Activity in the US services industry contracted in January for the first time in five years, according to a closely-watched survey, adding to gloominess about the economic outlook as businesses suffered from a combination of weak demand and rising costs.
The Institute for Supply Management’s non-manufacturing business activity index, which records the temperature across vast swathes of the US economy, fell from a seasonally adjusted level of 54.4 per cent in December, signalling an expansion, to 41.9 per cent in January, indicating a contraction.
Most economists had predicted that activity in the services industry would slow, but the ISM index would fall only slightly to 53 per cent.
The sharp contraction in services businesses - from financial services to healthcare and lodging – is likely to raise the odds of a US recession in 2008. It also makes it more likely that the Federal Reserve will continue to cut interest rates at its next meeting in March.
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