Services Sector Shrinks, Jobless Claims Up
Thursday September 6, 3:02 pm Eastern Time
By Ross Finley
NEW YORK (Reuters) - A key gauge of U.S. service sector activity fell sharply to a record four-year low in August, according to a report on Thursday that suggested vast swathes of the U.S. economy are weakening as a year-long slowdown wears on.
A separate Labor Department report said the number of Americans remaining on unemployment benefits was at its highest in almost nine years, signaling the labor market is deteriorating as American firms slash payrolls to cut costs.
Figures from retailers showed consumers were more frugal in August as they sought bargains from discount chains, stunting sales at higher-priced department stores and specialty clothing retailers.
Thursday's National Association of Purchasing Management report clouded building optimism for a recovery built on a rebound in an index of manufacturing activity on Tuesday.
``The bigger picture here is maybe the service sector is taking over in terms of the weakness,'' said Ian Morris, chief U.S. economist at HSBC Securities in New York.
``The non-manufacturing sector is 84 percent of gross domestic product and manufacturing is only 16 percent. So you do the math,'' Morris said.
NAPM said its monthly non-manufacturing index fell for a second straight month to its lowest level since the survey began in July 1997. The index hit 45.5 in August, down from 48.9 in July. Economists had expected a reading of 49.4.
The drop followed a sharp bounce in NAPM's manufacturing index that had spurred hopes of an economic recovery later this year despite showing deterioration in industrial activity.
A reading below 50 suggests contraction in the services sector, which includes construction, transportation, agriculture and legal and financial services. The index was also below 50 in April, May and July.
``It is showing you ... that things are eroding very rapidly,'' said Cary Leahey, economist at Deutsche Banc Alex. Brown, who noted that although the services survey has not been around very long, the NAPM manufacturing survey's methods are well-respected by economists.
U.S. stocks fell after the NAPM report was released, while short-dated U.S. Treasuries, sensitive to the outlook for interest rates, rose on hopes the Federal Reserve will extend its rate-cutting campaign this fall.
In an ominous sign for the months ahead, the NAPM services new orders index -- seen as a leading indicator of future activity -- fell sharply, to 45.9 from 48.6 in July, and matched a low set in April.
``The outlook is for continued slowdown in non-manufacturing not only due to the manufacturing sector but for the economy in general,'' said Ralph Kauffman, director of the NAPM non-manufacturing survey, in a conference call with reporters.
Kauffman added that it was too early to say whether the rise in NAPM's manufacturing index for August earlier this week really was an indication of a turning point.
CONTINUED JOBLESS CLAIMS UP
Initial claims for unemployment insurance benefits, which give an early reading on the resilience of the labor market, fell a modest 3,000 to 402,000 in the Sept. 1 week, down from an upwardly revised 405,000 in the prior week, the Labor Department said.
The number of people filing so-called continued claims -- those who have already filed for a week or more of benefits -- rose to 3.207 million in the August 25 week, its highest level since September 1992.
The latest jobless claims data comes a day ahead of the release of the Labor Department's August employment report, which investors and Fed policy-makers will scrutinize closely to gauge the nation's economic health.
Wall Street economists had expected claims to fall slightly, to 398,000 from the 399,000 the department originally reported for the August 25 week, but not enough to dislodge the view that the overall employment situation was deteriorating.
Over the past three weeks, the initial claims figures have fluctuated in a narrow range, at or just slightly above the key 400,000 mark. Economists generally view claims above 400,000 as a sign of a deteriorating job market.
``It is becoming increasingly clear that the trend of initial claims has improved only marginally from the second quarter when they averaged around 410,000,'' said Jade Zelnik, chief economist at Greenwich Capital Markets in Greenwich, Connecticut. ``This suggests that payrolls continue to contract at a significant pace.''
The closely watched four-week moving average of initial claims rose for the third consecutive week to 398,000 in the September 1 week from 394,500 a week earlier. The last time it was this high was the July 21 week, when it measured 409,000.
NAPM also said employment in the services sector decreased for the sixth consecutive month, dragging down its non-manufacturing employment index to 45.9 from 46.4 in July.
Economists polled by Reuters expect the unemployment rate for August to rise to 4.6 percent from July's 4.5 percent, with the economy shedding 33,000 jobs outside the farm sector. In July, 42,000 nonfarm jobs were lost.
Underscoring consumers' preference for discount shopping, Wal-Mart Stores Inc., (NYSE:WMT - news) the world's largest retailer, said its same-store sales rose 7 percent, above its forecasts. Total sales rose 14.3 percent to $16.53 billion.
But specialty apparel chain Gap Inc. (NYSE:GPS - news) reported a 17 percent drop in August same-store sales and upscale department store chain Saks Inc. (NYSE:SKS - news) posted a 2 percent drop in same-store sales. |
