Services in U.S. Probably Grew at Slower Pace, Signaling Growth Is Cooling
(Bloomberg) -- Avery Shenfeld, chief economist at CIBC World Markets, talks with Bloomberg's Julie Hyman and Lori Rothman about the outlook for the U.S. economy and the June employment report. Private employers added fewer workers to payrolls in June than forecast, reinforcing concerns the recovery will weaken as Americans curtail spending. (Source: Bloomberg)
Service industries in the U.S. expanded at a slower pace in June, indicating the economy started to cool entering the second half, economists said before reports this week.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up about 90 percent of the economy, fell to 55 from 55.4 in May, according to the median of 59 estimates in a Bloomberg News survey ahead of the July 6 report. Readings above 50 signal expansion.
Companies such as Bed Bath and Beyond Inc. may find it harder to boost sales without faster job growth as government stimulus wanes. Private hiring last month rose less than forecast and a report later this week is forecast to show jobless claims are at a level that indicates firings are staying elevated.
“The economy is showing some loss of momentum,” said Jim O’Sullivan, chief economist at MF Global Ltd. in New York. “It’s going to be three steps forward and one step back, and right now we’re in the one-step-back phase. Ultimately we need further acceleration in payrolls.”
The figures on services follow reports last week that showed a slowdown in manufacturing and weakness in housing, at the same time Europe grapples with a debt crisis and China tries to slow its economy.
First-time filings for unemployment insurance fell to 460,000 last week from 472,000, according to the median estimate in the Bloomberg survey before the Labor Department’s July 8 report. Claims around 450,000 are consistent with private companies adding about 100,000 jobs a month, according to JPMorgan Chase & Co. chief economist Bruce Kasman.
Private Employment
Employment at companies rose 83,000 last month, less than the 110,000 increase forecast by economists in a Bloomberg survey, Labor Department figures showed on July 2. Including government, payrolls fell for the first time this year because of a drop in federal census workers. The jobless rate decreased to 9.5 percent from 9.7 percent as the labor force shrank.
The outlook for jobs is one reason consumer confidence sank more than forecast in June, according to a Conference Board report. It raises the risk household spending, which accounts for about 70 percent of the economy, will falter.
Bed Bath & Beyond, a Union, New Jersey-based retailer, last month forecast current-quarter and annual earnings that trailed analysts’ estimates.
Facing Challenges
“It appears the consumer continues to face economic challenges, and the pressures of the macroeconomic environment still persist,” Leonard Feinstein, the company’s co-chairman, said on a conference call on June 23.
Concerns about unemployment and reluctance to make large purchases were also reflected last week in lower-than- anticipated auto sales in June for General Motors Co. and Ford Motor Co., the two largest U.S. automakers.
The Standard & Poor’s Supercomposite Retailing Index has fallen 22 percent since a 19-month peak on April 26, compared with a 16 percent decline in the broader S&P 500 gauge from its 19-month peak on April 23.
The Tempe, Arizona-based group’s ISM services survey covers industries that range from utilities and retailing to health care, housing and finance.
Housing, which helped trigger the recession, is showing signs of renewed weakness following the end of a government tax credit of as much as $8,000 for buyers. The absence of faster job growth and rising foreclosures are depressing property prices.
Federal Reserve
Economic data in recent weeks and Europe’s sovereign debt crisis underscore why Federal Reserve policy makers renewed a pledge last month to keep interest rates near a record low. Central bankers said the recovery is “likely to be moderate for a time,” according to their statement. Consumer spending still “remains constrained” by joblessness and “tight credit,” they said.
Services have been lagging behind manufacturing, which led the economic recovery that began in the middle of 2009. The ISM reported on July 1 that factories expanded in June at the slowest pace this year as orders and exports cooled, adding to concern financial-market turmoil sparked by Europe’s debt problems will hurt global growth.
Bloomberg Survey
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Release Period Prior Median
Indicator Date Value Forecast
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ISM NonManu Index 7/6 June 55.4 55.0
Initial Claims ,000’s 7/8 3-Jul 472 460
Cont. Claims ,000’s 7/8 26-Jun 4616 4600
ICSC Chain Store Sales 7/8 June 2.6% n/a
Cons. Credit $ Blns 7/8 May 1.0 -2.0
Whlsale Inv. MOM% 7/9 May 0.4% 0.4%
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source: bloomberg.com
