Now Even Lowly Service Sector Jobs Getting Crushed: Consumers Not Spending

•Service Industries in U.S. Contracted at Faster Pace in July on Job Losses

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4I19JbpxgTo

U.S. Economy: Service Industries Shrank at Faster Pace in July
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By Courtney Schlisserman and Shobhana Chandra


"I hate this mo**erf**ing job."

Aug. 5 (Bloomberg) -- Service industries in the U.S. shrank more than forecast in July, and companies cut another 371,000 jobs, indicating rising unemployment will erode spending.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. ADP Employer Services said companies cut staff last month more than economists anticipated.

The reports signal most of the economy has yet to benefit from government programs, such as the cash-for-clunkers plan, aimed at reviving manufacturing. The highest jobless rate in 26- years, stagnating wages, falling home values and mounting bankruptcies mean consumer spending will be slow to recover.

“There are still plenty of problems out there,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “To declare everything is fine is premature at this stage.”

Stocks dropped after the reports and Treasury securities rose, recovering from earlier losses. The Standard & Poor’s 500 index fell 0.9 percent to 996.90 at 11:58 a.m. in New York. The yield on the benchmark 10-year note was 3.65 percent compared with 3.69 percent late yesterday.

Economists forecast the ISM index would rise to 48, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from 44 to 49.3.

Job Losses

The report from ADP, the world’s largest payroll processor, was projected to show a 350,000 drop in payrolls, according to the median estimate in a Bloomberg survey.

The Labor Department’s July jobs report is due Aug. 7. The U.S. has lost 6.5 million jobs since the recession began in December 2007, the biggest decrease of any economic slump since the Great Depression.

Today’s figures from the purchasing managers at service companies contrasted with a report two days ago from their factory counterparts. The ISM’s manufacturing index rose in July to the highest level in almost a year and its measure of new orders jumped to a two-year high. The gauge showed the factory slump easing over the last seven months.

A report from the Commerce Department today showed orders placed with factories rose 0.4 percent in June, a third consecutive gain, reflecting increases in the value of petroleum bookings and improving demand for goods such as metals and construction equipment.

Services ‘Lagging’

Services are “lagging manufacturing and housing in terms of generating upward momentum,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “Demand is improving, but not very significantly. We’ll have to see employment stabilize” in order to sustain a rebound in growth beyond this quarter, he said.

Bruce Kasman at JPMorgan Chase & Co. in New York, and Joseph LaVorgna at Deutsche Securities Inc. have been among economists boosting growth forecasts for the second half of the year as lean inventories and increased car sales revive production.

The Obama administration’s cash-for-clunkers program, which offers as much as $4,500 for trading in older, less fuel- efficient cars, ran through its $1 billion fund in about a week, and Congress is considering adding $2 billion. Auto industry data this week showed sales jumped to an 11.3 million annual pace last month, the highest level since September.

Orders Slow

The ISM non-manufacturing industries employment index fell to 41.5 from 43.4 the prior month, and its gauge of new orders decreased to 48.1 from 48.6. The measure of new export orders slumped to 47.5 from 54.5.

Simon Property Group Inc., the biggest U.S. shopping-mall owner, reported a drop in second-quarter earnings excluding items and a decline in revenue as the recession hurt consumer spending. The Indianapolis-based company yesterday cut its forecast for the year.

“The economic and retail environments remain difficult,” Chief Executive Officer David Simon said on a conference call.

Even companies seeing better times are concerned a recovery will be slow to develop. Wyndham Worldwide Corp., the franchiser of Ramada and Super 8 hotels, reported last week that it beat second-quarter earnings estimates.

“People are taking shorter vacations and staying closer to home,” Chief Executive Officer Stephen Holmes said in an interview with Bloomberg News after the earnings release on July 29. “We see that shift continuing through the rest of the year. We don’t see this as being a quick rebound.”

Housing, a component of the ISM non-manufacturing index, is one area showing signs of improvement from its worst slump since the 1930s. Construction of single-family houses jumped in June by the most since 2004, figures from the Commerce Department showed last month.

Combined sales of new and existing houses climbed in June for a third consecutive month, reaching the highest since October, figures from Commerce and the National Association of Realtors also showed.

To contact the reporters on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: August 5, 2009 11:59 EDT

 

a local car dealer here reported in the newspaper yesterday that they just had the best sales month in their history. some people are buying.

 

True, true...

But you have got to admit that's because of cash for clunkers.

Or as I like to refer to it (and this does not apply to everyone - especially those who are liquid and need a new car, so don't take offense - but many buying cars under this program are not in a position to take on additional expenses and debt), 'free dope to those willing to pay for additional dope.'

Or alternatively, 'the first hit is free, but you're buying the remainder of what's in that crack pipe.'

aka 'chasing the dragon.'

 

Talked with a salesman for Toyota. He has had a great month. He said not one customer put money down....100% financed and many through 3rd party lenders at very high rates.

Enjoy that gas savings!!!

 

That's the spirit, Amerikans!

"We saved $3,500/$4,500 on a new car, even though are old one was fine, and we got a 9.8%/12.6% financing special, so that by the time we pay our new Hyundai Elantra off, which the dealer jacked the price up $4,000 on since the CFC program was announced, assuming it's not repossessed in a year, it will only cost us $31,642.07"

 

^^^ I gotta admit that made me laugh.

 

So much for the "new America".

People lived below their means for all of 6 months. Now it's back to spending as fast as your credit company will allow.

 

I think this economic slump has tought many people lessons about fiscally conservative personal finance, but the lessons will be lost on others very quickly.

As with anything in life, this crisis will cause some to come out stronger and in better shape, while others will slip further and further down the totum pole.

 

The only way the economy starts to thrive again is on the consumer, without the consumer the economy is practically worthless, however thinking that free cash for a worthless car is going to jump start the economy is pretty damn sad.

I guess debt equals green shoots in this new economy of ours.

 

yeah i'm trying to wrap my head around this 'cash for clunkers idea'. it seems to me that the people driving clunkers are doing such because they can neither afford to pay for a more expensive car or are or have been financially irresponsible and also are risky to lend to. why would you want to entice them into taking on risky debt? i cant see how this makes financial sense other than the fact its a 'feel good' policy. i'm not sure alot of them are going to 'feel good' if their financial situation gets worse and they loose the transportation they now cant afford to pay for.

oops! sorry didnt realize there was already a post about this.