Service sector picks up, jobs still a worry (Reuters)

By Steven C. Johnson Steven C. Johnson – 54?mins?ago

NEW YORK (Reuters) – The dominant services sector picked up steam unexpectedly last month, snapping a three-month streak of slower growth, though the pace of hiring eased slightly, underscoring broader job market concerns.

The surprise jump in the Institute for Supply Management's non-manufacturing index was cause for some encouragement, analysts said, as it suggested consumers were holding up better than thought in what appears to be a stalling U.S. economy.

Yet it probably will not be enough to relieve pressure on President Barack Obama to spur more job creation. Obama is due to detail a new jobs plan in a national speech on Thursday.

Last week, government data showed the economy added no new jobs in August, leaving the jobless rate at or above 9 percent for a fifth consecutive month.

"The unexpected rebound (in the ISM report) will help to ease recession fears following last week's news that payroll employment stagnated," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

But he said the ISM reading of 53.3 in August, while up from July's 17-month low of 52.7, "is consistent with only muted economic growth of about 1.5 percent."

Economists polled by Reuters had expected a 51.0 reading. A reading above 50 indicates expansion.

While new orders rose, suggesting continued demand, the employment index slipped to 51.6, its lowest since September 2010, underscoring the difficulties facing the roughly 14 million Americans who are out of work.

Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said the ISM employment reading indicates payroll growth "of only about 50,000," well below what would be needed to make a dent in the jobless rate.

He also warned that the report is "little more than a lagging indicator of the rate of growth of core retail sales, which have held up well in recent months."

"There are signs that the economy continues to be under stress," Lockheed Martin Corp Chief Executive Robert Stevens said on Tuesday.

Speaking at the Reuters Aerospace and Defense Summit in Washington, Stevens cited high U.S. unemployment and weak economic growth. But he added, "It's not clear to me whether that conveys a sense of a double-dip recession."

ALL ABOUT JOBS

The poor U.S. jobs outlook, along with a prolonged debt crisis in Europe, helped spark a stock market sell-off last month that has battered business and consumer confidence.

That has increased pressure on the Obama administration, particularly with the 2012 election just over a year off.

"Jobs growth is far below the level needed to bring the unemployment rate lower on a sustained basis," said Michael Woolfolk, currency strategist at BNY Mellon in New York.

Political clashes over the U.S. budget and debt burden, which led Standard & Poor's to strip the country of its AAA credit rating, also unnerved investors and consumers alike.

Stocks pared some losses Tuesday after the better-than-expected report but were still down more than 1.5 percent, while buying of safe-haven U.S. government debt faded slightly.

EUROPE, ASIA STRUGGLE, FED IN FOCUS

Firmer growth in the U.S. service sector was at odds with readings from beyond U.S. borders. Data on Monday showed service sector growth slowed sharply in the euro zone, Britain and China, boosting fears of global recession.

If the United States, the world's largest economy, can keep out of recession, that outlook may improve, analysts said.

Wall Street increasingly expects the Federal Reserve, which already warned it may hold interest rates near zero until 2013, to pour more money into the financial system to boost growth.

"At the margin, (Tuesday's ISM data is) an argument against any further accommodation at this point, but this doesn't necessarily countervail the whole bulk of the other data," said Bill Jordan, economist at Ried Thunberg, a unit of ICAP.

Fed Chairman Ben Bernanke is scheduled to speak in Minnesota on Thursday about the U.S. economic outlook. The Fed's entire policy-setting committee will meet September 20-21.

(Additional reporting by Mike Miller in Washington and Emily Flitter in New York; Editing by James Dalgleish)

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NY airports and subway reopen, limited East Coast service (Reuters)

WASHINGTON (Reuters) – New York-area airports reopened on Monday as U.S. airlines gradually restored more flights to their operations throughout the Northeast that were halted by Hurricane Irene.

New York subways also resumed service, gradually at first, after weekend closure, as did passenger rail Amtrak on the Northeast Corridor between Washington and Philadelphia.

Amtrak service north of Philadelphia was canceled due to flooding, track debris and continued electrical power problems, the railroad said. All Northeast service was shut down on Sunday.

Commuter rail service from Washington to Boston was uneven as most lines struggled to offer full or even partial schedules due to flooding and power outages.

Airlines would need a day to reposition aircraft flown out of the region ahead of the storm, leaving Tuesday as their target for returning normal service to the storm-struck region.

John F Kennedy and LaGuardia in New York and Newark in New Jersey -- biggest U.S. aviation hub with 100 million passengers annually -- were closed on Saturday as the storm bore down on the mid-Atlantic.

The three airports handle about 6,000 flights per day total.

JFK and Newark opened to arrivals at 6 a.m. EDT and will begin handling departures at noon. LaGuardia would open to both arrivals and departures at 7 a.m., the Port Authority of New York and New Jersey said.

Airports in Philadelphia, Washington, and Boston were all open as well.

Airlines began winding down schedules on Friday in advance of Irene. They canceled more than 12,500 flights, including 1,300 on Monday, according to the online tracking service Flightaware.com.

Delta Air Lines include US Airways, American Airlines, United Airlines, and JetBlue Airways were most affected.

Some repositioning flights heading to open airports carried passengers while others were empty. Carriers had to reassemble flight crews and ground staff.

(Reporting by John Crawley; Editing by Derek Caney)

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U.S. Postal Service looks to cut 220,000 jobs (Reuters)

WASHINGTON (Reuters) – The U.S. Postal Service would eliminate about 220,000 full-time jobs and shutter about 300 processing facilities by 2015 under a proposal to bring its finances in order, a postal official said on Friday.

The Postal Service needs to cut payrolls to about 425,000 employees and take over its retirement and health benefits instead of participating in federal programs, Postmaster General Patrick told Reuters.

The mail carrier, which receives no taxpayer funds, has been struggling with falling mail volumes as people communicate increasingly by email and pay bills online.

The agency reported a $3.1 billion net loss in its most recent quarter. It expects to be insolvent next month and default on a $5.5 billion retiree health payment.

Donahoe said the agency hopes to reach a deal with Congress by the end of September to give the mail agency more control over its finances and hiring.

"We know that the (mail) volume will continue to drop off from a First Class standpoint, so we've got to do the responsible thing and get ourselves in order," Donahoe said.

"It's our goal to work with both houses of Congress ... to help craft a bill that would be passable and signed by the president by the end of September."

That timetable will be difficult to achieve with Congress on recess until September 6 and with lawmakers bogged down by partisan wrangling over the budget deficit.

The agency has said it does not have enough authority to manage its finances and infrastructure. Past attempts to end Saturday mail and raise rates beyond inflation have been denied by Congress and the Postal Regulatory Commission.

CLOSING POST OFFICES

The Postal Service announced last month it would study almost 3,700 post offices for closure and said it would replace them with retailers contracted to provide postal services. The plan met with backlash from some lawmakers.

Donahoe said union leaders were "not coming out in favor of" the staff-cut plan. The Postal Service could lay off as many as 120,000 workers by 2015, and not fill another 100,000 expected to open up through staff departures.

But Donahoe said there was interest from legislators in the proposal to take over health and retirement plans, which he said could save $400 million to $500 million annually.

A bill from Republican Representative Darrell Issa would eliminate Saturday delivery and create groups to oversee finances and close post offices. Senator Tom Carper's and Senator Susan Collins's bills would return funds the Postal Service says it has overpaid into federal retirement programs.

"The only other way out of the pre-funding is for someone to give us the money to get out from under it. If that can't occur, we have to put other responsible proposals on the table," Donahoe said.

"This is strictly what we need to do between now and 2015 to get the organization profitable."

(Reporting by Emily Stephenson, editing by Anthony Boadle)

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World growth at risk as service sector slows (Reuters)

LONDON/WASHINGTON (Reuters) – Growth in much of the world's service sector was anemic in July as firms around the world worried about the debt crisis in Europe and the U.S. as a well as slowing consumer demand, business surveys showed on Wednesday.

World stocks tumbled, with the U.S. S&P 500 stock index falling to a new low for the year as worries grew that fiscal cutbacks and stagnating output would prolong a global economic slowdown and aggravate Europe's debt crisis.

The vast U.S. services sector expanded at its weakest pace since February 2010, with an index from the Institute for Supply Management falling to 52.7 in July from 53.3 in June. Employment conditions also weakened, boding poorly for a closely-watched U.S. jobs report on Friday.

A report on private payrolls from ADP on Wednesday showed 114,000 new jobs were created last month, but economists believe the official government figures due Friday will show a gain of only 85,000 in total payrolls following two dismal months.

"The U.S. economy is stagnating," said Greg Salvaggio, senior vice president at Tempus Consulting. "Clearly the job outlook is deteriorating right now."

Published the day after a deal on a U.S. fiscal package, the surveys followed figures on Monday which painted no brighter a picture for the global manufacturing sector.

In Europe, the dominant services industry was also under pressure last month, growing at the slowest pace in nearly two years.

The 17-nation euro zone's services PMI slid to 51.6 as Germany and France, the continent's two largest economies which had propped up the tepid growth, saw their indexes slip closer to the 50 point mark that divides growth from contraction.

ITALY AND SPAIN SLOW

Italy's contraction deepened while Spain slipped into negative territory and both countries faced pressures in financial markets.

Italian service sector activity contracted in July for the second month running and business expectations were the lowest for over two years, while Spain's index fell to 46.5 from 50.2 in June.

"Italy and Spain softening is to be expected due to nerves but it makes the fiscal challenge facing them look even more difficult, particularly if we see the numbers stay around these levels for several months," said Victoria Cadman, economist at Investec.

Markets are squarely targeting Italy, the euro zone's third-largest economy, concerned by its weak growth and political instability. Prime Minister Silvio Berlusconi is due to speak to parliament to try and calm fears that have led the country to the edge of a Greek-style financial crisis. [ID:nL6E7J30LE]

Italy's economy would be too big for the euro zone's existing rescue funds to bail out and the turbulence has caused alarm across the euro zone and beyond.

Despite the slew of weak data from across the euro zone, the European Central Bank raised interest rates by 25 basis points to 1.5 percent last month, the second such increase this year, but is now seen holding steady until the fourth quarter.

The ECB aims to keep inflation, which was at 2.5 percent last month, just below 2.0 percent. The composite output price index eased to a six-month low of 53.0 from June's 53.9, suggesting firms were holding back on price rises.

"Disappointing economic data on both sides of the Atlantic, as well as surging Italian and Spanish bond yields, has seen risk appetite plummet as pessimism about the global recovery starts to take hold with a vengeance," CMC Markets analyst Michael Hewson said.

Britain surprised markets with its service sector growing at a four month high on strong growth in new business.

CHINA BRAKES

China's fledgling services sector grew in July at its slowest in three months as new orders ebbed, in the latest sign that tight monetary policy is reining in the world's second-biggest economy.

"Service sector activity growth moderated in July, reflecting the effect of monetary tightening and property cooling measures," said Qu Hongbin, an economist at HSBC.

Beijing has raised interest rates five times since October and lifted the deposit reserve requirement ratio nine times but in India, where the central bank has also tightened policy, service sector growth was at a three-month high.

(Editing by Clive McKeef)

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