By Shobhana Chandra
Jan. 6 (Bloomberg) -- U.S. service industries probably shrank in December at the fastest pace on record as consumers retrenched and the housing slump worsened, economists said before reports today.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 36.5, the lowest level since records began in 1997, according to the median forecast in a Bloomberg News survey. Fewer Americans signed contracts to buy existing homes in November and factory orders fell, other reports may show.
Mounting unemployment, plunging home values and frozen credit markets will keep stifling businesses from banks to builders, and retailers faced what may have been the worst holiday shopping season in at least four decades. President-elect Barack Obama has called for stimulus of unprecedented proportion to prevent the recession from deepening much more.
“The recession is turning out to be a pronounced one,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “There are multiple problems and multiple sources of the downturn, and things are feeding on one another.”
The Tempe, Arizona-based group’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey of 61 economists ranged from 34 to 42, following a reading of 37.3 in November. Figures less than 50 signal a contraction.
Also at 10 a.m., the National Association of Realtors’ index of signed purchase agreements, or pending home resales, fell 1 percent in November, according to the survey median. The drop would be the fourth in the past five months.
Factory Slump
Orders to factories fell 2.3 percent in November, a fourth consecutive drop, according to the median forecast ahead of a Commerce Department report also due at 10 a.m.
The contraction in services reinforces the deteriorating outlook. The economy probably lost jobs in December for a 12th month as firings rippled from factories and construction companies to retailers and banks, economists project the Labor Department’s Jan. 9 employment report will show.
Manufacturing, which makes up the other 12 percent of the economy, shrank in December at the fastest pace in 28 years as new orders for products from cars to furniture reached the lowest level since records began in 1948, ISM reported last week.
“We have an extraordinary challenge ahead of us,” Obama said yesterday in Washington, where he met lawmakers to garner support and craft a recovery effort that includes tax cuts and spending on roads, schools and energy supplies. The plan aims to create or save 3 million jobs and may cost as much as $850 billion.
Fed Action
The Federal Reserve, which has cut the benchmark interest- rate to as low as zero, yesterday began buying mortgage-backed securities as part of its plan to trim borrowing costs and unclog credit. Minutes of the Fed’s December meeting are scheduled to be released today at 2 p.m.
Expectations that policy makers’ actions will be effective in limiting the damage has pushed up the Standard and Poor’s Supercomposite Homebuilding Index by 66 percent from an eight- year low reached on Nov. 21, 2008. Still, economists project homebuilding, part of the services index, may decline for a fourth year as foreclosures mount.
Retailers also suffered at the end of 2008. Merchants from Macy’s Inc. to AnnTaylor Stores Corp. were among those slashing prices by 70 percent or more to attract holiday shoppers. Sears Holdings Corp. was among chains closing underperforming stores.
“A lot of businesses have been caught flat-footed by how deep and accelerated this recession has been,” Bill Taubman, chief operating officer of shopping-mall owner Taubman Centers Inc., said in a Dec. 26 interview on Bloomberg Television.
Bloomberg Survey
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ISM Non- Factory Pending
Manu Orders Homes
Index MOM% MOM%
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Date of Release 01/06 01/06 01/06
Observation Period Dec. Nov. Nov.
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Median 36.5 -2.3% -1.0%
Average 36.5 -2.4% -1.7%
High Forecast 42.0 -0.4% 1.5%
Low Forecast 34.0 -6.5% -5.0%
Number of Participants 61 57 33
Previous 37.3 -5.1% -0.7%
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4CAST Ltd. 35.0 -2.6% -5.0%
Action Economics 36.5 -2.3% -1.0%
AIG Investments 35.0 -2.7% -4.5%
Aletti Gestielle SGR 36.0 -2.1% ---
Ameriprise Financial Inc 36.5 -2.0% -1.2%
Argus Research Corp. 42.0 -2.8% ---
Banc of America Securitie 35.8 -2.2% ---
Bank of Tokyo- Mitsubishi 39.3 -0.4% ---
Barclays Capital 35.0 -3.2% -3.5%
BMO Capital Markets 35.0 -3.0% -3.0%
BNP Paribas 35.0 -2.8% ---
Briefing.com 37.0 -2.0% ---
Calyon --- -2.5% ---
Citi 39.0 -2.0% ---
ClearView Economics 38.0 -1.8% ---
Commerzbank AG 37.0 --- ---
Credit Suisse 35.0 -2.0% ---
Daiwa Securities America 36.0 -2.5% ---
Danske Bank 38.5 --- ---
DekaBank 37.5 -2.2% -1.0%
Desjardins Group 34.5 --- ---
Dresdner Kleinwort 36.0 -2.5% -0.8%
DZ Bank 36.9 -2.8% -1.2%
Exane 37.5 -2.5% -1.0%
First Trust Advisors 37.7 -1.3% ---
Fortis 37.0 -1.5% -2.1%
Goldman, Sachs & Co. 37.0 -2.0% ---
Helaba 38.0 -2.5% ---
Herrmann Forecasting 35.3 -2.3% -0.8%
High Frequency Economics 35.0 -2.0% -2.0%
Horizon Investments 37.0 -1.5% -3.0%
HSBC Markets 39.0 -3.5% -0.7%
IDEAglobal 35.0 -3.0% -0.3%
IHS Global Insight 37.2 --- ---
Informa Global Markets 35.0 -3.1% -0.8%
ING Financial Markets 36.5 -2.0% -2.0%
Insight Economics 38.0 -1.5% ---
Intesa-SanPaulo 36.0 --- ---
J.P. Morgan Chase 35.0 -2.9% -1.0%
Janney Montgomery Scott L 38.1 -2.8% -1.2%
Landesbank Berlin 36.0 -6.5% ---
Maria Fiorini Ramirez Inc 36.5 -2.0% ---
Merrill Lynch 34.0 -2.8% ---
Moody’s Economy.com 37.5 -2.2% 1.5%
Morgan Keegan & Co. --- -3.5% ---
Morgan Stanley & Co. --- -2.3% ---
National City Corporation 35.5 -0.6% -3.9%
Newedge 37.0 --- -0.7%
Nomura Securities Intl. 37.0 -3.1% ---
PNC Bank 36.5 -2.0% ---
RBS Greenwich Capital 34.0 -2.2% ---
Ried, Thunberg & Co. 35.0 -2.0% -5.0%
Schneider Foreign Exchang 35.0 -2.8% 0.0%
Scotia Capital 36.0 -2.0% -1.0%
Societe Generale 38.0 -2.2% ---
Stone & McCarthy Research 35.3 -1.0% ---
TD Securities 35.0 -2.5% -1.0%
Thomson Financial/IFR 39.0 -2.0% 0.1%
UBS Securities LLC 35.0 -3.1% -2.5%
University of Maryland 37.0 -2.5% -1.0%
Wachovia Corp. 37.0 -1.0% ---
Wells Fargo & Co. 37.0 -2.3% -1.0%
Westpac Banking Co. 35.0 -3.0% -2.0%
Wrightson Associates 37.0 --- -4.0%
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To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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