Oct. 5 (Bloomberg) -- Service companies in the U.S. expanded at a faster pace than projected in September, indicating the economic recovery is picking up heading into the fourth quarter. The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, rose to 53.2 from 51.5 in August. The gauge, in which readings greater than 50 signal growth, averaged 55.3 during the six-year expansion that ended in December 2007.
Faster services growth would help boost the economy at a time that factory expansion, which helped lead the recovery, is cooling. Even so, with an unemployment rate projected to average above 9 percent through 2011, retailers may find it hard to grow sales and home buying could languish.
“This paints a little bit more encouraging picture,” said Conrad DeQuadros, a senior economist at RDQ Economics LLC in New York. “The risks of sliding back into recession are very low. It’s consistent with a moderate rate of economic growth.”
Stocks added to earlier gains after the report. The Standard & Poor’s 500 Index rose 1.6 percent to 1,155.19 at 10:53 a.m. in New York. Treasury securities were little changed.
The median forecast of 76 economists surveyed by Bloomberg News projected the ISM index would rise to 52. Estimates ranged from 50 to 53.3.
The services survey covers industries that range from utilities and retailing to health care, housing, finance and transportation. The group’s factory survey, released Oct. 1, showed manufacturing expanded last month at the slowest pace since November as orders and production cooled.
Orders, Employment
The ISM non-manufacturing employment gauge rose to 50.2 from 48.2 in August. The measure of new orders increased to 54.9 from 52.4. The group’s measure of business activity declined to 52.8 from 54.4.
“This is slow and steady growth,” Anthony Nieves, chairman of the ISM’s non-manufacturing survey. “There’s still this cautiousness about whether or not things are turning the corner but people want to remain optimistic.”
Some retailers plan to boost hiring in anticipation that sales during the holidays will be better than last year. Toys ‘R’ Us Inc., the world’s biggest toy retailer, said Sept. 28 it will add about 45,000 temporary employees to cope with demand at the end of this year, up from 35,000 in 2009. Chief Executive Officer Gerald Storch last month said he’s also adding more inventories than last year.
New Promotions
Best Buy Co., the world’s largest consumer-electronics retailer, said Sept. 28 it plans to offer a promotion on every Friday in October to spur sales of phones. The company also plans to keep holiday hiring even with last year, adding about 29,000 seasonal employees.
“We know it is a tough environment out there,” Best Buy Co. Chief Executive Officer Brian Dunn told reporters Sept. 28. “It will be hard fought.”
Charles “Wick” Moorman, chief executive officer of Norfolk Southern Corp., the second-largest U.S. railroad by market capitalization, is projecting the recovery from the worst recession since the 1930s, while muted, will continue.
‘Slow-Growth Economy’
“We saw a fairly sharp snap-back as 2009 went on and early in 2010 that seems now to have slowed,” Moorman said in a Sept. 29 interview on Bloomberg Television. We’re just going to continue to see a slow-growth economy for some time to come.”
Moorman said his company is adding workers mainly to replace those leaving the railroad with “some slight hiring” to meet growing demand. The Norfolk, Virginia-based company’s payroll remains down about 2,000 from where it was when the recession began, he said.
The Labor Department later this week may report unemployment rose to 9.7 percent in September from 9.6 percent the prior month, according to the median estimate of economists surveyed. Companies added 75,000 workers to payrolls, according to the survey median, not enough to keep up with a growing labor force.
Economists surveyed last month projected the unemployment rate will average 9.6 percent this year and 9.2 percent in 2011, after averaging 9.3 percent in 2009. That would be the longest span of joblessness above 9 percent since 1941.
Federal Reserve
The labor market is also a reason why Federal Reserve policy makers may respond with more stimulus. The outlook for job growth and inflation is “unacceptable” and more monetary easing is probably needed to spur growth and avert deflation, Fed Bank of New York President William Dudley said in a speech Oct. 1.
The economy is a top issue for voters in the November congressional elections and polls show the public is increasingly skeptical of President Barack Obama’s performance.
Some retailers are more optimistic about the holiday shopping period. The International Council of Shopping Centers today projected sales for November and December will climb 2.5 percent to 3 percent. The New York-based trade group tracks sales at stores open at least a year at more than 30 chains.
