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Stocks fall on slow services industry { September 2005 } Original Source Link: (May no longer be active)
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U.S. Sept. Services Index Falls More Than Expected (Update2)
Oct. 5 (Bloomberg) -- U.S. service industries expanded at the slowest pace in more than two years in September as Hurricanes Katrina and Rita shut down Gulf Coast businesses and pushed costs for materials and supplies to a record.
The Institute for Supply Management's measure of financial services, retail trade and other non-manufacturing businesses fell to 53.3, the lowest since April 2003, from 65 in August. The decline was the biggest since the index was started in 1997.
Gulf Coast operations at companies such as mobile phone provider Cingular Wireless were disrupted by the hurricanes, and the record gasoline prices that followed the storms curbed consumer spending across the nation. Today's report showed only eight of 17 industries said business improved from August.
``These businesses have been alarmed by the possible implications of the post-Katrina drop in consumer confidence and the surge in gas prices,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``Both appear to point to a period of softer consumption.''
Economists expected a reading of 60, according to the median of 63 forecasts in a Bloomberg survey. A reading above 50 indicates expansion.
Stocks fell after the report and remarks yesterday by two Federal Reserve governors suggesting the central bank may keep raising interest rates. The Standard & Poor's 500 Index lost 5.95, or 0.4 percent 1208.52 at 10:07 a.m. in New York.
The gauge of prices paid for materials and services rose to a record 81.4 from 67.1, today's report showed. The inventory index fell to 50 from 53.5. The employment gauge for non- manufacturing companies dropped to 54.9 from 59.6.
Gasoline Prices
New orders for non-manufacturing companies fell to 56.6 from 65.8. The index of order backlogs was unchanged at 52. Export orders fell to 55 from 63.5.
In Europe, service industries grew at the fastest pace in 14 months in September as banks, airlines and telephone companies helped the economy pick up from a second-quarter slowdown, a report today showed.
Hurricane Katrina swept through the Gulf Coast Aug. 29, knocking out drilling rigs and pipelines and driving up energy costs. Regular-grade gasoline, averaged nationwide, touched a record $3.057 a gallon on Sept. 2, according to the AAA, the nation's largest motoring organization.
U.S. consumer confidence plunged by the most in 25 years after the hurricanes, a Sept. 30 survey by the University of Michigan showed, raising concern that spending may falter.
``There's no doubt consumers are going to feel pressure from fuel costs and gasoline,'' A.G. Lafley, chief executive of Procter & Gamble Co., the largest U.S. household goods maker, said in an Oct. 3 interview.
Interest Rates
Higher energy prices were pinching consumers even before Katrina struck. Personal spending fell a larger-than-expected 0.5 percent in August, the biggest drop since May 2002, a Commerce Department report showed last month.
Federal Reserve policy makers are trying to keep energy costs from spilling over to other areas of the economy. The Fed lifted its benchmark overnight lending rate for the 11th straight month in September, to 3.75 percent, and signaled that further increases are in store.
``Inflation has been on a slight upward tilt the past couple of years,'' Fed Bank of Dallas Richard Fisher said in the text of a speech yesterday to the Dallas Chamber of Commerce. ``We now face higher energy prices and businesses' desire to pass the increased costs on to their customers.''
Auto sales fell for a second straight month in September. General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, said domestic sales of cars and trucks plunged in September as the lure of employee discounts faded.
Restaurants Closed
Growth in services was also held back by disruptions to businesses including Outback Steakhouse Inc., which was forced by Hurricane Katrina to close restaurants, and Cingular Wireless, the No. 1 U.S. mobile phone provider, which had towers knocked out by the storm.
Katrina may cost insurers $34.4 billion, according the Insurance Services Office Inc.'s Property Claim Services unit. The projection excludes damage to utilities, crops, airplanes, and offshore oil platforms.
Reconstruction efforts and an improving labor market may help reduce the impact of higher energy prices, economists said.
Miami-based Lennar Corp., the third-largest U.S. homebuilder by stock market value, raised its forecast for fiscal 2005 earnings after reporting that quarterly net income jumped 50 percent, the most in more than two years.
The unemployment rate fell to 4.9 percent in August, the lowest in four years. Employers added 194,000 jobs a month on average through the first eight months of this year, up from 187,000 a month in the same period a year earlier.
Manufacturing
The number of job cuts announced by U.S. employers fell 33 percent in September to 71,836 compared with the same month last year, suggesting Hurricanes Katrina and Rita didn't cause the job market to deteriorate, the outplacement firm Challenger, Gray & Christmas Inc. said today.
Manufacturing unexpectedly accelerated in September, a report from the Institute for Supply Management showed this week, suggesting companies haven't been deterred by the initial surge in energy prices following Katrina.
FedEx Corp., the world's No. 3 package shipping company, on Sept. 21 raised its full-year forecast because of growing Asian trade and an expanding U.S. economy.
``We remain optimistic about the global economic environment,'' Fred Smith, chief executive of the Memphis, Tennessee-based company, said in a conference call with analysts and reporters.
Consumer spending was just as strong in the weeks after Katrina as before the storm, according to figures from MasterCard International Inc., the No. 2 U.S. credit card company. Retail sales other than gasoline and autos rose 6.6 percent in the week ended Sept. 16 from a year earlier, unchanged from five weeks earlier, it said.
A teleconference on ISM's September non-manufacturing index will be broadcast at 10:10 a.m. New York time on {LIVE }
Last Updated: October 5, 2005 10:38 EDT
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