fundamental alert

US Service Sector Offers No Reprieve From Oncoming Recession

Wednesday, 05 November 2008 14:00:05 GMT  |  John Kicklighter, Currency Strategist

There are few areas of the US economy that are offering any hope of a rebound from the confirmed slump that has befallen activity over the second half of this year. What's more, those sectors that have the greatest influence over the economy seem to have only just begun to turn lower. The most concerning shifts in activity for the US economy are the paths of both consumer spendning and service sector activity - the two largest components of growth. Today, the Institute of Supply Managers released its October measure of non-manufacturing (service sector) activity report. Following in the footsteps of its manufacturing counterpart, the service gauge dropped back below the expansionary level (50.0) and was subsequently pulled down to a record low (records go back to 1997). Looking into the details of the report, a quick rebound for the sector looks unlikely. Business activity, new orders and backlogs all plunged down to readings near 44 - lows in their own right. At the same time, new export orders stagnated and employment tumbled to its own recent record low of 41.5. Perhaps the only surprising element of this release was the sharp drop in prices paid (from 70 to 53.4), which may encourage discount prices that will meet the shrinking income seen from consumers' perspective. This will be a longer-term factor, however, and for now the data is certainly discouraging for US growth.

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