Services in U.S. Expanded More Than Forecast in August

ISM Services Gauge in U.S. Rose to 53.7 in August From 52.6
Shoppers ride an escalator at a Costco Wholesale Corp. warehouse in Brooklyn, New York. The ISM services survey covers industries ranging from utilities and retailing to housing, health care and finance. Photographer: Victor J. Blue/Bloomberg

Service industries in the U.S. expanded in August at a faster pace than forecast, offering support to an economy that lost momentum in the first half of the year.

The Institute for Supply Management’s non-manufacturing index climbed to a three-month high of 53.7 from 52.6 in July, the Tempe, Arizona-based group said today. Readings above 50 signal expansion, and economists projected 52.5 for August, according to the median estimate in a Bloomberg survey.

A sustained pickup in service industries will help make up for three straight months of contraction in manufacturing and may create more employment opportunities as the jobless rate exceeds 8 percent. At the same time, FedEx Corp. is among companies seeing waning demand as rising gas prices, cooling global economies and diminished business investment hold back U.S. growth.

“Services have held in there,” Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, said before the report. “The service sector is actually doing better than manufacturing in terms of growth, which is a change from what’s been going on in the past few years.”

Economists’ estimates in the Bloomberg survey ranged from 51 to 53.5. The gauge has averaged 53.3 since the recession ended in June 2009.

Stocks Climb

Stocks held gains after the figures and as the European Central Bank announced specifics of its bond-buying plans aimed at shoring up the economy. The Standard & Poor’s 500 Index climbed 1.4 percent to 1,422.41 at 10:13 a.m. in New York.

Fewer Americans than forecast filed first-time claims for unemployment insurance payments last week, another report today showed. Applications for jobless benefits decreased 12,000 in the week ended Sept. 1 to 365,000, the fewest in a month, Labor Department figures showed.

Companies added more workers in August than projected, according to a report from Roseland, New Jersey-based ADP Employer Services. The 201,000 gain was the most in five months and followed a 173,000 rise the prior month that was higher than initially estimated.

The ISM non-manufacturing survey’s employment gauge rose to 53.8, the highest since April, from 49.3 in the prior month. The measure of new orders decreased to 53.7 from 54.3. A gauge of business activity dropped to 55.6 from 57.2. The index of prices paid increased to 64.3 from 54.9.

Factory Gauge

The group’s manufacturing index, released Sept. 4, showed the industry contracted for a third month in August, the longest such stretch since the recession ended in 2009. The ISM services survey covers industries ranging from utilities and construction to health care and finance

Stronger retail sales, along with a pickup in the housing market, have helped sustain growth in the services industry. In July, retail purchases advanced 0.8 percent, the most since February, Commerce Department data show. Auto demand has also fared well, with sales of cars and light trucks rising to an annual rate of 14.5 million in August, the best in three years.

New home construction ran at a 746,000 annual rate in July, close to June’s 754,000 pace that was the strongest in more than three years, according to the Commerce Department.

At the same time, the services industry may be held back by a struggling labor market. Payroll gains have failed to bring the jobless rate below 8 percent for more than three years.

Consumer Spending

Higher gasoline prices could also keep consumer spending in check. The average price of a gallon of regular gas has risen 50 cents since July 1, reaching $3.83 at the end of August, according to AAA, the nation’s largest auto club.

FedEx is among U.S. companies saying slower economic growth is hurting demand for their services. The world’s biggest cargo airline operator this week projected its first earnings decline since 2009 for the three-month period that ended Aug. 31.

“Weakness in the global economy constrained revenue growth at FedEx Express more than expected in the earlier guidance,” the company said in a Sept. 4 statement. Express packages provide most of FedEx’s sales, and the Memphis-based shipper is considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals.


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