U.S. service industries expanded in September for the first time in a year as the emerging recovery spread from housing and factories to the broader economy.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, higher than forecast, from 48.4 in August, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.
Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.
“We should continue to see broad improvement in the economy,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Even so, she said, “hurdles remain within the side of the economy that creates jobs. It’s going to be growth, but weak growth.”
The index was projected to increase to 50, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from 45 to 52.1. Before today’s report, the gauge had shown contraction in every month since October 2008, just after Lehman Brothers Holdings Inc. filed for bankruptcy.
Stocks rose after the report, rebounding from the first two-week decline since July and led by financial shares as Goldman Sachs Group Inc. said big banks will outperform regional lenders. The Standard & Poor’s 500 Index was up 0.9 percent to 1,034.43 as of 11:29 a.m. in New York. Treasury securities also rose.
The ISM non-manufacturing gauge of new orders rose to the highest since October 2007, and the index of employment gained to 44.3, the highest since August 2008 and signaling job cuts were decelerating.
Employers unexpectedly cut more jobs last month than in August and unemployment climbed to the highest level since 1983, Labor Department data showed on Oct. 2. Payrolls fell by 263,000 following a 201,000 drop the prior month, while the jobless rate rose to 9.8 percent from 9.7 percent. The U.S. has lost 7.2 million jobs since the recession began in December 2007.
Job losses are a “concern,” Anthony Nieves, chairman of the ISM’s non-manufacturing survey, said on a conference call. “Until we see employment come back, we are not going to see dramatic growth in the economy.”
A measure of U.S. job prospects improved in September for the first time in more than a year, a sign job losses may not keep accelerating, a private survey showed. The Conference Board’s Employment Trends Index rose 0.3 to 88.5, the first increase since January 2008 and the highest level since April, the New York-based private research group said today.
Economic growth next year probably won’t be strong enough to “substantially” bring down unemployment, which may remain above 9 percent at the end of 2010, Fed Chairman Ben S. Bernanke told lawmakers on Oct. 1.
Five of 18 industries in the ISM services survey including utilities, health care, housing, retailing and construction, expanded last month, today’s report showed.
ISM’s factory index on Oct. 1 showed manufacturing, which accounts for about 12 percent of the economy, expanded less than economists anticipated in September. The measure slipped to 52.6, the first drop this year, from 52.9 in August.
Recent data signal growth resumed in the third quarter after the economy shrank in the first half of 2009. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, led by the government’s $3 billion incentive program to trade in older, less fuel-efficient cars.
Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as steadier demand trims the property glut. The number of contracts to buy previously owned homes rose in August for a seventh month, lifted by the first- time buyer credits, data from the National Association of Realtors showed last week.
Macy’s Inc., the second-largest U.S. department store chain, is among retailers that are seeing more stable sales and planning to hire staff for the holiday season.
“We are seeing some stabilization ourselves,” Chairman and Chief Executive Officer Terry Lundgren said in a Sept. 8 interview on Bloomberg Television. “We have a much better handle now on where we are headed.”
Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, said last week that higher demand for hotel rooms in New York City may signal the U.S. is beginning to emerge from the recession.
“Occupancy is starting to come back, yes, at low rates, but if this recovery looks like a normal recovery we would see in a couple of quarters rates come back as well,” Van Paasschen said in an Oct. 1 interview. “I am just not sure if this is a normal recovery.”
