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Service sector declines less than expected

February 05, 2009|Associated Press

WASHINGTON — The nation's service sector shrank for the fourth straight month in January, a trade group said Wednesday, but at a slower pace than in the previous month.

The Institute for Supply Management, a trade association of purchasing executives, said its service sector index rose to 42.9 last month from December's downwardly revised reading of 40.1.

That January reading was above analysts' expectations of 39, according to a survey by Thomson Reuters. Any reading above 50 signals growth, while a reading below 50 indicates contraction.

The ISM's service sector index is based on a survey of member firms in 18 industries such as hotels and travel, retail, healthcare and mining.

Although the report indicates that the economy's decline may be moderating, it does not necessarily signal a turnaround, economists said.

"There is no reason at all to expect any sustained improvement in sentiment anywhere in the economy at this point," Ian Shepherdson, chief economist at High Frequency Economics, wrote in a research note.

The report said new orders and production declined, but also at a slower pace than in the previous two months.

Only two service industries in the ISM survey reported growth in January -- healthcare and social assistance, and finance and insurance -- despite recent troubles in the banking industry.

The 16 industries that reported declining activity include mining, retail trade, accommodation and food services, transportation and warehousing, and real estate, rental and leasing.

The survey's employment index also continued to weaken, dropping to 34.4 in January from 34.5 the previous month. Only one industry -- transportation and warehousing -- reported an increase in hiring, while the rest reported a drop or no change.

Some respondents said they had instituted hiring freezes because of the slowing economy, the ISM said.

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