U.S. Services Sector Contracts Sharply in January

Business activity retreats for the first time in 58 months, according to ISM survey.

The Institute for Supply Management's non-manufacturing index went in an ugly direction in January, according to data released Feb. 5 in the organization's monthly Non-manufacturing Report on Business. Non-manufacturing business activity contracted to 41.9%, compared with 54.4% in December; new orders dropped to 43.5% from 53.9% in the previous month; and employment retreated to 43.9% from 51.8%. Index readings below 50% indicate that the non-manufacturing sector is generally declining, while readings above 50% indicate a generally expanding economy.

"Non-manufacturing business activity contracted for the first time since March 2003," said Anthony Nieves, chair of the ISM's Non-Manufacturing Business Survey Committee and senior vice president, supply management for Hilton Hotels Corp. He pointed out that the new orders index reached its lowest point since October 2001, while the employment index was at its lowest since February 2002.

Nieves said, "Members' comments in January indicate that weakness in the economy coupled with increased costs have negatively affected their business. Members have also indicated that they are experiencing inflationary pressures. The overall indication in January is that non-manufacturing has come to the end of a long-term period of growth and has contracted for the month of January."

The Non-manufacturing ISM Report on Business is based on data compiled from U.S. purchasing and supply executives.

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