A private measure of the services sector shrank in February for the fifth straight month as layoffs mounted, the recession deepened and the outlook for any recovery this year grew darker.
The Institute for Supply Management, a Tempe, Arizona-based trade group of purchasing executives, said Wednesday that its services index fell to 41.6 last month from 42.9 in January. The February reading was slightly above economists' expectations.
But any reading above 50 signals growth, while a reading below 50 indicates contraction. The index has fallen steadily since August as the economy deteriorated.
About three-quarters of Americans work in service-providing industries, such as hotels, retail, education, health care and financial institutions.
The ISM report is based on a survey of the group's members in 18 industries. It covers such indicators as new orders, employment, inventories and backlogs.
Members responding to the survey "are concerned about the soft market conditions, the negative outlook for employment and the overall state of the economy," said the report issued by Anthony Nieves, chairman of the ISM's non-manufacturing business survey committee, who is senior vice president for supply management at Hilton Hotels Corp.
Only one industry — arts, entertainment and recreation — reported growth in February, according to the survey. Fourteen others registered contraction.
The recession, now in its second year, is inflicting more damage on the U.S. economy daily as companies cut production and thousands of jobs. With jobs vanishing, savings eroding and home values tanking, consumers have reined in their spending. That has forced companies to lay off more workers in a vicious cycle of negative forces that deepen the recession.
President Barack Obama's recently enacted $787 billion stimulus package of boosted federal spending and tax cuts is designed to revive limp consumer spending and boost factory production to help the economy recover. But Federal Reserve Chairman Ben Bernanke told Congress Tuesday that the impact of the stimulus package is subject to "considerable uncertainty, reflecting both the state of economic knowledge and the unusual economic circumstances that we face."
Only the transportation and warehousing industry in January's index reported increased hiring. Last month, two service industries — real estate, rental and leasing, and utilities — reported increased hiring.
In January, the financial industry was one of only two service sectors that reported growth, along with health care. But so far this year, financial companies have reported multibillion-dollar losses, sliced or suspended their dividends, announced thousands of planned job cuts and required fresh rounds of aid under the federal rescue program pumping in hundreds of billions of dollars.
The latest example came last week, when JPMorgan Chase & Co. said it would eliminate about 12,000 jobs as it absorbs the operations of failed thrift Washington Mutual Inc. The figure includes 9,200 cuts announced previously and 2,800 jobs expected to be lost through attrition.
The disaster gripping the financial industry has prompted talk of the government possibly nationalizing some banks.
The Obama administration has insisted it wants to keep the banking sector private, even as its latest bailout for Citigroup Inc. could leave it with as much as a 36 percent equity stake in the banking giant. On Monday, the Treasury Department and the Fed threw a new $30 billion lifeline to American International Group Inc. — the government's fourth effort since September to stabilize the ailing insurance giant.
The ISM on Monday said its companion manufacturing index rose to 35.8 last month from 35.6 in January. Analysts had expected the index to drop. Still, any reading below 50 indicates contraction, and the manufacturing sector has shrunk for 13 consecutive months.