Bloomberg News

Service Industries in U.S. Show Expansion’s Resilience

November 05, 2012

ISM Services Gauge in U.S. Fell to 54.2 in October From 55.1

Workers apply stucco to the exterior of a house under construction in the Pasadera community, a housing development of Hovnanian Enterprises Inc. in Rancho Cucamonga, California. Photographer: Patrick Fallon/Bloomberg

Service industries in the U.S. kept growing in October, a sign the biggest part of the economy is withstanding a global slowdown.

The Institute for Supply Management’s non-manufacturing index declined to 54.2 last month from 55.1 in September, the Tempe, Arizona-based group said today. A measure above 50 signals expansion in industries that account for almost 90 percent of the economy. The October figure exceeded the third- quarter average.

A gauge of services employment rose to a seven-month high, corroborating a report last week that showed a stronger labor market may provide more fuel for the economy. Macy’s Inc. (M:US) and Kohl’s Corp. (KSS:US) are among those that stand to benefit from more hiring at the same time homebuilders enjoy a rebound in demand that’s helping make up for a slowdown in manufacturing.

“We should see continued modest improvement in the economy,” said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York, who correctly forecast the October non- manufacturing figure. “If you’re expanding you have to have manpower. If you can’t do it with more hours worked, you have to hire.”

The Tempe, Arizona-based ISM’s services report is the last piece of economic data before tomorrow’s election, when voters decide between giving President Barack Obama another four years and changing course with Republican challenger Mitt Romney.

Stocks gained following last week’s advance in the Standard & Poor’s 500 Index. The S&P 500 climbed 0.2 percent to 1,417.26 at the close in New York. The yield on the benchmark 10-year Treasury note dropped to 1.68 percent from 1.72 percent late Nov. 2.

Economists’ Projections

Economists projected 54.5 for the non-manufacturing index, according to the median forecast in a Bloomberg survey. Estimates ranged from 53 to 57. The gauge averaged 53.8 in the third quarter.

The group’s index of non-manufacturing employment climbed to 54.9, the highest since March, from 51.1 in the prior month. A measure of new orders decreased to 54.8 from 57.7. A gauge of business activity fell to 55.4 from 59.9.

In the U.K., services growth cooled more than economists forecast in October, adding to signs of weakness in the economy at the start of the fourth quarter.

A gauge based on a survey of purchasing managers fell to a 22-month low of 50.6 from 52.2 in September, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today. That’s below the lowest estimate of 51 in a survey of 30 economists by Bloomberg. The median forecast was 52.

China Services

China’s services industries rebounded from the slowest expansion in at least 19 months, adding to manufacturing gains that indicate the world’s second-biggest economy is recovering from a seven-quarter slowdown.

The purchasing managers’ index rose to 55.5 in October from 53.7 the previous month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on Nov. 3. A separate services index released today by HSBC Holdings Plc and Markit Economics in Beijing fell to 53.5 in October from 54.3.

The ISM’s manufacturing gauge on Nov. 1 showed factories expanded in October at a faster pace than projected as orders and production picked up. The gauge rose to a five-month high of 51.7 in from 51.5 the previous month.

A Labor Department report last week showed the U.S. job market is strengthening. Employers added 171,000 workers to payrolls in October, more than the most optimistic projection in a Bloomberg survey, after a 148,000 gain in September. The figures showed retail hiring picked up at the same time purchases firmed.

Retail Sales

Macy’s, the second-biggest U.S. department-store chain, said last week that its October same-store sales increased 4.1 percent, topping the 4 percent average estimate of analysts surveyed by researcher Retail Metrics Inc. Kohl’s said its purchases climbed 3.3 percent.

Same-store sales for the more than 20 companies tracked by Swampscott, Massachusetts-based Retail Metrics rose 5 percent, excluding drugstores, beating estimates for a 4.6 percent gain, the firm said in a Nov. 1 report. That followed a 3.9 percent increase in September.

Starbucks Corp. (SBUX:US), the world’s largest coffee-shop operator, reported record fourth-quarter revenue, while sales at stores open at least 13 months in the U.S., Canada and Latin America advanced 7 percent.

‘Very Challenging’

“If you look at the last few years, there is no question that the economic environment in the U.S. has been very challenging, fragile, and depending on the region, very difficult at times,” Chief Executive Officer Howard Schultz said on a Nov. 1 earnings call. Still, “we’re confident that we can continue to navigate through changes in the economy and we’ve done it now year-over-year.”

Homebuilding is another bright spot for the economy. Americans bought new homes in September at the fastest pace in two years, a sign the industry at the heart of the last recession is bouncing back, according to Commerce Department figures.

Population growth and mortgage rates pushed to record lows by Federal Reserve purchases of housing debt are generating sales for builders like Toll Brothers Inc. (TOL:US) Housing starts in September jumped 15 percent to the fastest pace since July 2008, according to the Commerce Department.

At the same time, the service industry may be held back by a weaker global economy and concerns about the so-called fiscal cliff of more than $600 billion in tax increases and government spending cuts set to occur if lawmakers fail to act by the end of the year.

“Corporate America is cautious ahead of the elections and fiscal cliff discussions, so it’s unlikely that we’ll see any uptick in the fourth quarter,” Vasant Prabhu, chief financial officer at Starwood Hotels & Resorts Worldwide Inc., said on an Oct. 25 earnings call.

To contact the reporter on this story: Lorraine Woellert in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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Companies Mentioned

  • M
    (Macy's Inc)
    • $62.59 USD
    • -1.48
    • -2.36%
  • KSS
    (Kohl's Corp)
    • $59.59 USD
    • 0.14
    • 0.23%
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