All about business

Service industries in the U.S. shrank at a slower pace in May, while job losses mounted, indicating that any economic recovery will be slow to develop.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, climbed less than forecast to 44 from 43.7 in April, the Tempe, Arizona-based group reported today. ADP Employer Services estimated companies cut 532,000 workers from payrolls.

“These reports throw cold water on the notion that this aircraft carrier that is the economy will turn on a dime,” said Tim Quinlan, an economist at Wachovia Corp. in Charlotte, North Carolina. “We are heading into a long, gradual recovery that will finally culminate in positive economic growth at the end of this year.”

Federal Reserve Chairman Ben S. Bernanke today projected the economy will suffer “sizable” job losses in coming months that will restrain consumer spending. Stocks retreated for the first time in five days because of concern that increases in unemployment will hobble the early stages of any expansion later this year.

The ISM index was projected to increase to 45, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from 40.5 to 47. Readings less than 50 signal contraction.

Stocks Fall

The Standard & Poor’s 500 index fell 1.4 percent to close at 931.76. Treasury securities climbed, pushing the yield on the 10-year note down to 3.54 percent at 4:23 p.m. in New York from 3.62 percent late yesterday.

Another report today showed orders placed with factories in April rose for the second time in three months, as demand for automobiles, electrical equipment and construction machinery increased. Bookings gained 0.7 percent, after a revised 1.9 percent drop in March that was more than twice the previous estimate, the Commerce Department said.

Bernanke, in testimony to lawmakers, said large U.S. budget deficits threaten financial stability and the government can’t continue to borrow indefinitely at the current rate to finance the shortfall. He projected economic growth will return “later this year,” and said unemployment will probably continue to rise into 2010. Fed officials expect growth will not be “robust” this year, he said.

Job Losses

Economists project a Labor Department report in two days will show the unemployment rate in May topped 9 percent for the first time in more than 25 years and payrolls probably fell by more than 500,000 workers, according to a Bloomberg survey.

An inability by consumers to sustain gains in spending on concern over rising unemployment is among reasons the next expansion will probably be subdued Faxless payday loans. The economy has lost 5.7 million jobs since the recession began in December 2007, the worst performance of any post-World War II downturn.

The ISM non-manufacturing industries index of employment rose to 39 from 37 the prior month, and its gauge of new orders fell to 44.4 from 47.

Measures of order backlogs and exports also fell, while inventories contracted at a slower pace.

Two of the worst-performing parts of the economy show signs of steadying. Manufacturing fell the least in eight months in May as new orders climbed for the first time since the recession began, ISM reported two days ago. At the same time, auto industry bankruptcies, including those at General Motors Corp. and Chrysler LLC, may limit any rebound in factory activity.

Housing Steadies

Homebuilding, which is included in the services index, may be past its worst declines. Construction of single-family homes advanced in April after holding near a record low the previous two months, according to figures from the Commerce Department.

The stabilization reflects steadier sales. Total home purchases have hovered around an average annual pace of 4.98 million since November.

Recent increases in borrowing costs have restrained a refinancing boom without hindering sales, a report today from the Mortgage Bankers Association showed. The group’s loan applications index fell 16 percent last week, led by a 24 percent drop in refinancing as the rate on a 30-year fixed loan climbed to the highest level since January.

Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, is among companies still cutting costs even as demand is likely to pick up. Starwood owns brands including St. Regis, Westin and Sheraton.

“There is some healthy growth coming ahead for the industry,” Chief Financial Officer Vasant Prabhu said in a June 1 conference presentation. “People are not as spooked as they were three to six months ago, where they were unwilling to act.” Still, “I think it’s too early to call a turn,” he said.

Tiffany & Co., the world’s second-largest luxury-jewelry retailer, is among merchants sensing the slump is easing. The New York-based company last week reiterated its annual profit forecast and said year-over-year sales declines are lessening.

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