Growth in Services Probably Picked Up: U.S. Economy Preview

Photographer: Victor J. Blue/Bloomberg

A waitress serves customers at the Bouchon Bakery at The Shops at Columbus Circle mall in New York. Close

A waitress serves customers at the Bouchon Bakery at The Shops at Columbus Circle mall in New York.

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Photographer: Victor J. Blue/Bloomberg

A waitress serves customers at the Bouchon Bakery at The Shops at Columbus Circle mall in New York.

Growth in U.S. service industries probably picked up in July, indicating the biggest part of the economy is benefiting from gains in hiring and a rebound in the housing industry.

The Institute for Supply Management’s non-manufacturing index will rise to 53.1 from June’s 52.2, the lowest level since February 2010, according to the median forecast of 60 economists surveyed by Bloomberg before figures tomorrow. Readings above 50 signal growth in the Tempe, Arizona-based group’s report. Other data may show the trade deficit narrowed in June.

Gradual gains in the job market are supporting household purchases of services as the effects of across-the-board federal budget cuts and higher taxes begin to wane. A pickup in consumer spending, helped by rising home values and stock prices, is needed to combat softer overseas markets and bolster economic growth into the second half of the year.

“Conditions across the economy do seem to be improving,” said Russell Price, a senior economist at Ameriprise Financial Inc. (AMP) in Detroit. “Typically when we see improvements in the manufacturing side, that tends to pull some improvement into the services side as well.”

The ISM index, which covers almost 90 percent of the economy, includes industries ranging from utilities and retailing to health care, housing and communications. It follows the group’s report on manufacturing, which last week showed the fastest pace of factory expansion in more than two years.

July Payrolls

Hiring increased at a slower clip in July, suggesting some employers are confident they can meet demand with current staffing levels. Payrolls grew by 162,000, the smallest increase in four months, following a revised 188,000 advance in June that was less than initially estimated, Labor Department data showed.

Retailers added almost 47,000 workers in July, the most in eight months. Employment in education and health services posted its weakest gain in a year.

AT&T Inc. (T) is looking to fill more than 200 retail openings in South Florida before the end of October, with more than half of the being newly created positions, the largest U.S. phone company said in a July 22 statement. The company’s second-quarter sales topped average estimates as it added 551,000 contract customers, compared with 320,000 a year ago.

While both household purchases and incomes in the U.S. increased in June, bigger spending gains are needed to help boost growth in the world’s biggest economy. Purchases rose 0.5 percent, in line with forecasts, while incomes advanced 0.3 percent, a Commerce Department report showed last week.

‘Gaining Momentum’

“Consumers are still cautious, as they probably appropriately should be, but they are slowly gaining momentum,” Ameriprise’s Price said.

The waning effects of government spending cuts and higher taxes are helping the economy accelerate, with growth increasing more than projected in the second quarter. Gross domestic product rose at a 1.7 percent annualized rate after a 1.1 percent gain in the prior quarter that was smaller than previously estimated, according to Commerce Department data released last week.

Improving earnings and economic growth have helped propel the Standard & Poor’s 500 Index up 19.9 percent so far this year. The S&P 500 climbed above the 1,700 level last week for the first time as central banks vowed to maintain stimulus efforts and data on global manufacturing beat forecasts.

Last week’s GDP report also showed the trade deficit widened last quarter as imports climbed faster than exports, subtracting 0.8 percentage point from growth. The shortfall may have narrowed in June as the value of imports cools from its second-highest level on record.

Trade Gap

The trade gap probably shrank to $43 billion in June from $45 billion the prior month that was the largest since November, according to the median forecast of economists surveyed before the Commerce Department’s report on Aug. 6.

Exports may also recover after stagnating this year, helping sustain gains in manufacturing production and orders. The Institute for Supply Management’s factory index jumped to 55.4 in July, exceeding the highest projection in a Bloomberg survey of economists, from 50.9 in the prior month, a report showed last week.

“What you have to hang your hat on is continued job growth, a continued housing recovery, and a rebound in manufacturing,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. “That’s what’s going to continue to keep the economy moving, and probably moving faster.”

                        Bloomberg Table

===============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
===============================================================
ISM NonManu Index         8/5       July      52.2      53.1
Trade Balance $ Blns      8/6       June     -45.0     -43.0
JOLTs  Job Openings       8/6       June      3828      3900
Cons. Credit $ Blns       8/7       June      19.6      15.0
Initial Claims ,000’s     8/8      3-Aug      326       336
===============================================================

To contact the reporter on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net

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

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