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Services in U.S. Expand at Slowest Pace Since 2010: Economy

Service industries in the U.S. expanded in November at the slowest pace since January 2010 as employment cooled, a sign improvement in the biggest part of the economy will be uneven.

The Institute for Supply Management’s non-manufacturing index unexpectedly fell to 52 last month from 52.9 in October, the Tempe, Arizona based-group said today. The median forecast in a Bloomberg News survey called for a gain to 53.9. Fifty is the dividing line between expansion and contraction.

Falling home prices, slow wage growth and limited job gains may make it difficult for households to sustain the pace of spending after the holiday shopping season. For companies, Europe’s debt crisis and a lack of clarity on the U.S. budget deficit and taxes remain obstacles to investment and hiring.

“The economy continues to muddle along at a moderate pace,” said Richard DeKaser, deputy chief economist at Parthenon Group Inc. in Boston, who projected a reading of 51.5. “The economic fundamentals are reasonably strong but are being stymied by the elevated uncertainty.”

Stocks rose, adding to the best weekly gain since 2009, as Germany and France pushed for a new European Union treaty to combat the debt crisis. The Standard & Poor’s 500 Index climbed 1 percent to 1,257.08 at the close in New York.

A slowing economy in Europe remains a risk for American companies. European services and manufacturing output contracted more in November than initially estimated.

European Economy

A euro-area composite index based on a survey of purchasing managers in both industries rose to 47 from 46.5 in October, London-based Markit Economics said today. That’s less than an initial estimate of 47.2 on Nov. 23 and the third monthly reading below 50, indicating contraction.

Companies may struggle to sustain sales as global economies weaken. China’s official manufacturing PMI released last week fell to 49 in November from 50.4 in the previous month, the first contraction since February 2009. U.K. manufacturing output also shrank last month.

The financial crisis in the euro zone will weigh on the U.S. economy through early 2012, Jan Hatzius, chief economist for Goldman Sachs Group Inc., said on a conference call last week. The U.S. economy will expand at a 1 percent annual pace during the first half of 2012, he said. The euro area will contract 0.8 percent during 2012, he said.

In October, American factories received fewer orders for a second month, the Commerce Department said today. Bookings dropped 0.4 percent after a revised 0.1 percent decrease that was previously estimated as a gain.

Range of Estimates

Estimates of the 79 economists in the Bloomberg survey for the ISM services report ranged from 51.5 to 55. The group’s index of industries that account for about 90 percent of the economy averaged 56.1 in the five years to December 2007, when the last recession began.

The slowdown in services employment was at odds with last week’s jobs data. The survey’s employment gauge dropped to 48.9 from 53.3, the biggest decrease since March 2009. Among the industries reporting a reduction in employment were real estate, finance and public administration. Some 15 percent said headcount was expanding in November compared with 16 percent in the previous month.

The Labor Department’s figures last week showed the unemployment rate fell to 8.6 percent last month, the lowest since March 2009, from 9 percent. Payrolls climbed by 120,000 after a revised 100,000 increase in October.

Employment at service-providers increased 126,000, including a 50,000 gain in retail trade as companies hired for the holiday shopping season, according to the Labor Department.

At Odds

“The drop in the employment component of the survey does not mesh with other employment metrics such as payrolls and claims” for jobless benefits, Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, said in an e-mail to clients.

Transportation companies were joining retailers such as Kohl’s Inc. and Macy’s Inc in boosting holiday hiring.

United Parcel Service Inc. said Nov. 7 that it was considering hiring 55,000 holiday workers this year, a 10 percent increase from 2010, to help with shipping gains bolstered by online shopping.

U.S. consumers poured into the malls and took to the Web during Thanksgiving weekend, spending a record $52.4 billion at a pace that may be hard to sustain as the holiday shopping season gets under way, the National Retail Federation said, citing a survey from BIGresearch.

Other data in the services report paint a brighter picture of the industry. The group’s measures of new orders and business activity both improved.

Coach Inc., the largest U.S. luxury handbag maker, expects an “excellent holiday season,” partly due to shoppers’ “strong interest” in accessories for self-purchase, Chief Executive Officer Lew Frankfort said on a conference call last week.

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