U.S. Service Industries Probably Grew at Slower Pace in January

U.S. Service Industries Probably Grew at Slower Pace in January

Feb. 5 (Bloomberg) -- U.S. service industries probably expanded in January at the slowest pace in almost a year as the housing slump deepened and consumer spending cooled, economists said before a report today.

The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of the economy, fell to 53 from 54.4 the prior month, according to the median forecast in a Bloomberg News survey. Readings greater than 50 signal growth. The group will also launch a new composite measure.

The worst housing slump in a quarter century is spreading throughout the economy, hurting businesses such as builders, retailers, wholesalers and mortgage lenders. Americans are spending less as job losses mount, raising the risk the economy may tip into a recession, economists said.

``The broader economy is likely succumbing to the housing and credit-market malaise,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``It suggests very modest growth in the new year.''

The Tempe, Arizona-based ISM will issue the report at 10 a.m. Washington time. Estimates in the Bloomberg survey of 66 economists ranged from 51 to 55. The projected reading would be the lowest since March.

The purchasing managers' group will also issue a new composite index that reflects changes in current measures of business activity, new orders, employment and supplier deliveries. The contribution from each sub-index will be equal.

New Index

The new composite index would have been 53.2 in December, according to Bloomberg calculations based on a formula provided by ISM.

The housing recession is hurting other parts the economy. Employers in January reduced payrolls for the first time in more than four years, the Labor Department reported last week. Service providers added 34,000 workers to payrolls after an increase of 143,000 in December. Builders trimmed staff by 27,000 workers.

``Risks to growth remain,'' Federal Reserve policy makers said Jan. 30 when they cut the benchmark interest rate by a half point. The action followed an emergency three-quarter-point reduction the prior week. Investors are betting policy makers will lower the rate by another half point next month, according to futures trading.

Manufacturing, which accounts for about 12 percent of the economy, unexpectedly expanded in January, showing business investment is holding up even as other areas weaken, according to a report from ISM last week.

Weaker Growth

Slower growth in services would be consistent with a cooling economy. Economic growth slowed to an annual rate of 0.6 percent in October through December, down from a 4.9 percent pace in the third quarter, according to government figures last week.

Residential construction dropped in the fourth quarter by the most in 26 years, making the housing recession the worst since 1982.

Consumer spending may provide less support to the economy as property values fall and unemployment increases, economists said. Auto sales slumped last month to the lowest level in more than two years, according to industry figures issued last week. Total spending increased in December at the slowest pace in six months.

Sears Holdings Corp. last week ousted Chief Executive Officer Aylwin Lewis after a drop in holiday sales, and Home Depot Inc., the world's largest home-improvement chain, cut 10 percent of the workforce at its Atlanta headquarters.

``Sales levels are still depressed,'' Pulte Homes Inc. Chief Executive Officer Richard Dugas said on a conference call. The Bloomfield Hills, Michigan-based homebuilder reported its fifth consecutive quarterly loss on Jan. 31

BLOOMBERG