/www.bloomberg.com/ By Carlos Torres, Monee Fields-White and Siobhan Hughes
Washington, Oct. 3 (Bloomberg) -- Growth in service industries such as banking and retailing, the biggest part of the U.S. economy, accelerated in September, an industry survey showed. Rising claims for unemployment benefits suggested the recovery remains weak.
The Institute for Supply Management's non-manufacturing index rose to 53.9 last month from 50.9 in August and has been above 50, signaling expansion, since February. The Labor Department said benefit claims rose, marking the sixth week they've been above a level that signals a stagnant job market.
The rise in the services index, the largest since June, ``is an indication that the bulk of the economy is accelerating,'' said Chris Low, chief economist at FTN Financial, an arm of First Tennessee Bank, in New York. ``Though we know the recovery has lost some momentum, it is still alive.''
Rising incomes and low interest rates are giving consumers the means to buy houses and automobiles even as growth slows in other industries. That may keep the economy, which grew at a 1.3 percent pace in the second quarter, from slowing further.
At the same time, consumers are turning more to discount retailers and warehouse clubs as the economy weakens. Same-store sales in August at Big Lots Inc. were up 12.7 percent and at Costco Wholesale Corp., 6 percent. At specialty retailers such as Limited Inc., August same-store sales rose 1 percent and Nordstrom Inc., 0.2 percent. Discount and warehouse chains account for 76 percent of all U.S. retail chain sales, according to the International Mass Retail Association's Economic Trends report, which is based on Commerce Department figures.
Stocks Fall
The Standard and Poor's Index of 500 stocks fell 9 points, or 1.1 percent, to close at 818.95. The Dow Jones Industrial Average fell 38 points, or 0.5 percent, to close at 7717.19. The Treasury's 4 3/8 percent note that matures in August 2012 fell 1/8 point, pushing up its yield 2 basis points to 3.68 percent. A basis point is 0.01 percentage points.
Economists expected the service index to rise to 51.5, based on the median of 40 forecasts in a Bloomberg News survey. Service companies, construction concerns and other non-manufacturing businesses account for about five-sixths of the economy.
The report is based on a survey of 370 purchasing managers in more than 62 service industries. The Tempe, Arizona-based institute's manufacturing survey earlier this week showed that factories contracted last month for the first time since January, reflecting a slowdown in production and declining employment. The factory index fell to 49.5 from 50.5.
New Orders Index
The institute's new orders index for non-manufacturing companies rose to 52.3 last month from 51.6 in August. Order backlogs climbed to 51 from 48. The employment index decreased to 46.6 from 47.3.
States received 417,000 applications for jobless benefits in the week that ended Saturday, up from 412,000 the week before, the Labor Department said. It was the sixth straight reading above 400,000, a level that economists associate with a weak job market.
``This recovery has not lived up to expectations, and earnings remain under pressure, so business planners must trim expenses, and that includes layoffs,'' said William Sullivan, an economist at Morgan Stanley in Jersey City, New Jersey. ``There has been a steady deterioration in the labor market.''
Economists had expected claims to rise to 410,000 last week from the previously reported 406,000 for the prior week, based on the median of 31 forecasts in a Bloomberg News survey. The four- week moving average of claims, a less-volatile indicator, rose to 423,000, a five-month high, from 420,500.
Factory Orders
Factory orders excluding aircraft and other transportation equipment dropped 0.1 percent following a 1.2 percent rise in July, the Commerce Department said. The value of all factory orders totaled $326.633 billion in August compared with $326.636 billion in the prior month.
So far this year, factory orders are 2.3 percent lower than in the same eight months of 2001. Economists had expected August orders to fall 0.3 percent, based on the median of 58 forecasts in a Bloomberg News survey.
Orders for non-defense capital goods excluding aircraft rose 0.5 percent in August after surging 6.7 percent the previous month. Commercial aircraft orders jumped 47.5 percent in August. Computer orders fell 4.4 percent, while demand decreased 1.7 percent for motor vehicles.
Boeing Co., the world's biggest airplane maker, said it received 13 aircraft orders in August, up from two the previous month. A rise in bookings from overseas customers accounted for all of the gain.
The economy probably expanded at a 3.5 percent annual pace in the third quarter, up from 1.3 percent in the previous three months, based on the median of 53 estimates in a survey of economists by Bloomberg News from Sept. 18 to Sept. 26. For all of 2002, the economy probably will expand 2.5 percent, compared with 0.3 percent last year.