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

Source: Bloomberg

By Courtney Schlisserman and Shobhana Chandra

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.



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

Our government thinks that the way to rebuild the pyramid of our economy is by starting at the top instead of shoring up the base first.