NAPM: Downturn Damages Services Sector - By Daniel Sternoff
NEW YORK (Reuters) - Broad swathes of the U.S. economy, which have so far dodged a
recession in the manufacturing sector, are now contracting, according to a barometer of
service sector activity released on Thursday.
The National Association of Purchasing Management (NAPM) said its
monthly non-manufacturing index tumbled to 47.1 in April -- the lowest
reading in the survey's four-year history -- from 50.3 in March.
A number below 50 points to an overall contraction of activity across a
range of sectors such as transportation, real estate, banking, legal and
health services, business services, entertainment, wholesale trade and
banking. A reading above 50 denotes expansion.
``It clearly suggests that the nature of the slowdown has changed,'' said Ian
Shepherdson, chief U.S. economist at High Frequency Economics.
``The initial hit was concentrated in the industrial sector, where the rate of
fall of output may now be slowing, but it has since spread into the service
sector too. This is what scared the Fed into the last rate cut,'' he said.
The Federal Reserve has aggressively reduced short-term borrowing costs by a full two percentage points this year to revive a sluggish economy, including a surprise cut in rates on April 18 between its regular policy meetings.
The downturn in the services gauge came two days after the NAPM reported manufacturing activity -- one-fifth of the economy -- shrank for a ninth straight month, but showed reassuring signs that sector was clawing back from recession.
Economists polled by Reuters had expected the April non-manufacturing index to post a 50.3 reading.
In a dark sign for the broader economy, the non-manufacturing employment index tumbled to 46.7 in April from 49.4 in March, the second straight month the survey has suggested job losses in the service sector.
``The expectation would be that we will probably see more employment reductions in the next month or two at least in the non-manufacturing sector,'' said Ralph Kauffman, chair of NAPM's non-manufacturing business survey committee.
The U.S. government on Friday releases its key employment report for April.
Suggesting further weakness in the pipeline, the NAPM new orders component fell to 45.9 from 52.2 in March, while the prices paid component, a gauge of inflation pressures, remained flat at 59.5 in April.
The report said the industries experiencing the sharpest decrease in activity were finance and banking, real estate,
communications, wholesale trade and business services.
Sectors experiencing the highest rate of growth included transportation, mining, utilities, construction and insurance.
U.S. Treasuries, already underpinned by an earlier report showing a sharp jump in the number of those filing for unemployment benefits, extended a rally after the NAPM report, while stock markets sagged.
Some economists cautioned against drawing firm conclusions about the index's dip below the key 50 threshold, noting that the gauge has only a short track record and that purchasing managers included in the survey are less influential in the services sector than in manufacturing.
``It fell below the break-even threshold for the first time in its history, but because it does have such a short history, it is kind of hard to know what that means,'' said David Greenlaw, senior economist at Morgan Stanley.
But Greenlaw said the report suggested the economy was ''clearly not out of the woods yet'' following news of a pickup in first quarter economic growth to a 2.0 percent annualized rate, from a 1.0 percent pace in the fourth quarter last year.
The NAPM non-manufacturing report is compiled from monthly replies to questions asked of more than 370 purchasing executives in over 62 different industries, and is weighted according to each industry's share of the overall economy. |
