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ISM Report Sinks the Markets

Written By Brian Hicks

Posted February 5, 2008




Fresh off of yesterday’s slump, investors got another round of bad news this morning.

The Institute for Supply Management shook the markets today when it said its January index of the service sector had dropped below 50, indicating a contraction.

It was the first time the index had come in below the 50 level since March 2003.

"The survey results were downright disastrous," said Stephen Stanley, chief US economist at RBS Greenwich Capital. "These are recessionary readings."

It’s measurement of the service sector, which accounts for about two-thirds of the economy, fell to 41.9 per cent in January from 54.4, posting the biggest ever monthly decline and its lowest level since October 2001.

Economists meanwhile were wrong again. They had been expecting another month of growth instead. Go figure.

From Bloomberg by Michael Patterson entitled: U.S. Stocks Fall After Service Industries Unexpectedly Shrink

"U.S. stocks tumbled the most in three weeks after service industries fell to the lowest levels since 2001, reinforcing speculation the economy has tipped into a recession.

Exxon Mobil Corp., General Electric Co. and AT&T Inc. led declines in New York trading, and all 10 industry groups in the Standard & Poor’s 500 Index retreated, after the Institute for Supply Management’s index unexpectedly contracted in January. Goldman Sachs Group Inc. posted its biggest drop in two months on Oppenheimer & Co. analyst Meredith Whitney’s downgrade of the largest securities firm.

About five stocks fell for every one that rose on the New York Stock Exchange after the ISM’s non-manufacturing index, which reflects almost 90 percent of the economy, slumped to 41.9 from 54.4 the prior month. A reading of 50 is the dividing line between growth and contraction.

“As the recession unfolds, then profits will disappoint,” Stuart Schweitzer, who helps oversee $420 billion as the global markets strategist at JPMorgan Private Bank, said in a Bloomberg Television interview from New York. ‘It’s already under way.’"

Here’s a link to the full report: January 2008 Non-Manufacturing ISM Report on Business

If you haven’t ever looked at one of these reports, it’s well worth your time. The report is as straight forward as it gets, with a ton of interesting insights into each sector.

Unfortunately, however, most of what it measures is contracting rather than expanding.

In fact, what it tells me is that we are probably already in a recession.