Washington, April 4 (Bloomberg) -- Non-factory business in the U.S. stalledin March and employment contracted, indicating the slowdown at assemblyplants and mills is reaching other parts of the economy, an industry surveyshowed. The National Association of Purchasing Management's non- manufacturingindex fell to 50.3 last month from 51.7 in February. The index sank to 50.1 inJanuary, the lowest since records started in July 1997 and just above 50, thethreshold between growth and decline. The responses by purchasing executives ``raise all sorts of warning flags,''said Steven A. Wood, chief economist at FinancialOxygen in Walnut Creek,California. The index provides evidence that the Labor Department's Marchemployment report on Friday will show a slower pace of job growth, he said. Wood and other analysts nonetheless caution that the NAPM survey in arange of enterprises covers too few years to be fully reliable. That helpsexplain why stocks rose as investors bet the U.S. slowdown isn't worsening. The Nasdaq Composite Index rose 21 points, or 1.2 percent, after fallingmore than 6 percent yesterday to its lowest close since Oct. 20, 1998. TheDow Jones Industrial Average rose 100 points, or 1.1 percent. The Treasury's10-year note fell 1/4 point, pushing up its yield 4 basis points to 4.96percent.
Employment Index Falls
The employment index in today's NAPM report fell to 49.4 last month from50.3 a month earlier. It was the first time the jobs measure fell below 50,which indicates contraction. Analysts surveyed by Bloomberg News expectU.S. companies added 60,000 jobs in March, less than half the numbercreated in February. Internet, software and other digital technology companies have beeneliminating jobs. Viant Corp., which provides Internet consulting services,last week said it expects revenue of $14 million to $16 million in the firstquarter, about half as much as a year ago. It cut 211 jobs, said it wouldclose three offices, and expects to lose more money than previouslythought. Federal Reserve policy makers will probably lower interest rates for a fourthtime this year, possibly before their next meeting on May 15. Centralbankers reduced their benchmark interest rate three times since Jan. 3 tohelp preserve the record 10-year expansion. The overnight bank-lending rateis now 5 percent, the lowest since June 1999. For the first quarter of this year, the overall NAPM non- manufacturing indexaveraged 50.7, the lowest on record. The previous low was 55.6 in the fourthquarter of 1998.
New Orders Rise
There were positive signs in the report: The index of new orders rose to 52.2in March from 51.3 in February. The group's prices-paid index, a measure ofcosts for purchased materials and services, fell to 59.5 in March from 60.5 inFebruary. Still, the index measuring new export orders dropped to 49.5 in March from53.5 in February. And while the survey showed inventories decreased for a fifth consecutivemonth, a rising number of purchasing executives said inventories were toohigh. That measure, the inventory sentiment index, rose to 69 in March from65 in February. Worry about excess inventories may lead to fewer orders tosuppliers. Home building and consumer spending have helped sustain the expansion,even as manufacturing cooled. Construction spending rose in February for the fourth straight month, led bythe biggest gain for single-family houses in more than a year, thegovernment said on Monday. Beazer Homes USA Inc., which builds houses in 13 states, said today itexpects earnings in the quarter that ended in March to exceed analysts'expectations. Lennar Corp., the largest U.S. builder, said yesterday itreceived orders for 2,872 homes in March, up 9 percent from a year earlier. Retailers are voicing caution. A slowing economy will probably cause profitto rise less than forecast at Best Buy Co. Inc., the biggest U.S. retailer ofelectronic goods, in the first quarter of this year, the company saidyesterday. Profits rose 16 percent in the fourth quarter, which ended March3, more than expected. The non-manufacturing survey is a companion report to the purchasingmanagers' factory index, which has shown manufacturing in decline for eightmonths. Today's report gathers data from about 350 executives in more than60 kinds of enterprises including utilities, law firms, hospitals, andgovernment. Four of the report's 10 components -- business activity, new orders,employment and imports are adjusted to account for seasonal fluctuations inbusiness. The other components are unadjusted.