From Deborah Lynn Blumberg:
Service-Sector Activity Contracts, Fueling Concerns About Recession: NEW YORK -- Service sector activity contracted sharply in January for the first time since March 2003, with the surprise drop further fueling fears about a slowing U.S. economy. On Tuesday, the Institute for Supply Management reported that its January non-manufacturing index slid to a reading of 41.9, from December's revised figure of 54.4. The data were released early Tuesday morning, at 8:55 a.m. EST compared to the usual 10 a.m. EST, due to a possible breach of information on Monday, ISM said.
Readings over 50 indicate growth, and forecasters had expected the overall index to have hit 52.5 in January. The figures reflect a new composite index for the nonmanufacturing sector, following a revision in the formula in 2008 that more closely predicts the gross domestic product for the past several years. ISM also developed a similar composite index for the manufacturing sector.
The survey results are "downright disastrous. These are recessionary readings," said Stephen Stanley of RBS Greenwich Capital. "The tea leaves are quickly accumulating. Payroll employment has flattened. The Christmas retail season was weak. Consumer spending seems to have weakened further in January, as auto sales fell noticeably and chain store reports seem to have been quite soft. And of course the housing sector is a mess."
"Growth has been slowing," Anthony Nieves, chairman of the Institute for Supply Management non-manufacturing business survey committee and senior vice president of supply management for Hilton Hotels Corp., said about January's weak figures. The low figure "is surprising to me looking at the past data," he said. "Did I anticipate this? Absolutely not. You have to see how this trends out though before anyone gets too excited."... Data showed a sharp drop in the employment and new orders indexes, with employment index for January coming in at 43.9, the lowest since February 2002, from December's 51.8. The new orders index stood at 43.5, the lowest since October 2001. It was at 53.9 in December.
The figures are yet another piece of evidence that adds to growing anxieties that the U.S. is in or is headed toward a recession, as weakness in the housing market takes it toll on the broader economy. The report's sharp fall in employment corroborates last week's especially weak January jobs report, and keeps investors' hopes for further interest rate cuts alive and well.