Service industries in the U.S. accelerated in February more than anticipated, indicating the economic expansion may soon create jobs following the worst employment slump in the post-World War II era.
The factory rebound that helped the economy emerge from the recession is starting to filter to other industries, giving a boost to companies such as Macy’s Inc. Stocks, which initially climbed as another report showed job losses cooled in February, later trimmed gains after the Federal Reserve said loan demand was “weak” and labor markets “soft.”
“We’re starting to see a broadening of the economic recovery,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose forecast of 52.9 was the highest in the Bloomberg survey. The data “are encouraging, to say the least.”
The Standard & Poor’s 500 Index was little changed at 1,118.85 at 2:43 p.m. in New York after the central bank called the improvement in economic activity this year “modest,” according to its Beige Book business survey. The 10-year Treasury note fell, pushing the yield up to 3.63 percent from 3.61 percent late yesterday.
Economists forecast the ISM index to rise to 51, according to the median estimate in the Bloomberg survey. Estimates ranged from 48.5 to 52.9.
ADP Estimate
Companies cut an estimated 20,000 jobs in February, in line with forecasts and the smallest drop in two years, data from ADP Employer Services also showed today. The decrease reflected reductions at construction companies as manufacturers and service providers added to payrolls.
“This report really is pretty encouraging,” Joel Prakken, chairman of Macroeconomic Advisers LLC. in St. Louis, said in a news conference. He said job gains should come in the next month or two. Macroeconomic Advisers produces the report with ADP.
A separate report from the job placement firm Challenger, Gray & Christmas Inc. showed employers in February announced the fewest job cuts in more than three years. Planned firings fell 77 percent last month from a year earlier, the Chicago-based firm said today.
Weather Influence
“In the ADP data, weather doesn’t matter much at all,” said Prakken. The Labor Department’s figures are based on whether an employee worked during the week that included the 12th of the month, which may have been affected by the storms, he said, and any influence will be reversed this month. ADP figures, which include only private employment, count anyone on the payroll as working.
The Tempe, Arizona-based ISM’s employment measure rose to the highest level since April 2008, signaling the recovery may be closer to creating the jobs needed to fuel consumer spending, which accounts for about 70 percent of the economy.
The supply managers’ gauges for orders and business activity, which corresponds to factory production, also climbed.
“It looks like we are starting to gain some traction here,” Anthony Nieves, chairman of the ISM’s services survey, said in a news conference.
Industry Breakdown
The report showed nine industries, including information technology, arts, transportation and retailing, expanded last month.
The lack of jobs may be one reason some merchants are forecasting the improvement in sales this year will pale in comparison to the 2009 drop.
Atlanta-based Home Depot Inc., the largest U.S. home- improvement retailer, last month projected comparable-store sales will climb 2.5 percent in 2010 after dropping 6.6 percent last year. Cincinnati-based Macy’s said sales at established stores will grow by as much as 2 percent after slumping 5.3 percent in 2009.
“Business feels better, there is no question about it,” Macy’s Chairman and Chief Executive Officer Terry J. Lundgren said on a Feb. 23 conference call. “We still have high unemployment, and I still see tight credit on consumers.”
The ISM services index has lagged behind the group’s manufacturing gauge, which registered a reading of 56.5 in February, the seventh consecutive month of expansion. Factories account for 12 percent of the economy.
By Bob Willis – businessweek.com
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