Bloomberg News

U.S. Services Industry Grew Less Than Forecast in December

January 09, 2012

(Updates with economist’s comment in fourth paragraph.)

Jan. 5 (Bloomberg) -- Service industries in the U.S. expanded less than forecast in December, indicating improvement in the economy will be uneven.

The Institute for Supply Management’s index of non- manufacturing industries, which account for almost 90 percent of the economy, rose to 52.6 last month from 52 in November, the Tempe, Arizona-based group said today. The median forecast of economists surveyed by Bloomberg News called for an increase to 53. Fifty is the dividing line between expansion and contraction.

Slow wage growth, limited job gains and depressed real estate values may make it tougher for Americans to boost their spending after the holiday shopping season. The figures stand in contrast to recent data showing declining claims for jobless benefits and the strongest pace of manufacturing in six months.

“We’re seeing modest growth in services and are likely to continue to see modest growth as businesses are reluctant to add to capacity or employment,” Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the figure. “They are waiting for demand to improve.”

The services figure for December was the second-lowest since January 2010. Estimates of the 65 economists in the Bloomberg survey ranged from 52 to 55. The group’s index averaged 53.1 since the recession ended in June 2009.

The survey’s employment gauge rose to 49.4 in December from 48.9. The measure of new orders was little changed at 53.2 after 53 in November. A gauge of business activity held at 56.2. The index of prices paid decreased to 61.2 from 62.5.

Stocks Decline

Stocks held losses after the report, with the Standard & Poor’s 500 Index dropping 0.7 percent to 1,269.01 at 10:37 a.m. in New York.

Two other reports today showed the labor market is improving. Companies added 325,000 workers to their payrolls in December, the most since record-keeping began in 2001, after a 204,000 gain the prior month, according to Roseland, New Jersey- based ADP Employer Services. The gain topped the highest estimate in a Bloomberg survey of economists.

First-time claims for jobless benefits declined 15,000 last week to 372,000, the Labor Department said. The average over the past four weeks fell to the lowest level in more than three years.

Figures from the agency tomorrow may show the economy generated 150,000 jobs in December after 120,000 the prior month, according to economists surveyed by Bloomberg. The unemployment rate rose to 8.7 percent after falling to 8.6 percent a month earlier, according to the forecasts.

Private Employment

The report may also show private employment, which excludes government jobs, climbed 175,000 last month after a 140,000 gain.

Retail sales at stores open more than a year may have gained as much as 4.5 percent in December, more than previously estimated, as discounts attracted holiday shoppers, the International Council of Shopping Centers said in a statement yesterday.

Demand at Ford Motor Co., General Motors Co. and Chrysler Group LLC exceeded analysts’ forecasts in December, other data showed yesterday. Ford’s U.S. sales climbed 10 percent from a year earlier, while purchases of Chrysler vehicles were up 37 percent. At GM, they increased 4.5 percent from a year earlier.

‘Slowly Improving’

“The growth we’re seeing is still based on” a slow increase in jobs, Don Johnson, vice president at GM for U.S. sales, said on a conference call with analysts. “Consumers are more confident and other underpinnings of our economy are either stable or slowly improving.”

Consumer confidence climbed to an eight-month high in December, according to Conference Board figures last month.

The service industry report follows the group’s manufacturing data this week that showed an acceleration in orders and production. The ISM’s index climbed to 53.9 last month from 52.7 in November.

“The economy has been expanding moderately, notwithstanding some apparent slowing in global growth,” Federal Reserve policy makers said Dec. 13 after their latest meeting.

--With assistance from Kristy Scheuble in Washington. Editor: Vince Golle, Chris Wellisz

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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


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