ISM: Service sector shrinks for 6th straight month

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The Associated Press
Friday, April 3, 2009; 11:40 AM

NEW YORK -- A private trade group's measure of the strength of the services sector shrank for the sixth straight month in March, and at a faster pace than expected, as job losses mount.

A services index from the Institute for Supply Management, a Tempe, Ariz.-based trade group of purchasing executives, fell to 40.8 last month from 41.6 in February. Economists surveyed by Thomson Reuters expected the index to edge up to 42.

Any reading below 50 indicates contraction.

"We haven't stopped free-falling," said Joel Naroff, president of Naroff Economic Advisors.

The report is based on a survey of the institute's members in 18 industries. It covers such indicators as new orders, employment and inventories. About three-quarters of Americans work in service-providing industries such as hotels, retail, education and health care.

Businesses' new orders, which presage any recovery in hiring and production, fell to 38.8 from 40.7 in February.

Employment shrank for the 14th time in 15 months, dropping to 32.3 from 37.3 in February.

The Labor Department on Friday reported that employers eliminated a net total of 663,000 jobs last month as the national unemployment rate jumped to 8.5 percent _ the highest level in more than a quarter-century. Retailers eliminated nearly 50,000 jobs, professional and business services axed 133,000, and leisure and hospitality reduced employment by 40,000.

"The labor market continues to be the Achilles Heel of domestic economic activity," said John Ryding, chief economist at RDQ Economics.

Naroff said that even when demand for goods and services recovers, firms will expand their output through overtime and temporary workers before hiring more people.

Analysts had expected the services index to rise slightly following recent modest improvements in home and car sales, and a related measure of the manufacturing sector.

The ISM on Wednesday said its manufacturing index rose to 36.3 in March from 35.8 in February. The reading beat expectations, but that sector has shrunk for 14 straight months.

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