Service industries in the U.S. expanded less than projected and consumer confidence weakened, signaling the world’s largest economy may be cooling.
The Institute for Supply Management said today its non- manufacturing index fell to a four-month low of 53.5 in April from 56 in March. The median forecast of economists surveyed by Bloomberg News was 55.3. A reading above 50 in the Tempe, Arizona-based group’s gauge signals expansion. The Bloomberg Consumer Comfort Index fell to a two-month low last week.
Stocks extended losses as the services report added to concern global growth is slowing after European Central Bank President Mario Draghi said the economic outlook has worsened. American consumers, whose purchases rose by the most in a year in the first quarter, may find it difficult to maintain the pace of spending without faster job and wage gains, said James Shugg, a senior economist at Westpac Banking Corp. in London.
“The economy has recently lost some momentum, and a weaker services sector is completely consistent with that,” said Shugg, whose forecast for the ISM gauge was among the lowest. “Consumer spending is softening somewhat.”
The Standard & Poor’s 500 Index lost 0.8 percent to 1,391.57 at the close of trading in New York. The Stoxx Europe 600 Index ended little changed, erasing an earlier earnings- driven rally of 1 percent. Ten-year Treasury yields were little changed at 1.93 percent.
The ISM services survey covers industries ranging from utilities and construction to retailing and finance. A May 1 report from the group showed manufacturing unexpectedly accelerated in April to the fastest pace in almost a year and that factory employment picked up.
Expansion among service industries may be moderating after a surge in the first quarter that coincided with the strongest pace of job growth in six years.
“Unemployment remains stubbornly high and people are still cautious,” Steve Joyce, president and chief executive officer of Choice Hotels International Inc. (CHH:US), said during an April 27 earnings call. Still, “while slower than any of us would prefer, we are seeing steady, positive improvement in the broad U.S. economy.”
Today’s report showed the ISM non-manufacturing survey’s measure of new orders decreased to 53.5, the lowest in six months, from 58.8. The employment gauge dropped to 54.2, the weakest this year, from 56.7 in the prior month.
The report overshadowed data from the Labor Department today showing applications for unemployment benefits fell more than forecast last week, easing concern the job market is taking a turn for the worse.
Jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period. The median forecast of 46 economists surveyed by Bloomberg called for 379,000 applications.
Slowing progress in the labor market might be weighing on consumer moods. Employers added 120,000 jobs in March, the fewest in five months and half the 240,000 gain in February. A report tomorrow may show the U.S. added 160,000 jobs in April, according to a Bloomberg survey, which also called for no change in the 8.2 percent jobless rate.
Target Corp. (TGT:US) and Macy’s Inc. posted April same-store sales that trailed analysts’ estimates as the earlier Easter holiday pulled sales into March and cooler weather cut mall traffic.
Sales at Target, the second-biggest U.S. discount chain, rose 1.1 percent, falling short of the average projection for a 2.9 percent gain from analysts surveyed by researcher Retail Metrics Inc. Macy’s, the second-biggest U.S. department-store chain, posted a 1.2 percent increase in same-store sales, missing the 1.9 percent estimate.
Views on Finances
Views on finances sank to the lowest point since January and more households said it was a bad time to buy needed items, the Bloomberg Consumer Comfort Index showed.
The index, compiled for Bloomberg by Langer Research Associates LLC in New York, has averaged minus 15.3 since its inception in December 1985. Even with the latest decline, the gauge is in its 12th consecutive week above minus 40, the most sustained breakout since sentiment soured in early 2008.
Household purchases rose 2.9 percent from January through March, the most since the final three months of 2010, a Commerce Department report showed yesterday. Gross domestic product increased at a 2.2 percent annual rate, after a 3 percent pace the prior quarter.
Confidence among upper-income Americans has been climbing, bucking the recent trend among all groups. The sentiment gauge for households making more than $50,000 a year rose last week to the highest level since January 2008. Those with incomes greater than $100,000 were the only ones in a positive frame of mind, with a reading of 7.6, up from 3.7.
Visa Inc. (V:US), the biggest payments network, said yesterday that fiscal second-quarter profit surged 47 percent as customer spending on credit and debit cards rose. The company boosted its profit outlook.
“Visa’s business continues to expand at a healthy pace,” Chairman and Chief Executive Officer Joseph W. Saunders said in a statement.
The productivity of U.S. workers fell in the first quarter, Labor Department data also showed today, indicating businesses are reaching the limit of how much efficiency they can wring from the workforce.
The measure of employee output per hour declined at a 0.5 percent annual rate after a 1.2 percent gain in the prior three months. Expenses per worker increased at a 2 percent rate, less than estimated.
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