US Service Industries Grow for First Time in a Year

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.

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.

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.

US Service Industries Grow for First Time in a Year, Bloomberg
10/5/2009 12:44:50 PM