Service industries in the U.S. probably grew in January at about the same pace as in the prior month, showing the biggest part of the economy is weathering Washington budget battles, economists said before a report this week.
The projected 55 reading in the Institute for Supply Management’s non-manufacturing index would follow December’s 55.7, the highest level in 10 months, according to the median forecast of 62 economists surveyed by Bloomberg before Feb. 5 figures from the Tempe, Arizona-based group. Another report may show the trade deficit narrowed in December.
A pickup in consumer spending and a rebound in housing will probably keep benefitting non-manufacturers such as MasterCard Inc. (MA:US) and D.R. Horton Inc. (DHI:US), helping the world’s largest economy strengthen after it stalled in the fourth quarter. A job market that continues to heal will also support households trying to manage a tighter budget after the payroll tax increased.
The economy has “gotten through this period of uncertainty reasonably well,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. The data are “consistent with moderate business expansion.”
Readings greater than 50 signal expansion for the ISM services index, which includes industries ranging from utilities and retailing to health care, housing and finance.
Household purchases expanded at a 2.2 percent annual rate in the final three months of 2012 following a 1.6 percent advance in the third quarter, according to Commerce Department figures released last week.
MasterCard, the second-biggest U.S. payments network, posted fourth-quarter profit that beat analysts’ estimates as customers shopped more. Nonetheless, the Purchase, New York- based business is cautious about the first-quarter outlook.
“Any optimism that we have about the economy, however, will be tempered until we see what happens to consumer confidence and spending” as federal budget negotiations continue, Chief Executive Officer Ajay Banga said on a Jan. 31 conference call with analysts.
An added levy on income may yet damp spending. The fiscal pact passed by Congress on Jan. 1, while avoiding sweeping tax increases, let the payroll tax used to pay for Social Security benefits return to the 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.
D.R. Horton, the largest U.S. homebuilder by volume, last week said fiscal first-quarter profit more than doubled as demand for new houses climbed. Orders jumped 39 percent to 5,259 homes. The company’s contract backlog, an indication of future sales, rose 80 percent to $1.76 billion.
A report last week showed manufacturing improved at a faster-than-expected pace. The Institute for Supply Management’s factory gauge advanced to 53.1 last month from December’s 50.2, exceeding the highest estimate in a Bloomberg survey of economists.
Exports grew in January for a second month after contracting since June, which signals overseas demand may continue to benefit American companies and contribute to a narrowing in the trade deficit.
The gap shrank to $45.8 billion in December from $48.7 billion the prior month that was the largest since April, according to the median forecast of economists surveyed before the Commerce Department’s report on Feb. 8.
China, the world’s second-biggest economy, reported growth accelerated in the fourth quarter for the first time in two years. Developing nations are projected to expand 5.5 percent in 2013, more than last year, while Europe stabilizes, according to projections from the World Bank.
At the same time, declining oil costs probably helped keep import expenses low. The cost of imported petroleum decreased 0.8 percent in December from the prior month, according to Jan. 11 figures from the Labor Department. For all of 2012, import prices fell 1.5 percent, the first annual drop since they retreated 10.1 percent in 2008.
Progress in the labor market may help boost demand. Payrolls rose 157,000 following a revised 196,000 advance in the prior month and a 247,000 surge in November, Labor Department figures showed last week. The revisions added a total of 127,000 jobs to the employment count in November and December. The jobless rate increased to 7.9 percent from 7.8 percent.
The jobs gains are short of levels that Federal Reserve policy makers have said would convince them to halt unprecedented easing measures. The central bank will keep purchasing securities at the rate of $85 billion a month after the economy “paused” because of temporary forces, the Federal Open Market Committee said in a Jan. 30 statement at the conclusion of a two-day meeting in Washington.
The Fed also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation remains no more than 2.5 percent.
Bloomberg Survey =============================================================== Release Period Prior Median Indicator Date Value Forecast =============================================================== Factory Orders MOM% 2/4 Dec. 0.0% 2.3% ISM NonManu Index 2/5 Jan. 55.7 55.0 Productivity QOQ% 2/7 4Q 2.9% -1.4% Labor Costs QOQ% 2/7 4Q -1.9% 2.9% Initial Claims ,000’s 2/7 2-Feb 368 360 Cons. Credit $ Blns 2/7 Dec. 16.0 14.0 Trade Balance $ Blns 2/8 Dec. -48.7 -45.8 ===============================================================
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