SERVICES SECTOR CONTRACTED IN JANUARY

The Institute of Supply Management index of activity outside the manufacturing sector (essentially a survey of the service sector) contracted in January for the first time since March of 2003. This is being perceived as a negative sign for the economy and may signal that the United States is already in a recession. Wall Street did not look favorably on the report as the Dow Jones Industrial Average fell 370 points, losing 2.9% of its total value.

From USA Today:

The Institute for Supply Management said its index of activity outside the manufacturing sector fell to 41.9% in January from 54.4% in December.

The drop was the biggest plunge in the 10½-year history of the index and pointed to the first decline in service-sector activity since March 2003. Numbers below 50 suggest contraction; those above suggest expansion. New orders and employment plummeted.

The service sector accounts for nearly 90% of U.S. economic activity.

The service-sector data were the latest in a series of downbeat numbers. Friday, the government said employers cut jobs in January for the first time in 4½ years, while on Monday the Federal Reserve said banks had tightened lending standards. Tuesday, the International Council of Shopping Centers said sales at retail chain stores in January likely were the worst for the month since records began nearly 40 years ago.

The numbers have some economists, even the relative optimists, saying the chances of a U.S. recession have risen.