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By Bob Willis
Nov. 4 (Bloomberg) -- Service industries in the U.S. probably expanded in October for a second month as gains in manufacturing and housing rippled through the biggest part of the economy, a private survey may show today.
The Institute for Supply Management’s index of non- manufacturing businesses rose to 51.5 last month, the highest level since April 2008, according to the median forecast of 77 economists surveyed by Bloomberg News. Another report showed companies continued to cut jobs.
Government efforts to boost spending and keep borrowing costs low are stoking a rebound from the worst recession in seven decades. The pickup has yet to encourage hiring, probably ensuring Federal Reserve policy makers today will reiterate plans to keep their key interest rate near zero for an “extended period” to maintain the recovery.
“The ingredients needed for sustainable growth appear to be falling into place,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “While the economy has resumed growing, it is insufficient for businesses to resume hiring.”
A reading of 50 in the ISM index is the dividing line between expansion and contraction. Economists’ estimates ranged from 49.2 to 54.4, compared with September’s 50.9. The Tempe, Arizona-based group’s report is due at 10 a.m. New York time.
A gain in October would mark the first back-to-back expansion in non-manufacturing industries, which make up almost 90 percent of the economy, since the two months ended May 2008.
Manufacturing Rebound
The need to prevent inventories from falling even more as sales improve is giving factories a boost. The purchasing managers’ group said two days ago its manufacturing gauge rose in October to the highest level in more than three years.
The economy grew at a 3.5 percent rate in the third quarter following four quarters of contraction that marked the deepest recession since the 1930s. Economists surveyed by Bloomberg early last month forecast growth will cool to a 2.4 percent rate in the current quarter and for all of 2010.
Companies cut an estimated 203,000 last month, a report from ADP Employer Services also showed today. The reduction is the smallest in more than a year.
The jobless rate probably rose to 9.9 percent in October, a 26-year high, and payrolls have may fallen by 175,000 workers, according to the survey median before the Labor Department’s monthly jobs report on Nov. 6.
Stronger Economy
Fed officials, at the end of their two-day policy meeting today, may acknowledge the economic outlook has brightened since their last gathering, and will probably maintain a pledge to leave the benchmark interest rate near zero, analysts said.
The Standard & Poor’s 500 Index fell 4 percent last week, paring a rally that has sent the gauge up 53 percent from a 13- year low reached March 9.
Federal tax credits of up to $8,000 for first-time homebuyers and “cash-for-clunkers” rebates of up to $4,500 to trade in gas-guzzlers for new fuel-efficient cars have helped spur consumer demand for houses and cars. Auto sales rebounded in October after slumping the previous month when the auto incentive expired in late August.
Cash for clunkers “stimulated new vehicle sales and was a psychological signal to consumers that it was safe to begin to buy again,” Michael Jackson, chief executive officer at AutoNation Inc., the biggest U.S. auto retailer, said on a conference call last week.
Auto Sales
Cars and light trucks sold at a 10.5 million annual pace in October, exceeding the median forecast of analysts surveyed and up from a 9.2 million pace the previous month, industry figures yesterday showed.
Homebuilding, which is included in ISM’s services index, contributed to economic growth in the third quarter for the first time since 2005. The number of contracts to buy previously owned homes rose in September for an eighth month, signaling sales may keep rising in coming months, data from the National Association of Realtors showed this week.
Congress is debating extending the homebuyer credit after it expires at the end of November to prevent demand from retrenching.
Auto dealers aren’t the only ones gaining confidence. Wal- Mart Stores Inc., the world’s largest retailer, expects sales will grow next year, Chief Financial Officer Thomas Schoewe said at a meeting with analysts Oct. 22 in Rogers, Arkansas.
Demand will accelerate as the company inaugurates new stores and because of “very healthy” sales at U.S. and international stores open at least a year, Schoewe told reporters on a separate conference call.
Bloomberg Survey
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ADP ISM Non-
Payroll Manu
,000’s Index
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Date of Release 11/04 11/04
Observation Period Oct. Oct.
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Median -198 51.5
Average -202 51.6
High Forecast -157 54.4
Low Forecast -250 49.2
Number of Participants 34 77
Previous -254 50.9
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4CAST Ltd. -190 52.0
Action Economics -190 52.0
AIG Investments --- 53.0
Aletti Gestielle SGR --- 51.0
Ameriprise Financial Inc -170 51.0
Banesto -195 52.0
Bank of Tokyo- Mitsubishi --- 53.9
Bantleon Bank AG --- 51.4
Barclays Capital --- 52.0
Bayerische Landesbank --- 51.7
BBVA -220 51.8
BMO Capital Markets -190 51.5
BNP Paribas -160 51.6
BofA Merrill Lynch Resear -230 52.0
Briefing.com -235 52.0
C I T I C Securities -210 52.0
Capital Economics --- 52.0
CIBC World Markets --- 51.0
Citi --- 52.0
ClearView Economics --- 51.5
Commerzbank AG -165 52.0
Credit Suisse --- 51.0
Daiwa Securities America --- 50.0
Danske Bank --- 51.4
DekaBank --- 51.0
Desjardins Group --- 51.2
Deutsche Bank Securities --- 51.5
Deutsche Postbank AG --- 51.5
DZ Bank -170 51.5
Exane --- 51.0
First Trust Advisors --- 51.6
Fortis --- 52.0
FTN Financial --- 51.0
Goldman, Sachs & Co. --- 50.5
Helaba --- 52.0
Herrmann Forecasting -157 53.2
High Frequency Economics -200 ---
HSBC Markets -190 53.0
IDEAglobal -175 52.0
IHS Global Insight --- 52.0
Informa Global Markets -220 52.0
ING Financial Markets -245 51.0
Insight Economics --- 52.0
Intesa-SanPaulo --- 51.5
J.P. Morgan Chase --- 51.5
Janney Montgomery Scott L -205 51.0
Jefferies & Co. --- 50.5
Landesbank Berlin --- 49.2
Landesbank BW --- 50.5
Maria Fiorini Ramirez Inc --- 52.0
MFC Global Investment Man -185 51.0
Mizuho Securities -225 50.5
Moody’s Economy.com -200 52.0
National Bank Financial --- 52.0
Natixis -190 50.8
Newedge --- 51.7
Nomura Securities Intl. -220 52.0
Nord/LB -210 51.0
PNC Bank --- 51.0
RBC Capital Markets --- 50.5
RBS Securities Inc. --- 51.2
Ried, Thunberg & Co. -250 52.0
Schneider Foreign Exchang -177 53.0
Scotia Capital -190 51.0
Societe Generale --- 52.0
Standard Chartered --- 52.0
Stone & McCarthy Research --- 50.4
TD Securities -200 52.0
Thomson Reuters/IFR -230 50.8
Tullett Prebon --- 51.0
UBS --- 51.0
UniCredit Research --- 51.0
University of Maryland -190 51.7
Wells Fargo & Co. --- 51.3
WestLB AG -190 51.5
Westpac Banking Co. --- 51.5
Woodley Park Research -234 54.4
Wrightson Associates -250 51.5
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: November 4, 2009 08:42 EST
