By Timothy R. Homan
Sept. 4 (Bloomberg) -- Service industries in the U.S. probably shrank in August for a third straight month, a sign the economic slowdown is broadening as weak domestic demand and higher costs prevent companies from expanding, economists said before a report today.
The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, remained unchanged at 49.5 from a month earlier, according to the median of 68 forecasts in a Bloomberg News survey. A reading of 50 is the dividing line between growth and contraction.
Weakness in the labor market, smaller wage gains and a housing slump in its third year indicate consumer spending may stop growing later this year as the effects of the federal tax rebates fade. Waning demand and stricter lending conditions are leading companies to cut staff and rein in investment in new equipment.
``Just like manufacturing, the service sector is slowing, but modestly,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's a combination of just a slowdown in the overall demand environment, as well as a contraction in credit availability.''
The Tempe, Arizona-based institute's report is scheduled to be released at 10 a.m. New York time. Estimates in the Bloomberg News survey ranged from 48.5 to 52.
A report from the institute earlier this week showed manufacturing shrank in August for the first time in three months as companies slowed production and trimmed payrolls. That report's employment index dropped to 49.7 from 51.9 in July.
Job Cuts
The U.S. probably lost 75,000 jobs in August, bringing the total decline in non-farm payrolls so far this year to 538,000, economists surveyed by Bloomberg predict a Labor Department report tomorrow will show.
American job losses have extended beyond manufacturers and construction. Service industries cut 5,000 workers from their payrolls in July, the first decline since March, the Labor Department said last month.
Business across most of the U.S. was ``slow'' last month and almost all Federal Reserve districts said higher commodity costs pressured companies to raise prices, the central bank said yesterday in its regional economic survey known as the beige book report.
``Wage pressures were characterized as moderate by most districts amid a general pullback in hiring,'' the report said. The report also said labor markets were ``unchanged or somewhat softer'' across most of the U.S., compared with the previous beige book released July 23.
Weaker Spending
Companies are cutting jobs to offset losses from a slowdown in consumer spending. Purchases rose 0.2 percent in July, one- third the pace in June, while prices for consumers jumped the most in 17 years, the Commerce Department said last week.
Oil prices, up about 46 percent from a year ago, have hurt companies including airlines and U.S. automakers as consumers tighten their budgets.
AMR Corp.'s American Airlines, the world's largest carrier, sent notices to 469 ground and airport workers yesterday saying they may be laid off on Nov. 1. The eight biggest U.S. carriers combined for second-quarter net losses of $5.9 billion.
``It is quite clear that we can no longer operate our airline at its current levels,'' Mark Burdette, American's vice president for employee relations, said in a letter posted on a Transport Workers Union Web site yesterday. ``We must quickly reduce our operating schedule for the coming months and, as a result, will need fewer people to operate the airline.''
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ISM Non-Manufacturing Index
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Date of Release 09/04
Observation Period Aug.
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Median 49.5
Average 49.6
High Forecast 52.0
Low Forecast 48.5
Number of Participants 68
Previous 49.5
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4CAST Ltd. 50.5
Action Economics 50.5
Argus Research Corp. 50.5
Banc of America Securitie 49.0
Bank of Tokyo- Mitsubishi 50.0
Bantleon Bank AG 49.8
Barclays Capital 50.0
BBVA 48.9
BMO Capital Markets 49.3
BNP Paribas 49.0
Briefing.com 50.0
CIBC World Markets 50.0
ClearView Economics 49.0
Commerzbank AG 48.5
Credit Suisse 48.5
Daiwa Securities America 51.0
Danske Bank 50.0
DekaBank 50.0
Desjardins Group 49.0
Deutsche Postbank AG 49.8
Dresdner Kleinwort 49.5
DZ Bank 49.8
First Trust Advisors 48.5
Fortis 50.0
FTN Financial 50.0
Global Insight Inc. 49.5
Goldman, Sachs & Co. 49.0
H&R Block Financial Advis 49.0
Helaba 50.0
High Frequency Economics 52.0
HSBC Markets 52.0
IDEAglobal 48.5
Informa Global Markets 48.5
ING Financial Markets 49.0
Insight Economics 49.0
Intesa-SanPaulo 49.5
J.P. Morgan Chase 49.5
Janney Montgomery Scott L 50.6
JPMorgan Private Client 50.0
Landesbank Berlin 48.5
Landesbank BW 49.5
Lehman Brothers 50.3
Lloyds TSB 50.0
Maria Fiorini Ramirez Inc 49.5
Merk Investments 49.0
Merrill Lynch 51.0
MFC Global Investment Man 49.0
Moody's Economy.com 49.0
National Bank Financial 48.5
Natixis 48.5
Newedge 49.2
Nomura Securities Intl. 50.0
Nord/LB 50.0
PNC Bank 48.5
Scotia Capital 49.0
Societe Generale 50.0
Stone & McCarthy Research 48.9
TD Securities 50.0
Thomson Financial/IFR 50.9
Tullett Prebon 49.3
Unicredit MIB 49.5
University of Maryland 50.0
Wachovia Corp. 49.0
Wells Fargo & Co. 50.0
WestLB AG 49.0
Westpac Banking Co. 50.0
Wrightson Associates 49.0
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To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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