Manufacturing needs to add demandCold weather is doing a good job at chewing away the inventories of NG but we need the manufacturing industry to take over and add demand. Judging from numbers of empty commercial space it might not come as fast as we may hope for.
U.S. Economy: Services Expand Less Than Forecast (Update1) Jan. 6 (Bloomberg) -- Service industries in the U.S. barely expanded in December, underscoring Federal Reserve forecasts that the economic recovery will be slow to develop.
The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy rose to 50.1 from 48.7 in November, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. Other reports today showed job cuts are diminishing.
Services from retailing to transportation are lagging behind the rebound in manufacturing as consumer demand is restrained by tight credit and 23 months of job losses. Economists surveyed last month projected the pace of growth will keep unemployment above 10 percent through the first half of this year, making it more likely central bankers will keep interest rates low for an “extended period.”
“We’re on a slow recovery path,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, who forecast a reading of 50. “The economy will grow enough to slowly reduce unemployment, but not nearly enough to get the public to perceive it as low.”
The December figure compared with economists’ median forecast for an increase to 50.5, according to 67 projections in a Bloomberg News survey. Forecasts ranged from 48 to 52.1.
The Standard & Poor’s 500 Index added 0.1 percent to a 15- month high of 1,137.14 at 4:05 p.m. in New York. The Dow Jones Industrial Average increased 1.66 points, or less than 0.1 percent, to 10,573.68.
Manufacturing Stronger
The services index is up almost 13 points from a record low of 37.4 reached in November 2008, a period of mounting job losses, falling home and stock prices, and a lack of credit for businesses. The ISM began keeping records in 1997.
By comparison, the group’s manufacturing index has increased 23 points since reaching a 28-year low in December 2008. The manufacturing gauge rose in December to the highest level since April 2006 as factories ramped up production to rebuild inventories and meet increasing global demand.
The ISM’s employment index for services rose to 44 last month from 41.6 in November. Separate reports showed that while the labor market is improving, companies are still trimming their workforces.
Figures from ADP Employer Services showed companies cut an estimated 84,000 jobs in December, the fewest since March 2008. The decline last month was larger than the 75,000 decrease forecast by economists in a Bloomberg survey.
Planned payroll reductions dropped 73 percent in December from a year earlier, according to another report from the job placement firm Challenger, Gray & Christmas Inc.
Payrolls Forecast
The Labor Department may report on Jan. 8 that employment was unchanged in December after almost two years of job cuts, according to a Bloomberg survey. The jobless rate probably stayed at 10 percent.
The non-manufacturing gauge of business activity, a measure of sentiment, rose to 53.7 in December from 49.6 a month earlier. The ISM’s index of new orders dropped to 52.1 last month from 55.1 and a gauge of backlogs eased.
Categories in the ISM services survey include utilities and resources, health care, housing, and finance and insurance.
Retailers are offering discounts on merchandise such as Nike Inc. footwear to encourage sales. Nike, the world’s largest athletic-shoe maker, said Dec. 17 that it’s “cautious” about its outlook.
“While we’re seeing hopeful signs of recovery in consumer sentiment around the world, macroeconomic indicators remain mixed,” Chief Financial Officer Donald Blair said on a conference call.
Same-Store Sales
Retailers may report same-store sales rose 1.8 percent in December, after 2008 marked the worst decline in more than 40 years, according to analysts’ estimates compiled by Retail Metrics Inc. Retailers report monthly sales tomorrow.
The economy grew at a 2.2 percent annual pace in the third quarter following four quarters of contraction that marked the deepest recession since the 1930s.
Economists at JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley in New York are among those projecting the economy expanded by at least a 4 percent annual rate in the final three months of 2009. The pace will probably cool early this year.
“Lingering credit constraints are a key reason why I expect the strengthening in economic activity to be gradual and the drop in the unemployment rate to be slow,” Fed Vice Chairman Donald Kohn said Jan. 3 in a speech to the American Economic Association in Atlanta.
Fed Chairman Ben S. Bernanke and his fellow policy makers have left the benchmark lending rate in a range of zero to 0.25 percent to support an economy that is recovering from the worst recession since the Great Depression. Central bankers said Dec. 16 that high unemployment and “subdued” inflation warrant low interest rates “for an extended period.”
To contact the reporter on this story: Courtney Schlisserman at cschlisserma@bloomberg.net