Service sector business activity declined in June, according to a key survey released Thursday that showed continued economic weakness.
The Institute for Supply Management’s (ISM) non-manufacturing index fell to a reading of 48.2 from 51.7 in May. Economists were expecting a reading of 51, according to a consensus of economists polled by Briefing.com.
The ISM’s index was retooled in January to account for business activity, orders, employment and supplier deliveries. A reading above 50 indicates growth in the sector, and a reading below 50 represents a sector-wide decline.
Though economists had expected to see service sector growth through June, they haven’t been especially enthusiastic.
The ISM index was "pretty much consistent with what we’re seeing with other indicators," said Michelle Meyer, economist with Lehman Brothers.
Job market sluggishness, coupled with oil prices that are up more than 50% from the previous year have put many businesses in the wringer.
Slow or no growth is "likely set to continue" until the beginning of 2009, said Meyer.
The ISM’s closely watched index for manufacturing businesses, released on Tuesday, indicated slow economic growth through June as the manufacturing price measurement rose to its highest level since 1979.
Oil price pressure payday advance lender. "Most of the weakness in the economy now is due to oil," said Robert Brusca, economist with FAO Economics.
Crude oil is refined into fuel, one of the service industry’s major expenses. ISM’s non-manufacturing prices index, which tracks the amount companies pay to keep their businesses running, rose to 84.5 points in its 61st consecutive month of increases.
Labor lows. Meanwhile the ISM’s employment index sank 4.9 points to 43.8, the non-manufacturing index’s lowest employment measurement since February 2002.
On Thursday, the Labor Department reported a net loss of 62,000 jobs in June, unchanged from May and 2,000 more than economists had expected. The unemployment rate held at 5.5%.
The Labor Department said new unemployment claims rose to 404,000 in the last week of June, the highest level since March.
Orders to U.S. factories turned in the weakest performance in three months in May, reflecting slumping demand for autos, heavy machinery and steel.
The Commerce Department reported Wednesday that factory orders rose by 0.6% in May, less than half the gains turned in during April and March. It was the poorest showing since factory orders had fallen by 0.4% in February.
The May performance was in line with expectations. Economists are watching to see how big an impact the overall economic slowdown will have on manufacturing, which has been hurt by troubles in the auto industry and housing-related industries.
However, that weakness has been offset by strength in exports, which have continued to rise as American manufacturers have benefited from a weak dollar, which makes their products more competitive overseas.
A report on Tuesday offered some hope that manufacturing may be starting to stabilize. The Institute for Supply Management’s closely watched gauge of manufacturing activity rose to 50.2 in June, just above the 50-point level that signals expansion in the manufacturing sector. The index had declined for four consecutive months.
The orders report showed that demand for durable goods, items expected to last at least three years, were flat in May while demand for nondurable goods, products such as food and petroleum, rose by 1.2%.
Transportation orders rose by 2.5%, reflecting a big 10.3% surge in demand for commercial aircraft. That helped to offset a 1.6% drop in demand for motor vehicles, which have been tumbling this year as automakers have been battered by soaring gasoline prices, which have cut into demand for once-popular trucks and sport utility vehicles.
Demand for machinery was down by 5%, reflecting big declines in orders for construction machinery, mining equipment and industrial machinery. Orders for primary metals including steel were off by 2%.
Orders for computers and electronic products rose by 2.9%.
Matson Navigation, Hawaii's largest shipping company, settled contract agreements with three of its unions on Monday.
Matson said the five-year agreements cover 200 unionized positions with the Seafarers International Union-Marine Cooks, the Sailors Union of the Pacific, and the Marine Firemen, Oilers, Watertenders and Wipers Association.
The previous contracts were set to expire Monday. In mid-June the Sailors Union authorized its leadership to call a strike.
Matson, owned by Honolulu-based Alexander & Baldwin Inc. (Nasdaq: ALEX), handles about 70 percent of ocean freight to and from Hawaii faxless payday loans.
U.K. consumer confidence dropped in June to the lowest level since the London riots 18 years ago that preceded Margaret Thatcher's downfall, as house prices fell across the nation.
An index of consumer confidence based on a survey of 2,001 people fell 5 points to minus 34, the lowest since March 1990, GfK NOP Ltd. said today. Property prices dropped 1 percent from May, the most since Hometrack Ltd.'s housing index started in 2001, the London-based researcher said in a statement.
Bank of England Governor Mervyn King said last week that economic growth needs to slow to contain inflation as policy makers consider whether to raise interest rates. With the threat of a recession looming, Prime Minister Gordon Brown's poll ratings a year after he took office are the lowest since World War II.
“With rising inflation, gloomy forecasts for interest rates and soaring fuel, utility and food prices dominating the front- page headlines, it's no surprise that confidence in the general economy is almost in freefall,'' Rachael Joy, a researcher at GfK NOP, said in a statement.
The Bank of England kept its main interest rate at 5 percent for the past two months after three reductions since December. Policy makers predict economic growth will slow to a 1 percent annual pace in the first quarter of 2009, the least since 1992, as inflation accelerates to more than twice the 2 percent target.
London Riot
The confidence gauge is only one point higher than in March 1990, on the eve of the country's last recession. On March 31, as Thatcher's government introduced a new local levy in England and Wales known as the poll tax, rioters rampaged in London's Trafalgar Square. She resigned that November after a leadership challenge by her former colleague Michael Heseltine.
Brown vowed on June 27 to help living standards improve after his Labour Party slumped to fifth place in a by-election. Labour trails the opposition Conservatives by at least 20 percentage points in national opinion polls.
The measure of confidence in the economic outlook dropped 6 points to minus 45, and for personal finances it fell 5 points to minus 9, GfK said cash advance now. Britons' attitude toward the economy and their own situation in the previous 12 months also deteriorated.
House prices in all 10 regions tracked in the Hometrack survey declined on the month, led by a 1.3 percent drop in the London region and a 1.1 percent decline in the southeast. The average value of a home now stands at 170,500 pounds ($339,000).
Mortgage Squeeze
The property market is cooling as Britons find it harder to get a mortgage. Bank of England data released today showed home- loan approvals fell to 42,000 in May, the lowest since at least 1999 and less than the 51,000 median forecast of 29 economists in a Bloomberg News survey.
King told lawmakers on June 26 that banks “are going to go a lot further than might have been expected initially'' in declaring losses as market turmoil continues. Total worldwide losses and writedowns at financial institutions from the collapse of the U.S. subprime mortgage market now exceed $400 billion.
House prices may fall about 5 percent in the second half of the year, another 2 percent next year and stay flat in 2010, Richard Donnell, director of research at Hometrack, said in an interview on Bloomberg Television.
“Homeowners are sitting back and waiting now to see if the prophecies come true,'' Donnell said.
Accelerating inflation may prevent the central bank from helping by cutting interest rates. Crude oil rose above $141 a barrel for the first time June 27, while corn, wheat and rice prices have all reached records this year. Inflation reached 3.3 percent in May, the fastest in at least 11 years.
“The impact of the rise in energy and food prices means we all together, as a country, will see a pause in the growth of our living standards,'' King said. “I am confident we will bring inflation back to the target but I cannot tell you what level of interest rates we will need to set to do that.''
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