Services in U.S. Expanded More Than Forecast in August
Service industries in the U.S. expanded in September by the most in six months, underpinning an economy that lost momentum in the first half of the year.
The Institute for Supply Management’s non-manufacturing index climbed to 55.1, exceeding the most optimistic projection in a Bloomberg survey, from 53.7 in August, figures from the Tempe, Arizona-based group showed today. Readings above 50 signal expansion. ADP Employer Services said in a separate report that private payrolls increased 162,000 last month.
“The economy seems to be leveling off,” said Paul Edelstein, director of financial economics at IHS Global Insight in Lexington, Massachusetts, who projected the services index would rise. “Domestic factors are starting to improve. Jobs are being created and people are feeling a little more confident so they are going to spend more.”
A sustained pickup in industries from construction to retailing that account for almost 90 percent of the economy will help make up for recent weakness in manufacturing. At the same time, a cooling global economy has prompted some service providers such as FedEx Corp. (FDX) to trim growth forecasts.
Stocks advanced after the U.S. figures, with the Standard & Poor’s 500 Index climbing 0.3 percent to 1,450.34 at 2:37 p.m. in New York.
The U.S. figures stand in contrast to other data today showing services industries from Asia to Europe slowed after the euro-area debt crisis pulled economies including Spain and Italy into recession.
The purchasing managers’ index fell to 53.7 in September from 56.3 in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing said today. That’s the lowest since at least March 2011. In the euro-area, a gauge slipped to 46.1 last month from 47.2 and a U.K. measure also fell.
Economists projected 53.4 for the September services gauge, according to the median of 77 estimates in a Bloomberg survey. Forecasts ranged from 51.5 to 54.7. Since the recession ended in June 2009, the gauge averaged 53.4 through August.
Roseland, New Jersey-based ADP said the September increase in payrolls followed a revised 189,000 rise the prior month that was smaller than initially estimated. The median estimate of 38 economists surveyed by Bloomberg projected a 140,000 advance.
Another report showed housing is among the brightest sectors. Mortgage applications last week climbed to the highest level in more than three years as borrowing costs slid. The Mortgage Bankers Association’s index jumped 16.6 percent in the period ended Sept. 28 from the prior week to reach the highest point since April 2009, the Washington-based group said today. Purchase applications rose 3.9 percent and refinancing surged 19.6 percent.
Mortgage rates at all-time lows and cheaper properties are driving sales for companies like Lennar Corp. (LEN) The third-largest builder by revenue said on Sept. 24 that its quarterly profit more than quadrupled from a year earlier.
“The homebuilding business is beginning to revert to normal and that’s positive for the U.S. economy in general, which is in turn good for a sustained recovery in the housing market,” Stuart Miller, chief executive officer at Lennar, said on a conference call. “Overall demand has been improving and we’ve seen a consistent sales pace at improving prices.”
The ISM non-manufacturing survey’s gauge of business activity jumped to 59.9, the highest since February, from 55.6. The new orders index increased to a six-month high of 57.7 from 53.7.
A “smattering” of companies reported an increase in orders from state and local government agencies for projects at the end of the fiscal year, Anthony Nieves, chairman of ISM’s non-manufacturing survey committee, said in an interview after the report. Government procurement typically picks up at the end of the fiscal year as agencies use up their budgets, he said.
A gauge of employment dropped to 51.1 from 53.8 in the prior month. The index of prices paid increased to 68.1 from 64.3.
The group’s manufacturing index, released Oct. 1, unexpectedly expanded in September after three months of contraction, the longest such stretch since the recession ended in June 2009.
For FedEx, operator of the world’s largest cargo airline, weaker global growth is taking a toll. On Sept. 18 the economic bellwether, because it ships goods from financial documents to electronics, pared its forecast for 2012 U.S. expansion to 1.9 percent from a June projection of 2.4 percent. Global growth will cool to 2.3 percent this year and 2.7 percent in 2013, the Memphis-based company said.
“The global trading economy is still the largest single economy in the world,” Fred Smith, chief executive officer at FedEx, said on a conference call. “But over the last several months, particularly as we went into this fiscal year, it’s been disappointing. It’s reflective of the low growth in the U.S., contraction going on in Europe” and the effect those issues are having on Chinese exports, he said.
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