U.S. Stocks Fall on Economic Data Amid Federal Shutdown

U.S. stocks fell for a second day as investors weighed data showing a decline in a service industries index and an increase in jobless claims while lawmakers made little progress on ending the federal shutdown.

Eli Lilly Co. dropped 3 percent after saying it would be “challenging” for the drugmaker to meet its 2014 sales target. United Technologies (UTX) Corp., a supplier of helicopters and jet engines to the military, retreated 0.9 percent after saying the shutdown would lead to as many as 5,000 temporary layoffs. Agrium Inc. rose 1.4 percent as the largest U.S. farm-products retailer said its chief executive officer will leave at the end of the year.

The Standard & Poor’s 500 Index lost 0.7 percent to 1,681.93 at 10:10 a.m. in New York. The Dow Jones Industrial Average slid 112.20 points, or 0.7 percent, to 15,020.94. Trading in S&P 500 stocks was 10 percent below the 30-day average at this time of day.

“What we are starting to realize today especially is that this might go on for a while,” Mike Sorrentino, who helps oversee about $3 billion as chief strategist at Global Financial Private Capital LLC, said by phone from Sarasota, Florida. “The debt ceiling is a cause for concern. If we can get through that and we can get through the dysfunction with this government, there will be a much safer road ahead.”

The S&P 500 gained 0.7 percent in the first two days of the first partial government shutdown in 17 years, as investors speculated any economic effects from the impasse would be limited.

Congress Talks

The index trimmed earlier losses yesterday after Obama met with financial leaders at the White House and summoned congressional leaders for the first face-to-face talks since the standoff began. The meeting last night with lawmakers yielded no results, leaving as many as 800,000 federal employees on unpaid leave.

A partial shutdown lasting one week would probably shave 0.1 percentage point from economic growth, according to the median estimate of economists in a Bloomberg survey, with the costs accelerating if the closure persists.

Data today showed the Institute for Supply Management’s U.S. non-manufacturing index fell to 54.4 in September from 58.6 the prior month. The median forecast in a Bloomberg survey called for a drop to 57. A reading greater than 50 indicates expansion. The figure includes industries that range from utilities and retail to health care, housing and finance and make up almost 90 percent of the economy.

Jobless Claims

A separate report from the Labor Department showed fewer Americans than forecast filed applications for unemployment benefits last week, indicating U.S. employers were maintaining staff counts in the days leading up to the government shutdown.

The Labor Department will not release its monthly unemployment report tomorrow as scheduled because of the shutdown.

The budget standoff raises concern the dispute may affect talks to increase the $16.7 trillion debt ceiling this month.

The Treasury has said measures to avoid exceeding the borrowing limit will be exhausted by Oct. 17. The U.S. won’t have enough money to pay all of its bills at some point between Oct. 22 and Oct. 31 without action by Congress, according to the Congressional Budget Office.

“The real test will be the debt ceiling,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “Here the government really cannot afford to not increase it in due time.”

AAA Rating

S&P stripped the U.S. of its AAA credit rating in August 2011 amid a stalemate between Obama and Congress over whether to raise the debt ceiling, and the S&P 500 fell more than 11 percent in three days.

The losses were later reversed, as the Federal Reserve pledged to hold the benchmark interest rate near zero and maintain bond purchases to support the economy. The S&P 500 gained 25 percent in the 12 months through August 2012.

The S&P 500 rallied 4.7 percent in the third quarter as the central bank maintained stimulus measures and companies reported better-than-estimated earnings. The gauge has surged 19 percent in 2013, on course for the biggest gain in four years.

All 10 main S&P 500 industries retreated at least 0.3 percent today, with utilities sinking 1.3 percent to pace declines. Boeing Co. dropped 1.5 percent to $116.03 for the steepest slide in the Dow.

Government Contractors

A Bloomberg index that tracks 70 companies that get at least 3.5 percent of their revenue from federal contracts fell 0.7 percent today, extending its decline this week to 7.1 percent.

United Technologies Corp., a supplier of helicopters and jet engines to the military, said the impasse will force it to lay off as many as 5,000 employees. The first effect will be layoffs for about 2,000 Sikorsky Aircraft employees in Connecticut, Florida and Alabama on Oct. 7, the contractor said yesterday.

UTC receives about 18 percent of its revenue from the government, Chief Financial Officer Gregory Hayes told analysts this week. Its shares slid 2.2 percent yesterday and lost 0.9 percent today to $104.29.

“The comments made by United Technologies will be a good proxy for what to expect,” Nigg said. “Most companies will most likely continue to provide very cautious guidance in general, and the shutdown isn’t helping.”

Lilly Forecast

Eli Lilly lost 3.3 percent to $48.86. The drugmaker said a slowdown in emerging markets and the weakening of the yen will make it “challenging” for it to meet its 2014 sales target.

Lilly also plans to repurchase $5 billion of shares over time, the company said in a statement today. The Indianapolis-based company reaffirmed its goal of generating at least $20 billion in revenue, $3 billion of net income and $4 billion of operating cash flow next year.

Agrium rose 1.4 percent to $86.70. The largest U.S. farm-products retailer said Chief Operating Officer Chuck Magro will succeed Mike Wilson as chief executive officer at the beginning of the year. Wilson, 62, will retire from the company at the end of the year after 10 years as CEO, Agrium said in a statement.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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U.S. Stocks Fall as Congress Makes Little Progress on Shutdown

Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange.

Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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Oct. 3 (Bloomberg) -- Fewer Americans than forecast filed applications for unemployment benefits last week, indicating U.S. employers were maintaining staff counts in the days leading up to the government shutdown. Jobless claims rose by 1,000 to 308,000 in the week ended Sept. 28, from a revised 307,000, a Labor Department report showed today in Washington. Betty Liu and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)