ISM Services Index plunges in January, fanning recession fears

Posted Feb 5th 2008 10:36AM by Joseph Lazzaro
Filed under: Bad News, Economic Data, Recession

The non-manufacturing component, or the service sector, of the U.S. economy contracted substantially in January 2008, fanning fears that the nation's economic slowdown is worsening.

The Institute of Supply Management's non-manufacturing index, which measures about 90% of economic activity, plunged to 41.9% in January 2008 from 54.4% in December 2007 -- its lowest reading since October 2001, the ISI announced Tuesday, in a statement.

Analysts had expected the index to fall to 53%. Readings below 50% indicate most companies are cutting back, or experiencing less business. Moreover, a sub-50% reading usually indicates the U.S. economy is contracting.

An unexpected drop

Economist Glen Langan told BloggingStocks Tuesday the substantial drop is not good news for the U.S. economy.

"This is a major decline, a large and unexpected drop. We'll await further data on economic conditions, but today's ISI data suggests this economy is contracting more than we thought. It's not good news for business activity," Langan said. "Businesses, retailers, wholesales ... everyone is now feeling the effects of the slowdown, not just the housing sector."

Langan said the U.S. economy "appears to experiencing the wrath of several pull-backs in spending at once."

"Housing, consumer spending, services, a lack of job creation...these are all taking money out of the economy. The only bright spots now are business investment and durable goods orders," Langan said. "The fiscal stimulus package can't get here soon enough."

Langan added that he expects the U.S. economy to register negative growth in Q1 and Q2 2008, most likely -0.5% to -1.5% each quarter.

Tags: featured, GDP, Institute of Supply Management, ISM, U..S. economy