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Service sector shrinks in November

The U.S. service sector contracted dramatically in November as slower spending hurt insurers, retailers and hotels.
/ Source: The Associated Press

The U.S. service sector contracted dramatically in November, as employment, new orders and prices fell precipitously, hurting retailers, hotels and other industries.

The Institute for Supply Management, a trade group of purchasing executives, said Wednesday that its services sector index fell to 37.3 in November from 44.4 in October. It was far below the reading of 42 expected by Wall Street economists surveyed by Thomson Reuters.

A reading below 50 signals contraction, while a reading above 50 indicates growth.

Readings for new orders, employment and prices all hit the lowest levels on records dating back to 1997. Of 18 industries in the survey, including warehousing, real estate, restaurants and wholesale trade, only one — health care and social assistance — reported growth.

The report, based on a survey of the institute's members, covers indicators including deliveries, inventories and backlogs. Its sister manufacturing report on Monday showed the worst reading since May 1982, when the country was near the end of a 16-month recession.

The recession has hit lodging companies and retailers especially hard as consumers have cut spending. Retailers have been frantically marking down holiday merchandise since the shopping season officially began Friday.

Bookseller Borders Group Inc. reported a wider-than-expected third-quarter loss last week and said it was no longer for sale after a year of looking for a buyer, while Target Corp. said last month that its third-quarter earnings fell by 24 percent from the year-ago period.

As for hotels, Friedman, Billings, Ramsey analyst C. Patrick Scholes said in a client note last month that he expected fourth-quarter revenue per available room to be worse than expected, and predicted that companies such as Marriott International Inc., Host Hotels & Resorts Inc. and LaSalle Hotel Properties may miss their quarterly earnings outlooks. Revenue per available room, also known as revpar, is a key gauge of a lodging company's performance.

Airlines have also been affected by the slowdown. Delta Air Lines Inc. said Tuesday it will reduce its capacity by 6 percent to 8 percent in 2009.