Service Industries in U.S. Probably Grew by Most Since 2006

June 3 (Bloomberg) -- Service industries expanded in May at the fastest pace in four years, showing the U.S. recovery is broadening as employment improves, economists said before reports today.

The Institute for Supply Management’s index of non- manufacturing businesses, which covers almost 90 percent of the economy, rose to 55.6 from 55.4 in April, according to the median forecast of 76 economists surveyed by Bloomberg News. Other reports may show firings eased and private payrolls rose.

Companies increased staffs by almost half a million workers through April, leading to gains in incomes and spending that will help sustain the economic rebound after government support wanes. Target Corp. and Dow Chemical Co. are among those seeing a pickup in sales that indicates confidence is growing even as the European debt crisis roils financial markets.

“We seem to be transitioning from a recovery supported by fiscal stimulus and inventories to one more supported by underlying demand from the consumer and businesses,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

The Tempe, Arizona-based ISM’s report is due at 10 a.m. in New York. Readings greater than 50 point to expansion, and survey estimates ranged from 53.9 to 57. Last month’s projected outcome would be the highest since May 2006.

Payrolls, Claims

A report from ADP Employer Services due at 8:15 a.m. is forecast to show businesses added 70,000 jobs in May, the best performance since the recession began in December 2007, according to the survey median. Figures from the Labor Department at 8:30 a.m. may show the number of claims for jobless benefits fell for a second week, to 455,000, according to the median projection.

The releases come a day before the Labor Department’s monthly jobs report. Payrolls climbed by 515,000 in May, the fifth straight month of gains and the biggest since 1983, according the median forecast. The jump probably reflected a surge in government hiring of temporary help to conduct the census and a 175,000 increase in private employment.

The ADP report doesn’t include government jobs, meaning it isn’t picking up the increase in federal census hiring.

Private employment has grown by 483,000 workers in the first four months of the year, according to figures from the Labor Department. Wages and salaries advanced 1.4 percent over the period, the best four-month gain in two years.

Factory Orders

Also today, a 10 a.m. Commerce Department report may show factory orders rose 1.8 percent, according to the survey median. Factories helped kick-start the recovery from the worst recession since the 1930s as exports grew and companies replenished depleted stockpiles.

Figures from the supply managers’ group on June 1 showed manufacturing grew in May at a faster pace than forecast as factories added workers, sales overseas rose at the fastest pace in two decades and U.S. orders also climbed.

Midland, Michigan-based Dow, the world’s second-largest chemical maker, yesterday said financial markets shouldn’t panic over the European debt crisis or concern growth in China will slow because its sales show consumer demand is improving in both regions.

“We are seeing good momentum and the momentum is continuing in the second quarter,” Dow’s Chief Executive Officer Andrew Liveris said in a webcast from New York. U.S. consumer spending is rising on everything from appliances and cars to electronics, he said.

Target Earnings

Other areas are now also seeing improvement. Target, the second-largest U.S. discount retailer, last month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes.

Concern over Europe’s sovereign-debt crisis, heightened tensions on the Korean peninsula and Middle East, and the oil spill in the Gulf of Mexico have combined to hurt shares. The Standard & Poor’s 500 Index has dropped 9.8 percent since reaching a 19-month high on April 23.

Bloomberg Survey

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ADP Initial Factory ISM Non-
Payroll Claims Orders Manu
,000’s ,000’s MOM% Index
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Date of Release 06/03 06/03 06/03 06/03
Observation Period May 29-May April May
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Median 70 455 1.8% 55.6
Average 77 453 1.8% 55.6
High Forecast 180 475 3.5% 57.0
Low Forecast 35 440 0.6% 53.9
Number of Participants 34 41 68 76
Previous 32 460 1.1% 55.4
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4CAST Ltd. 50 455 1.7% 55.5
Action Economics 40 450 1.8% 55.5
Aletti Gestielle SGR --- --- 2.2% 56.5
Ameriprise Financial 180 --- 0.8% 55.0
Banesto 55 --- 0.9% 55.6
Bank of Tokyo- Mitsubishi --- 456 1.7% 53.9
Bantleon Bank AG --- --- 2.3% 55.7
Barclays Capital --- 455 1.5% 56.0
Bayerische Landesbank --- --- 1.6% 55.7
BBVA 52 458 1.4% 55.6
BMO Capital Markets 60 450 1.9% 56.0
BNP Paribas 75 445 3.5% 56.0
BofA Merrill Lynch Research 70 450 2.5% 54.5
Briefing.com 60 450 2.0% 55.7
Capital Economics --- --- 1.8% 57.0
CIBC World Markets --- --- 3.5% 54.0
Citi --- 440 1.9% 55.0
ClearView Economics --- --- 2.0% 56.0
Commerzbank AG 90 --- 2.0% 55.5
Credit Agricole CIB --- --- 1.5% ---
Credit Suisse --- 445 2.0% 55.0
Daiwa Securities America --- --- 2.0% 55.5
Danske Bank --- --- --- 55.7
DekaBank --- --- 1.4% 56.0
Desjardins Group --- 455 1.8% 55.0
Deutsche Bank Securities --- --- 1.0% 55.0
Deutsche Postbank AG --- --- --- 55.8
DZ Bank 90 --- 1.5% 56.6
First Trust Advisors --- 448 2.0% 55.2
Fortis --- --- 1.5% 56.0
FTN Financial --- --- --- 55.0
Goldman, Sachs & Co. --- --- 1.5% 55.5
Helaba --- 450 1.6% 55.0
High Frequency Economics 100 460 2.9% 57.0
HSBC Markets 100 460 1.7% 56.0
IDEAglobal 100 445 0.8% 57.0
IHS Global Insight --- --- --- 55.0
Informa Global Markets 65 455 1.7% 54.0
ING Financial Markets 75 450 1.8% 55.5
Insight Economics 100 --- 1.5% 56.0
Intesa-SanPaulo --- --- --- 55.8
J.P. Morgan Chase --- 445 2.0% 54.0
Janney Montgomery Scott 70 --- 2.1% 55.0
Jefferies & Co. 50 470 1.5% 57.0
Johnson Illington Advisors --- --- --- 56.0
Landesbank Berlin --- 440 2.0% 55.5
Landesbank BW 70 --- 1.5% 56.0
Maria Fiorini Ramirez --- 450 2.5% 56.0
MF Global --- 455 2.0% 54.5
MFC Global Investment --- 450 2.0% 56.0
Mizuho Securities 50 460 1.5% 55.0
Moody’s Economy.com 150 455 1.5% 56.5
Morgan Keegan & Co. --- --- 2.5% ---
National Bank Financial --- --- --- 56.5
Natixis 60 --- --- 55.9
Nomura Securities Intl. 160 --- 1.3% 57.0
Nord/LB 50 450 0.6% 55.5
Pierpont Securities LLC --- 460 2.5% 55.7
PineBridge Investments --- --- 2.5% 57.0
PNC Bank --- --- 1.8% 54.5
Prestige Economics --- --- --- 55.5
Raiffeisen Zentralbank --- --- 1.0% ---
Raymond James --- 445 1.4% 56.0
Ried, Thunberg & Co. --- 455 2.0% 57.0
Scotia Capital 60 460 1.1% 55.4
Societe Generale --- --- --- 55.5
Standard Chartered 35 --- 1.0% 55.0
State Street Global Markets 74 456 1.9% 55.9
Stone & McCarthy Research --- 475 1.5% 54.2
TD Securities 70 450 1.6% 55.0
Thomson Reuters/IFR 85 455 1.9% 55.3
UBS --- 455 1.7% 55.0
UniCredit Research --- 445 --- 55.5
University of Maryland 50 450 1.6% 56.0
Wells Fargo & Co. --- --- 1.9% 55.4
WestLB AG 55 --- 1.1% 55.8
Westpac Banking Co. 35 460 2.5% 55.0
Woodley Park Research --- --- 1.9% 55.0
Wrightson Associates 125 455 2.0% 56.0
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