Bloomberg News

Services in U.S. Probably Expanded at Slower Pace in September

October 05, 2011

Oct. 5 (Bloomberg) -- Service industries in the U.S. probably expanded in September at a slower pace, showing the recovery is struggling to gain speed, economists said before a report today.

The Institute for Supply Management’s non-manufacturing index fell to 52.8 from 53.3 in August, according to the median estimate of 75 economists surveyed by Bloomberg News. A reading of 50 is the dividing line between expansion and contraction in services, the largest part of the economy.

The lack of job and income growth, deepening pessimism about the economic outlook in the wake of Europe’s debt crisis, and a slumping stock market may hamper consumers’ willingness to spend. The projected services reading underscores Federal Reserve Chairman Ben S. Bernanke’s comments yesterday that the recovery will be “somewhat slower” in coming quarters.

“Economic momentum remains fragile,” said Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York. “Consumer budgets are strained,” and households are “scaling back in areas like transportation, recreation and eating out.”

The Tempe, Arizona-based ISM’s report on non-manufacturing industries that account for almost 90 percent of the economy is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 51.3 to 55.

The ISM services survey covers industries ranging from utilities and retailing to health care and finance. Today’s report follows the group’s Oct. 1 figures that showed manufacturing expanded in September at a faster pace.

European Debt Crisis

Stocks have slumped on concerns over Europe’s debt crisis and signs the U.S. economy was on the verge of faltering. The Standard & Poor’s 500 Index has declined 15 percent since the end of June.

A report due at 8:15 a.m. from ADP Employer Services may show companies added an estimated 73,000 workers to payrolls in September after a 91,000 gain the prior month, according to the median forecast in the Bloomberg survey.

A jobless rate of at least 9 percent for five straight months, slower employment growth, and declining home and equity values are combining to depress Americans. The Bloomberg Consumer Comfort Index fell in the week ended Sept. 25 to the second-lowest level on record. The gauge dropped to minus 53 and has been stuck below minus 40, the level associated with recessions, since the end of February.

“We expect modest growth to continue,” Alan Graf, chief financial officer at FedEx Corp., said on a Sept. 22 conference call with analysts. “The biggest drag on economic improvement at this time is sentiment, and the country, as well as FedEx, needs a change in that in order to benefit from further economic growth.”

Economic Growth

The economy expanded at a 1.3 percent annual pace in the second quarter after a 0.4 percent rate in the January to March period, the weakest six months of the recovery that began in June 2009, according to Commerce Department figures. Analysts surveyed by Bloomberg last month projected a 1.8 percent rate of growth for the third quarter, based on the median estimate.

Bernanke, during congressional testimony yesterday, said Fed policy makers stand ready to take further steps to spur the “sluggish” economy if needed.

“The recovery from the crisis has been much less robust than we had hoped,” he said. Fed officials expect a “somewhat slower pace of economic growth over coming quarters” than they did in June, he said, without giving a specific forecast.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Carlos Torres

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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


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