Service Industries in U.S. Expanded at Faster Pace in July

Service industries in the U.S. expanded in July at a faster pace than a month earlier, helped by a pickup in orders.

The Institute for Supply Management’s non-manufacturing index rose to 52.6, from 52.1 in June, the Tempe, Arizona-based group said today. The median forecast of 73 economists surveyed by Bloomberg called for no change from June. A reading above 50 signals expansion.

The measure is below the 54.2 average over the last six months, indicating services that make up almost 90 percent of the economy are hindered by slower global growth and concerns about the so-called U.S. fiscal cliff. The group’s gauge of employment fell to the lowest level since September, a sign households may also stay reluctant to step up purchases.

“It’s clear at this point that domestic demand for goods and services is on the decline,” Guy LeBas, fixed income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “Uncertainty about both economic conditions and political ones are triggering hesitancy on the part of firms.”

Estimates of the 73 economists in the Bloomberg survey ranged from 50.5 to 53. Before today’s figures, the index averaged 53.4 since the recession ended in June 2009.

Another report today showed payrolls climbed more than forecast in July even as the jobless rate unexpectedly rose to a five-month high. Employment rose 163,000 last month after a revised 64,000 gain in June that was less than initially reported, the Labor Department said. The unemployment rate increased to 8.3 percent.

Business Activity

The ISM non-manufacturing survey’s measure of business activity climbed to 57.2 from 51.7, which was the lowest since November 2009. The gauge of new orders increased to 54.3 from an eight-month low of 53.3. An index of prices paid rose to 54.9 from 48.9.

The employment gauge decreased to 49.3, the first contraction in the measure of jobs this year, from 52.3 in June.

“The employment picture is a little bit of a concern,” Anthony Nieves, chairman of the Institute for Supply Management Non-Manufacturing Business Survey Committee, said on a conference call with reporters. “Overall, non-manufacturing has been resilient. We’re still on the path for continued growth.”

The ISM services survey covers a broad mix of industries including utilities, retailing, health care and finance.

Today’s data follows reports earlier this week that showed global weaknesses in manufacturing and consumer confidence.

Manufacturing Measure

U.S. manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery. The Institute for Supply Management’s factory index was 49.8 last month, little changed from a three-year low reached in June.

Beyond the nation’s factories, retailers used discounts to lure consumers last month. Gap Inc. and Macy’s Inc. posted same-store sales that topped analysts’ estimates as promotions and warm weather boosted shopping traffic.

Sales at Gap, the biggest U.S. specialty-apparel retailer, climbed 10 percent, beating the average projection for a 3.8 percent gain from analysts surveyed by researcher Retail Metrics Inc. Macy’s, the owner of its namesake and Bloomingdale’s department stores, posted a 4.1 percent rise in same-store sales, topping the 2.5 percent average estimate.

OfficeMax Inc., based in Naperville, Illinois, is among retailers battling softness in consumer demand entering the back-to-school shopping season.

“The economy’s clearly not providing any tailwind,” OfficeMax Chief Financial Officer Bruce Besanko, said on an Aug. 2 earnings call.


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