Amid job losses, service industries grew slower than forecast
WASHINGTON - US service industries expanded more slowly than forecast in October, indicating that consumers spooked by mounting job losses are making a limited contribution to the economic recovery.
The Institute for Supply Management’s index of nonmanufacturing businesses, which make up the largest part of the economy, fell to 50.6 in October, from 50.9 in September. Another report yesterday showed that companies continued to cut employees.
The reports highlight concerns of Federal Reserve policy makers that labor-market weakness threatens to curb consumer spending, leaving the economy dependent on government aid to maintain the expansion.
Central bankers, led by chairman Ben S. Bernanke, yesterday reiterated their intention to keep interest rates near zero “for an extended period,’’ even after acknowledging the economy had picked up.
“You’re not getting the kind of momentum that people expect,’’ said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. “People aren’t hiring, and we’re not really seeing a big improvement in demand. We’ll probably be in a softer-growth period this quarter.’’
The ISM index, covering services such as health care, housing, and transportation, which account for 90 percent of the economy, was projected to increase to 51.5, according to the median forecast of 77 economists surveyed by Bloomberg News. Fifty is the dividing line between expansion and contraction.
A separate report from ADP Employer Services signaled unemployment will keep climbing. Companies cut an estimated 203,000 jobs in October. The figures, which don’t include hiring by government agencies, were forecast to show a decline of 198,000 jobs, according to the median estimate of 34 economists in a Bloomberg survey.
“I’m still expecting to see payroll employment decline probably through the end of the year, [and] not turn up until January or February,’’ said Joel Prakken, chairman of Macroeconomic Advisers LLC, which produces the report jointly with ADP.
A Labor Department report tomorrow will probably show the US jobless rate rose to 9.9 percent in October, a 26-year high, and payrolls fell by 175,000 workers, according to the median forecast of economists surveyed.
Fed policy markers are reluctant to raise rates until the labor market shows signs of recovery, even though figures last week showed the economy expanded at a 3.5 percent annual pace in the third quarter after 12 months of contraction. Economists surveyed by Bloomberg last month forecast growth will cool to a 2.4 percent rate this quarter.
Growth last quarter was spurred by federal tax credits of up to $8,000 for first-time homebuyers and Cash for Clunkers rebates of up to $4,500. The auto rebate program expired in August.
