While you were sleeping: US service industries shrink, firms cut jobs

Thursday 6th August 2009

US service industries shrank more than expected and companies cut more jobs than forecast, stoking concerns the economic recovery will be slower and more tepid. Stocks on Wall Street dipped.

The Institute for Supply Management’s index of non-manufacturing businesses fell to 46.4 from 47 in June. Economists had expected an increase in services industries. A reading below 50 indicates contraction in the sector that makes up about 90% of the world’s biggest economy.

Companies cut 371,000 jobs last month, according to the ADP Employer Services, more than the 345,000 forecast in a Reuters survey.

The figures may herald a worse outcome than expected when the Labor Department releases its July jobs report on Friday in the US and suggests many Americans are yet to feel the benefits of fiscal stimulus measures such as the so-called cash-for-clunkers scheme which offers guaranteed trade-ins on older, less fuel-efficient cars.

The Commerce Department said new orders received by U.S. factories unexpectedly rose in June, the third straight gain.

The Dow Jones Industrial Average slipped 0.4% to 9280.97 and the Standard & Poor’s 500 fell 0.3% to 1002.72. The Nasdaq Composite fell 0.9% to 1993.05.

Procter & Gamble Co., which makes Gillette razors, fell 2.8% to US$53.91, leading the Dow lower, after posting an 11% drop in quarterly sales. The company warned that profit this quarter may miss forecasts and sales may dip a further 10%.

Heavy earth-moving equipment maker Caterpillar fell 2.6% to US$46.64. Wal-Mart Stores declined 1.3% to US$49.20.

The yen strengthened against the euro as the weaker US service industries data eroded demand for riskier, or higher-yielding investments.

The yen rose to 136.87 against the euro from 137.21 yesterday and strengthened to 94.97 per dollar from 95.23. The greenback traded at $1.4414 per euro from $1.4408.

Goldman Sachs Group said it is cooperating with US inquiries into the credit-default swaps market.

The company and some affiliates “have received inquiries from various governmental agencies and self-regulatory organizations regarding credit-derivative instruments,” the firm said in a filing with the US Securities and Exchange Commission.

The US Justice Department is investigating the US$27 trillion market for trading credit default swaps to determine whether the banks that own Markit Group gained advantage from providing of prices and studying the trading patterns, Bloomberg reported.

Copper futures for September delivery rose 0.6% to US$2.812 a pound on the New York Mercantile Exchange.

Gold futures for December delivery fell 0.5% to US$965.10 on New York.

Crude oil gained after US Energy Information Administration figures showed inventories of distillates such as heating oil and diesel fell by 1 million barrels last week.

US crude edged up 55 cents to US$71.97 a barrel. London Brent crude climbed US$1.23 to end at $75.51.

Stocks in Europe fell, with the Dow Jones Stoxx 600 Index declining 0.4% to 245.23 as weaker-than-expected US data cast doubt on the pace of recovery.

Deutsche Boerse fell 6.5% after posting a decline in second-quarter earnings. Swiss Reinsurance dropped 2.2% after reporting a quarterly loss.

Societe Generale rose 6% after the lender posted a better than expected second-quarter profit of 309 million euros.

Axa SA rose 1.7% after reporting a smaller-than-expected 39% drop in earnings.

Lloyds Banking Group climbed 11% after saying bad loans will fall. It reported a first-half loss of 3.1 billion pounds.

The UK’s FTSE 100 fell 0.5% to 4647.13, France’s CAC 40 shed 0.5% to 3458.53 and Germany’s DAX 30 slid 1.2% to 5353.01.

Businesswire.co.nz

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