By Courtney Schlisserman
Feb. 4 (Bloomberg) -- Service industries in the U.S. probably contracted at a faster pace in January as mounting unemployment caused consumers to retrench, 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, fell to 39 from 40.1 in December, according to the median of 64 forecasts in a Bloomberg News survey. Readings less than 50 signal contraction.
A record spending slump has forced retailers including Macy’s Inc. and Starbucks Corp. to cut thousands of jobs, contributing to a deterioration in confidence that’s likely to prompt further pullbacks. The recession is projected to deepen after the world’s largest economy contracted last quarter at the fastest pace in 26 years.
“There’s significant downward momentum coming into the year,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. The drop in the index is “consistent with further layoffs and business and consumer-spending cuts.”
The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey ranged from 35 to 44. A reading as forecast would be the second-lowest since the index’s inception in 1997.
Other reports today may show the labor market deteriorated further at the start of the year. Companies eliminated an estimated 535,000 jobs last month, the second-worst month since ADP Employer Services began keeping track in 2001, economists forecast a report at 8:15 a.m. from the world’s biggest payroll manager will show.
At 7:30 a.m., a tabulation of last month’s firing announcements is due from Challenger Grey & Christmas Inc., a Chicago-based placement firm.
Job Losses
The reports come two days before the Labor Department issues its January employment report. Economists project payrolls dropped by 535,000 last month after the economy lost 2.6 million jobs in 2008, according to a Bloomberg survey.
Macy’s, the second-largest U.S. department-store company, said this week it is cutting 7,000 jobs, or 3.9 percent of its workforce, to reduce costs after slashing prices to lure shoppers during the worst holiday season in 40 years. Comparable-store sales have dropped in 10 of the past 11 months.
Seattle-based Starbucks, the world’s largest chain of coffee shops, said last week it will cut 6,700 jobs and close 300 more stores after reporting first-quarter profit that fell more than analysts estimated.
More Weakening
“The pace of weakening in the business environment and the global economy has been accelerating,” Starbucks Chief Executive Officer Howard Schultz said on a Jan. 28 conference call. “I anticipate that our results could remain under pressure until the economy begins to recover.”
United Parcel Service Inc., the world’s largest package- delivery company, said yesterday it is freezing management salaries and suspending retirement contributions after U.S. volume plunged the most in nine years.
The U.S. economy contracted at a 3.8 percent annual pace in the fourth quarter, the most since 1982, the Commerce Department said on Jan. 30. Consumer spending declined at a 3.5 percent pace following a 3.8 percent drop in the previous three months. It was the first time decreases exceeded 3 percent in consecutive quarters since records began in 1947.
Consumer confidence sank to a record low last month, according the New York-based Conference Board.
President Barack Obama is urging Congress to continue to make progress on economic stimulus legislation. The House of Representatives last week approved an $819 billion plan and the U.S. Senate is now considering a package of tax cuts and spending programs of almost $900 billion.
Federal Reserve policy makers last week voted to keep the benchmark overnight lending rate between banks in a range of zero to 0.25 percent and said there was a “significant’ risk the economy would not recover until 2010.
Bloomberg Survey
=============================================
ADP ISM Non-
Payroll Manu
,000’s Index
=============================================
Date of Release 02/04 02/04
Observation Period Jan. Jan.
---------------------------------------------
Median -535 39.0
Average -555 39.0
High Forecast -487 44.0
Low Forecast -720 35.0
Number of Participants 23 64
Previous -693 40.1
---------------------------------------------
4CAST Ltd. -500 39.0
Action Economics -565 39.0
Aletti Gestielle SGR --- 39.5
Ameriprise Financial Inc -575 39.0
Argus Research Corp. --- 44.0
Banc of America Securitie --- 39.0
Bank of Tokyo- Mitsubishi --- 39.4
Bantleon Bank AG --- 39.5
Barclays Capital --- 39.0
BMO Capital Markets -535 37.0
BNP Paribas -580 41.1
Briefing.com -525 39.5
Castlestone Management LT --- 41.0
Citi --- 40.0
ClearView Economics --- 39.0
Commerzbank AG --- 39.5
Credit Suisse --- 39.0
Daiwa Securities America --- 38.0
Danske Bank --- 39.5
DekaBank --- 39.5
Desjardins Group --- 38.0
Deutsche Postbank AG --- 39.5
Dresdner Kleinwort --- 39.0
DZ Bank -550 38.5
First Trust Advisors --- 38.7
Fortis --- 42.0
FTN Financial --- 39.0
Goldman, Sachs & Co. --- 40.0
Helaba --- 40.0
Herrmann Forecasting -634 39.4
High Frequency Economics -500 35.0
HSBC Markets -500 39.0
IDEAglobal -500 41.0
IHS Global Insight --- 38.0
Informa Global Markets -550 38.0
ING Financial Markets -720 39.0
Intesa-SanPaulo --- 39.0
J.P. Morgan Chase --- 38.0
Landesbank Berlin --- 37.0
Landesbank BW --- 41.0
Maria Fiorini Ramirez Inc --- 39.0
Merrill Lynch -585 37.0
MFC Global Investment Man -600 38.0
Moody’s Economy.com --- 40.5
National Bank Financial --- 38.0
Natixis -520 37.8
Newedge --- 38.4
Nomura Securities Intl. -510 37.0
PNC Bank --- 39.0
Raymond James --- 38.0
Ried, Thunberg & Co. --- 39.0
Schneider Foreign Exchang -487 36.3
Scotia Capital -550 38.0
Standard Chartered --- 39.0
Stone & McCarthy Research --- 38.9
TD Securities -700 37.0
Thomson Financial/IFR --- 40.0
UBS Securities LLC --- 40.5
Unicredit MIB --- 37.0
University of Maryland -530 39.0
Wachovia Corp. --- 40.5
Wells Fargo & Co. -515 39.0
WestLB AG -530 ---
Westpac Banking Co. --- 41.0
Wrightson Associates --- 39.0
=============================================
To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net
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