ISM Services gauge in US declined in March as orders eased

April 4 (Bloomberg) -- Service industries in the U.S. expanded less than forecast in March as orders grew at the slowest pace in three months.

The Institute for Supply Management’s non-manufacturing index dropped to 56 from a one-year high of 57.3 in February, the Tempe, Arizona-based group’s data showed today. Readings above 50 signal expansion, and economists surveyed by Bloomberg News projected 56.8 for the gauge, according to the median estimate.

A pickup in the services industries that make up almost 90% of the economy is needed to broaden growth and help spark additional labor market gains that sustain household demand. Joblessness at 8.3% and more expensive gasoline are limiting consumers’ ability to increase spending.

“The service sector is still expanding,” Robert Dye, chief economist at Comerica Inc. in Dallas, said before the report. “We’ve had fairly healthy retail sales, fairly healthy construction and auto sales, and it would take an awful lot to push things into contraction.”

Estimates from the 69 economists in the Bloomberg survey ranged from 54 to 62. The gauge averaged 53.3 since the recession ended in June 2009 through February.

The ISM non-manufacturing survey’s measure of new orders decreased to 58.8 from 61.2. Backlogs also eased. The employment index rose to 56.7, the second-highest since February 2006, from 55.7 in the prior month. A gauge of business activity dropped to 58.9 from 62.6. The index of prices paid fell to 63.9 from 68.4.

March Manufacturing

The survey covers industries ranging from utilities and construction to retailing and finance. An April 2 report from the ISM showed manufacturing accelerated in March and factory employment picked up.

An improving labor market has helped underpin demand and lift consumer sentiment. Private employment climbed 209,000 in March after a February increase of 230,000 that was more than initially estimated, according to a report earlier from ADP Employer Services. Service producers added 164,000 jobs last month, the data showed.

A Labor Department report on April 6 is projected to show private employment, which excludes government jobs, climbed by 215,000 in March.

Households are feeling more optimistic as a result of the job gains. The Thomson Reuters/University of Michigan’s final index of consumer sentiment rose last month to 76.2, the highest since February 2011, from 75.3.

Consumer Spending

With the labor market on the mend and improving confidence, Americans boosted their spending in February by the most in seven months. Purchases climbed 0.8 percent, Commerce Department data showed last week.

“The economy is beginning to pick up a little steam,” Mark Lemond, president and chief executive officer of Shoe Carnival Inc., said in a March 21 conference call. “When the customer has money in their pocket, they’re definitely willing to spend it. This bodes well for the rest of 2012 and beyond.”

The Evansville, Indiana-based retailer said it expects same-store sales to increase 5.5% to 7% in the first quarter with total revenue rising to about $220 million.

Federal Reserve Chairman Ben S. Bernanke said last week that while he was encouraged by recent data showing an improved economy, a further reduction in the jobless rate will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies.”

Recent “better news” on the U.S. economy has also included strength in manufacturing, Bernanke said. The improvement could contribute to higher consumer confidence and lead to a self-sustaining recovery, he said. “We haven’t seen that in a persuasive way yet,” Bernanke said in a speech in Arlington, Virginia.

Bloomberg News

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