By Shobhana Chandra
Sept. 3 (Bloomberg) — U.S. service industries shrank at a slower pace in August, adding to evidence the economy is starting to pull out of the worst recession since the Great Depression.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 48.4, exceeding forecasts and the highest level in 11 months, from 46.4 in July, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.
Federal Reserve efforts to unlock credit and government measures such as the “cash-for-clunkers” incentive program are reviving demand and may help the economy grow this quarter. Nonetheless, rising unemployment and the hangover from a record drop in wealth will limit the consumer spending needed to fuel a lasting rebound.
“The economy has entered a period of recovery, but this isn’t going to be a consumer-led recovery,” Joseph Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Consumer spending will not look better until the unemployment rate stabilizes and hiring picks up.”
Economists forecast the index would rise to 48, according to the median of 71 projections in a Bloomberg News survey. Estimates ranged from 45 to 51.
Jobless Claims
A report earlier today showed more Americans than anticipated filed jobless-benefit claims last week, indicating companies remain focused on cutting expenses even as the recession eases. Applications fell by 4,000 to 570,000 in the week ended Aug. 29, exceeding the 564,000 median forecast in a Bloomberg survey, figures from the Labor Department showed. The total number of people collecting unemployment insurance rose.
The ISM’s non-manufacturing employment gauge rose to 43.5 from 41.5 the prior month, and the index of new orders rose to 49.9 from 48.1. Both measures were the highest since last September. A measure of new export orders rose to 54 from 47.5, while the index of prices paid rose to 63.1, the highest in 11 months, from 41.3.
Categories in the survey include utilities, healthcare, housing, transportation and finance and insurance.
An ISM report two days ago showed manufacturing expanded in August for the first time in 19 months, helping lead the economy out of the downturn. The group’s factory index rose to 52.9, posting its biggest two-month gain since 1983.
Cash-for-Clunkers
Ford Motor Co.,Toyota Motor Corp. and Honda Motor Co. led U.S. auto sales to the first year-over-year gain in August since 2007 as the cash-for-clunkers rebates lured shoppers to showrooms.
Ford, Toyota and Honda all reported more August deliveries than a year earlier, while General Motors Co.,Chrysler Group LLC and Nissan Motor Co. fell. The industry total rose 1 percent from August 2008 to 1.26 million, according to data compiled by Bloomberg.
Insurers may benefit from the trade-in program, which could yield as much as $375 million in premiums as drivers pay more to protect new cars, said Robert Hartwig, president of the New York-based Insurance Information Institute.
Housing is getting support from tax credits for first-time buyers, low interest rates and drops in prices due to a glut of foreclosed properties on the market. Combined sales of new and existing homes in July climbed to the highest annual rate since November 2007, the month before the recession began.
Retailers
Some retailers also are seeing a shift.
Tiffany & Co., the world’s second-largest luxury-jewelry seller, said second-quarter profit fell less than analysts estimated on higher-than-expected sales and lower expenses. The New York-based company raised its annual profit forecast.
Meanwhile, job losses continue. The Labor Department may report tomorrow that the unemployment rate rose to 9.5 percent in August after dipping the month before.
Joblessness may reach 10 percent by early 2010, economists surveyed by Bloomberg predict.
Dollar Tree Inc., the U.S. retailer of items priced $1 or less, reported second-quarter profit that exceeded analysts’ estimates and boosted its full-year forecast as more shoppers sought cheaper household basics.
“Our traffic is up substantially,” Dollar Tree Chief Executive Officer Bob Sasser told analysts on a conference call last week. “We’re seeing new customers.”
If you enjoy the content at iBankCoin, please follow us on Twitter
