ---      ---      ---      53.0
First Trust Advisors          ---       387     ---      52.8
FTN Financial                 ---      ---      ---      53.0
Goldman, Sachs & Co.          ---      ---      ---      52.5
Helaba                        ---       385     ---      52.0
High Frequency Economics       150      400     ---      53.7
HSBC Markets                   120      383     3305     53.5
Hugh Johnson Advisors          104     ---      ---      54.0
IDEAglobal                     125      380     ---      52.0
IHS Global Insight            ---      ---      ---      52.9
Informa Global Markets          75      390     3305     53.9
ING Financial Markets          105      380     3285     53.2
Insight Economics              115      385     3275     53.0
Intesa Sanpaulo               ---      ---      ---      53.0
J.P. Morgan Chase             ---       390     ---      53.0
Janney Montgomery Scott         90     ---      ---      53.1
Jefferies & Co.                 99      385     ---      52.5
John Hancock Financial         138      378     3220     ---
Landesbank Berlin             ---       385     ---      54.0
Landesbank BW                  110     ---      ---      53.0
Maria Fiorini Ramirez         ---       390     ---      ---
Market Securities             ---      ---      ---      52.9
Moody’s Analytics              150      383     3306     52.8
Morgan Stanley & Co.          ---       385     ---      ---
National Bank Financial       ---      ---      ---      53.0
Natixis                         85     ---      ---      53.0
Nomura Securities               90     ---      ---      51.5
Nord/LB                       ---       380     ---      52.0
OSK Group/DMG                 ---      ---      ---      52.4
Pierpont Securities           ---       387     ---      53.0
PineBridge Investments        ---       390     ---      52.0
PNC Bank                      ---      ---      ---      52.5
Prestige Economics            ---      ---      ---      52.2
Raymond James                  110      385     ---      53.2
RBC Capital Markets           ---       392     ---      52.0
RBS Securities                ---       385     ---      52.6
Scotiabank                      70      390     3300     53.0
SMBC Nikko Securities          100     ---      ---      52.0
Societe Generale                93      395     3365     52.8
Southern Polytechnic State    ---       371     ---      ---
Sparkasse Suedholstein        ---      ---      ---      53.0
Standard Chartered             100      382     ---      52.8
Stone & McCarthy Research     ---       387     ---      54.2
TD Securities                  100      382     3325     52.5
UBS                           ---       385     ---      53.5
University of Maryland          90      385     ---      52.0
Wells Fargo & Co.             ---      ---      ---      52.2
Westpac Banking Co.             60      390     ---      53.0
Wrightson ICAP                 110      382     3300     53.0
================================================================

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

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

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