By Timothy R. Homan Nov. 5 (Bloomberg) -- Service industries in the U.S. contracted in October at the fastest pace on record as a lack of credit and slowing sales caused companies to retrench. The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, dropped to 44.4, the lowest level since records began in 1997, the Tempe, Arizona-based group said today. A reading of 50 is the dividing line between growth and contraction. Other reports showed job losses climbed. Rising unemployment and slumping property values are forcing Americans to cut back on purchases of everything from home electronics to restaurant meals. Spending by consumers and businesses is likely to keep slumping heading into the holiday season as loss-riddled banks make it more difficult to borrow. ``Economic weakness is fairly rampant and when you add credit unavailability to that situation it makes it very challenging,'' Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, said before the report. ``The outlook is fairly bleak.'' Illinois Senator Barack Obama, riding a wave of voter discontent over Republican rule, the direction of the economy and job losses, won the U.S. presidential election yesterday. He is the first Democrat to get a majority of the popular vote since Jimmy Carter in 1976. Economists forecast the ISM index would fall to 47 from a reading of 50.2 in September, according to the median of 69 projections in a Bloomberg News survey. Estimates ranged from 42 to 50.5. Factory Slump A report from the institute earlier this week showed manufacturing in the U.S. shrank in October at the fastest pace in 26 years as companies trimmed orders. Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a report from ADP Employer Services today also showed. Firings spread from automakers, financial and housing-related companies to retailers and other services as the economic slump deepened. Even bigger declines in payrolls are in train. Employers announced 112,884 job cuts last month, up 79 percent from October 2007 and most in almost five years, a report from Chicago-based Challenger, Gray & Christmas Inc. said today. The ISM's employment index dropped to 41.5 from 44.2 in September. The institute's business activity index fell to 44.2 from 52.1, while its new orders gauge decreased to 44 from 50.8. Less Inflation The group's measure of prices paid by non-manufacturing businesses fell to 53.4, the lowest since July 2003. Energy costs in October continued to recede from July's record highs. The average price for a barrel of crude oil last month was $76.72, compared with $103.76 a month earlier. While factories have cut payrolls every month since July 2006, other businesses have joined in reducing employment this year. Service industries cut 82,000 workers from their payrolls in September, the fourth straight monthly decline, the Labor Department said last month. The U.S. probably lost 200,000 jobs in October, bringing the total decline in payrolls so far this year to nearly 1 million, economists surveyed by Bloomberg forecast a Labor Department report Nov. 7 will show. The unemployment rate may jump to its highest level in more than five years, the survey showed. The reduced availability of credit, along with the loss of jobs is likely to hurt spending during the holiday shopping season, the largest source of revenue for most stores. Spending Slump Circuit City Stores Inc., the second-biggest electronics retailer, said this week it will close 155 American stores, reducing the company's workforce by 17 percent in order to conserve cash. ``Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply,'' James Marcum, chief executive officer of the Richmond, Virginia-based company, said in a Nov. 3 statement. ``The weakened environment has resulted in a slowdown of consumer spending.'' Such spending, which comprises about 70 percent of the U.S. economy, dropped at a 3.1 percent annual pace in the third quarter, the first decline since 1991 and the biggest since 1980, the Commerce Department said Oct. 30. The slowdown caused the economy to contract last quarter at the fastest pace since the 2001 recession. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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