Details on the service sector contraction (ISM non-manufacturing index drops)

The ISM Non-Manufacturing Business Activity Index measures the services part of the U.S. economy; this sector is important because our manufacturing base has been eroding.  Today the index for January 2008 was released early due to a possible breach of information.  It seems that the release of this number is waking CNBC and others up to the reality of the recession.

The index is down significantly for January (41.9% versus 54.4 % in prior month).  Here’s a look at the detail behind the number.  [Spoiler:  the only industries reporting increased business activity in January 2008 were Utilities and Educational Services.] →

“This is the first contraction in the non-manufacturing sector since March 2003, when the index registered 46.3 percent, and the lowest Business Activity Index since registering 40 percent in October 2001. Two industries reported increased business activity, and 14 industries reported decreased activity for the month of January. Two industries reported no change from December. Comments from respondents include: “Pervasive economic weakness”; “Less customer demand, stiffer competition”; and “Fewer job orders, fewer inquiries about our capabilities.”  The industries reporting growth of business activity in January are: Utilities and Educational Services. The industries reporting decreased business activity in January are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Health Care & Social Assistance; Transportation & Warehousing; Real Estate, Rental & Leasing; Management of Companies and Support Services; Construction; Wholesale Trade; Finance & Insurance; Information; Retail Trade; Public Administration and Professional, Scientific & Technical Services.”

Business Activity %
Higher
%
Same
%
Lower
Index
January 2008 18 40 42 41.9
December 2007 24 54 22 54.4
November 2007 29 51 20 54.6
October 2007 29 51 20 55.5

Here are the underlying details on the “New Orders” and “Employment” indices — also for the services sector:

“ISM’s Non-Manufacturing New Orders Index contracted to 43.5 percent in January, a significant reduction of 10.4 percentage points from the seasonally adjusted 53.9 percent registered in December. This is the first contraction of non-manufacturing new orders since March 2003 when the index registered 49.9 percent, and the lowest new orders index since it registered 40 percent in October 2001. Comments from respondents include: “Sluggish sales”; “Not as many opportunities”; and “Economic uncertainty.”

Industries reporting growth of new orders in January are: Utilities; Professional, Scientific & Technical Services; Educational Services; and Health Care & Social Assistance. The industries reporting contraction of new orders in January are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Construction; Information; Finance & Insurance; Retail Trade; Accommodation & Food Services; Management of Companies & Support Services; Wholesale Trade; and Public Administration.”

New Orders %
Higher
%
Same
%
Lower
Index
January 2008 18 46 36 43.5
December 2007 25 50 25 53.9
November 2007 20 63 17 52.0
October 2007 27 54 19 55.4
Employment

Employment activity in the non-manufacturing sector decreased in January for the first time in five months. ISM’s Non-Manufacturing Employment Index for January registered 43.9 percent, a 7.9 percentage point decrease from the seasonally adjusted 51.8 percent reported in December. One industry reported increased employment, 12 industries reported a decrease, and 5 industries indicated employment is unchanged from December. Comments from respondents include: “Did not replace some positions”; “Reduced headcounts with hiring freezes in place”; and “Layoffs.”

The only industry reporting growth in employment in January is Transportation & Warehousing. “

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