The U.S. services sector retrenched sharply in
January to levels not seen since the 2001 recession, renewing fears
about an economic slump, according to a survey released.
NEW YORK (Reuters) - The U.S. services sector retrenched sharply in
January to levels not seen since the 2001 recession, renewing fears
about an economic slump, according to a survey released on Tuesday.
The Institute for Supply Management's index of non-manufacturing
plummeted to 41.9 from 54.4 in December, its largest monthly decline on
record and a far greater drop than Wall Street expected. A Reuters poll
of economists had produced a median expectation of a slip to 53.0
"The recession has indeed arrived," said Jane Caron, chief economic
strategist at Dwight Asset Management in Burlington, Vermont.
A reading below 50 indicates contraction, and bond prices jumped as
the figures reinforced investors' conviction that the U.S. economy is
already in recession. Stocks sold off.
The employment index fell to 43.9 from 51.8, corroborating last
week's dire U.S. payrolls report, which showed the first net monthly
contraction in the labor market in more than four years.
Weakness was evident across the board. A measure of new orders fell to 43.5 from 53.9.
"It's another recession marker on the radar screen," said Cary Leahy, economist at Decision Economics in New York.
Analysts said the gloom surrounding the services report justified
the Federal Reserve's recent steep interest rate cuts. The Fed slashed
rates by 1.25 percentage points in the past two weeks, a rare strong
dose of stimulus over such a short period.
A downturn that began in the U.S. housing sector about two years ago
has spread to banks, which made many loans to sketchy borrowers and are
now grappling with rising mortgage defaults.
Lately, it is the consumer that appears to be throwing in the towel.
Still, weekly chain store sales did paint a mixed picture in the latest
week, with Redbook Research reporting a 0.4 percent decline, but the
International Council of Shopping Centers registering a 1.7 percent
rebound.
(Editing by James Dalgleish)
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