Service industries expanded in August at the weakest pace in seven months, indicating the US economy may be slow to strengthen in the second half of the year.
The Institute for Supply Management's index of non- manufacturing businesses, which covers about 90 per cent of the economy, fell to 51.5 from 54.3 in July. Readings above 50 signal growth and economists projected a decline to 53.2, according the median estimate in a Bloomberg News survey.
Retailers may find it harder to build on August sales gains and home buying could languish without faster job growth. While private hiring last month rose more than forecast in August and eased concern the economy will slip back into a recession, the 67,000 gain was less than the average in the first six months.
The services figure is "certainly not a disaster, but a reminder that we're in a fragile environment," said Paul Ashworth, senior US economist at Capital Economics Ltd. in Toronto, who had a forecast of 52. "The recovery is just not strong enough. It's still being driven by manufacturing, with the rest of the economy lagging a bit behind."
Estimates of the 67 projections in the Bloomberg survey ranged from 51 to 55.5. The index averaged 53.7 from its inception in 1997 through July.
Stocks pared gains after the report and Treasuries fell. The Standard & Poor's 500 Index rose 0.6 per cent to 1096.64 in New York. The yield on the 10-year Treasury note rose to 2.70 per cent from 2.63 per cent late yesterday.
August Employment
Private payrolls that exclude government agencies climbed after a revised 107,000 increase in July that was more than initially estimated, the Labor Department said earlier today. In the first six months of the year, companies added an average of 98,000 jobs.
The ISM non-manufacturing employment gauge dropped to 48.2, the lowest since January, from 50.9 in July. The measure of new orders dropped to 52.4, the weakest this year, from 56.7. Business activity decreased to 54.4 from 57.4. The ISM index of prices paid rose to 60.3 from 52.7.
"Companies are really holding back," Anthony Nieves, chairman of the ISM services survey, said today from Beverly Hills, California, in a conference call with reporters. "They've had this wait-and-see attitude for quite some time."
The group's services survey covers industries that range from utilities and retailing to health care, housing and finance. The group's factory survey earlier this week showed manufacturing expanded at a faster pace than forecast in August.
Retail Sales
Retailers in the US are offering discounts and taking advantage of tax holidays to boost demand. Sales at Limited Brands Inc., owner of the Victoria's Secret chain, climbed 10 percent, more than the 7 per cent average of analysts' estimates compiled by Retail Metrics Inc. Sales at Kohl's Corp, the fourth-largest US department-store chain, rose 4.5 per cent compared with a 3.2 per cent projection.
The economy is a top issue for voters in the November congressional elections, and polls show the public is increasingly skeptical of President Barack Obama's performance.
Republicans hold an unprecedented lead of 10 percentage points over Democrats ahead of the November midterm elections, according to a Gallup poll. Fifty-one per cent of the registered voters surveyed by Princeton, New Jersey-based Gallup Inc. preferred a Republican congressional candidate, while 41 per cent favoured a Democrat.
The generic poll in the past has proven to be a good predictor of mid-term elections, according to Gallup. The new survey was conducted among 1540 registered voters from Aug. 23- 29 and has margin of error of plus or minus 4 percentage points.
Federal Reserve
The Federal Reserve's Open Market Committee on Aug. 10 decided to maintain the central bank's holdings of securities at $US2.05 trillion to keep money from being drained out of the financial system.
The panel also said that "the pace of economic recovery is likely to be more modest in the near term than had been anticipated."
Fed Chairman Ben S. Bernanke said at the annual Kansas City Fed forum in Wyoming last week, that growth during the past year has been "too slow" and unemployment too high. Even so, he said a handoff from fiscal stimulus and inventory re-stocking to consumer spending and business investment "appears to be under way".
