Service industries may be contracted: US eco preview

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: Service industries in the US probably shrank in June at a slower pace, signaling the worst recession in a half century is easing.

The Institute for Supply Management’s index of non- manufacturing businesses, which account for almost 90% of the economy, rose to 46, according to the median estimate of 37 economists surveyed by Bloomberg News. Readings less than 50 signal contraction. Higher oil prices widened the trade deficit and boosted the cost of imported goods, other reports may show.

Stabilisation in housing and consumer spending combined with lean inventories mean companies may start expanding output again in coming months. Still, mounting job losses and stagnant paychecks are likely to restrain household purchases, limiting the force of any recovery. “We’re in the process of bottoming, but the overall economy is still contracting moderately,” said Zach Pandl, an economist at Nomura Securities International Inc in New York.

The projected reading for the Tempe, Arizona-based ISM’s gauge, due tomorrow, would be the highest in nine months. The measure was at 44 in May and has been in contraction territory since October, the month after Lehman Brothers Holdings Inc’s demise triggered a financial meltdown that deepened the recession.

Recent data have pointed to a lessening pace of economic decline. ISM’s factory index on July 1 showed manufacturing shrank last month at the slowest pace since August and a measure of pending home sales advanced in May for a fourth month.

The reports bolster the view of the Federal Reserve. Policy makers kept the key overnight lending rate unchanged at near zero on June 24, saying “the pace of economic contraction is slowing” and financial market conditions have “generally improved.” Economists surveyed by Bloomberg in early June forecast the economy would grow at an average 1.2% pace in the second half of the year, following four quarters of contraction.

Since the recession began in December 2007, the economy has lost 6.5 million jobs, the worst slump since the Great Depression. Employers cut 4,67,000 workers from payrolls in June, worse than forecast, the government reported last week. Still, cuts have moderated since reaching a five-decade high of 7,41,000 in January.

Stocks fell on July 2, sending the Standard & Poor’s 500 Index to a third straight weekly drop, on growing concern that rising unemployment will hurt consumer spending. The index tumbled 26.9 points, or 2.9%, to close at 896.42.