Business | General
Experts see positive signs in US service sector data
Stabilisation in housing and lean inventories could revive output.
- Bloomberg
- Published: 22:53 July 5, 2009
New York: Service industries in the US probably shrank in June at a slower pace, signalling the worst recession in a half-century is easing.
The Institute for Supply Management's (ISM's) index of non-manufacturing businesses, which account for almost 90 per cent of the economy, rose to 46, according to the median estimate of 37 economists surveyed by Bloomberg News. Readings less than 50 signal contraction.
Higher oil prices widened the trade deficit and boosted the cost of imported goods, other reports may show.
Stabilisation in housing and consumer spending combined with lean inventories mean companies may start expanding output again in coming months. Still, mounting job losses and stagnant paycheques are likely to restrain household purchases, limiting the force of any recovery.
"We're in the process of bottoming, but the overall economy is still contracting moderately," said Zach Pandl, an economist at Nomura Securities International Inc in New York.
The projected reading for the Tempe, Arizona-based ISM's gauge, due today, would be the highest in nine months. The measure was at 44 in May and has been in contraction territory since October, the month after Lehman Brothers Holdings Inc's demise triggered a financial meltdown that deepened the recession.
Recent data have pointed to a lessening pace of economic decline. ISM's factory index on July 1 showed manufacturing shrank last month at the slowest pace since August and a measure of pending home sales advanced in May for a fourth month.
The reports bolster the view of the Federal Reserve. Policymakers kept the key overnight lending rate unchanged at near zero on June 24, saying "the pace of economic contraction is slowing" and financial market conditions have "generally improved".
Economists surveyed by Bloomberg in early June forecast the economy would grow at an average 1.2 per cent pace in the second half of the year, following four quarters of contraction.
Since the recession began in December 2007, the economy has lost 6.5 million jobs, the worst slump since the Great Depression. Employers cut 467,000 workers from payrolls in June, worse than forecast, the government reported last week.
Still, cuts have moderated since reaching a five-decade high of 741,000 in January.
Stocks fell on July 2, sending the Standard & Poor's 500 Index to a third straight weekly drop, on growing concern that rising unemployment will hurt consumer spending. The index tumbled 26.9 points, or 2.9 per cent, to close at 896.42.
The decline in stocks and rising unemployment may stem recent gains in consumer confidence.
The preliminary Reuters/University of Michigan consumer sentiment gauge, due July 10, may drop to 70.6 this month from a 16-month high of 70.8 in June, economists surveyed said. It would mark the first decrease in five months.
Shaken by the loss of jobs, consumers are becoming more frugal.
"Consumers behave exactly right - they spend more time and they buy bargains," Google Inc's chief executive officer Eric Schmidt said on June 30 in an interview with Bloomberg Television. "The luxury stuff is off, and the core stuff that people need they are buying more of."
A July 10 Commerce Department report may show the trade deficit grew as oil prices climbed. The gap widened to $30 billion (Dh110.8 billion) in May from $29.2 billion the prior month, according to the survey median.
The Labour Department may say the same day that prices of goods imported into the US rose 2 per cent in June, led by gains in fuel costs, after increasing 1.3 per cent in May, economists surveyed said.
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