Tags: Service | Industry | Slowdown | Growth

Service Industry Slowdown Signals Growth May Be Stalling

Thursday, 03 May 2012 12:27 PM

Service industries in the U.S. expanded at a slower pace than projected in April, a sign the largest part of the economy may struggle to accelerate in the absence of faster job growth.

The Institute for Supply Management’s non-manufacturing index fell to a four-month low of 53.5 from 56 in March, the Tempe, Arizona-based group’s data showed. The median forecast of 74 economists surveyed by Bloomberg News called for a decrease to 55.3. Readings above 50 signal expansion.

Limited job and wage gains, combined with depressed property values, may make it difficult for Americans to step up their spending after purchases rose in the first quarter by the most in a year. Increased demand for services, which make up about 90 percent of the economy, would help broaden the almost three-year-old expansion beyond manufacturing.

“The economy has recently lost some momentum,” said James Shugg, a senior economist at Westpac Banking Corp. in London whose forecast for the services index was among the lowest. “Consumer spending is softening somewhat because if job growth is slowing from earlier in the year, household income growth is slowing, and that constrains spending.”

Stocks declined after the figures, with the Standard & Poor’s 500 Index dropping 0.5 percent to 1,395.95 at 10:20 a.m. in New York.

Economists’ estimates in the Bloomberg survey ranged from 54 to 57. The non-manufacturing gauge has averaged 53.4 since the recession ended in June 2009.

Factory Report

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 at the fastest pace in almost a year, and factory employment picked up.

The 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 measure of business activity decreased to 54.6 from 58.9. The index of prices paid slumped to 53.6, the lowest since July 2009, from 63.9.

Expansion among the service industries may be moderating after a surge in the first quarter that coincided with the strongest pace of job growth in six years.

Jobless Claims

Other data showed that fewer Americans than forecast filed applications for unemployment benefits last week, easing concern the job market was 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, according to the Labor Department. The median forecast of 46 economists surveyed by Bloomberg called for 379,000 applications.

The productivity of U.S. workers fell in the first quarter, 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, the Labor Department also reported. Expenses per worker increased at a 2 percent rate, less than estimated.

Confidence Wanes

At the same time, consumer confidence dropped last week to a two-month low as more Americans grew concerned about their personal finances. The Bloomberg Consumer Comfort Index fell to minus 37.6 in the week ended April 29 from minus 35.8, surrendering gains that had lifted it to a four-year high last month.

Views on finances sank to the lowest point since January and more households said it was a bad time to buy needed items.

Household purchases rose 2.9 percent from January through March, the most since the final three months of 2010, Commerce Department data showed on April 27. Gross domestic product rose at a 2.2 percent annual rate after a 3 percent pace the prior quarter.

Further gains may depend on the pace of job creation and reducing an unemployment rate that’s been above 8 percent since February 2009. Payrolls increased by 635,000 from January through March, the biggest quarterly gain since the first three months of 2006, data from the Labor Department show.

A Labor Department report Friday may show employers added about 160,000 new jobs in April after 120,000 a month earlier, according to the Bloomberg median forecast.

“While slower than any of us would prefer, we are seeing steady, positive improvement in the broad U.S. economy,” Steve Joyce, president and chief executive officer Choice Hotels International Inc., said during an April 27 earnings call. “Unemployment remains stubbornly high and people are still cautious. However, we believe consumers will continue to increase their travel.”

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Thursday, 03 May 2012 12:27 PM
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