By Shobhana Chandra and Bob Willis Dec. 3 (Bloomberg) -- U.S. service industries contracted in November at the fastest pace on record, sinking the economy deeper into what may become the worst recession in decades. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 37.3, the lowest level since records began in 1997, from 44.4 the prior month, the Tempe, Arizona-based ISM said. Readings below 50 signal contraction. Americans, hurt by mounting job losses, a lack of credit and falling home and stock values, are losing confidence and cutting spending on everything from cars and furniture to food and vacations. Slumping sales are prompting even more job cuts, signaling the economic slump will persist well into 2009. “Business activity has shut down, along with the consumer,” Stephen Gallagher, chief economist at Societe Generale in New York, said in an interview with Bloomberg Television. “There is no reason for an immediate turnaround; financial markets have not stabilized; consumers have not stabilized.” The index was projected to decline to 42, according to the median forecast in a Bloomberg News survey of 64 economists. Estimates ranged from 37 to 46.5. Stocks retreated further after the report. The Standard & Poor’s 500 Index was down 113 percent, to 838.4, at 10:18 a.m. in New York. Treasury securities fell as investors judged the rally that pushed yields to record lows was unsustainable amid government efforts to revive growth. Job Losses Private reports today showed the labor market deteriorated further last month. ADP Employer Services reported that companies cut an estimated 250,000 jobs in November, the most since the 2001 recession. The number of announced firings surged 148 percent last month from November 2007, led by a jump at financial firms as the credit crisis deepened, according to Chicago-based Challenger, Gray & Christmas Inc. The Labor Department’s November jobs report, due Dec. 5, may show the biggest one-month payroll drop since the 2001 terrorist attacks, according to the Bloomberg survey. Companies, trying to shore up profits as the economy sinks, cut worker hours in the third quarter by the most in six years, a report from the Labor Department showed. The decline contributed to a higher-than-forecast gain in productivity and an increase in labor expenses that was smaller than economists surveyed by Bloomberg News anticipated. Record Lows The ISM group’s index of new orders for non-manufacturing industries decreased to 35.4 from 44 the prior month. Its gauge of employment dropped to a record-low 31.3 from 41.5, and a measure of prices paid fell to 36.6, also the lost since at least 1997. ISM said earlier this week that its factory index dropped in November to the lowest level since 1982. The U.S. entered a recession a year ago this month, the National Bureau of Economic Research, which dates American business cycles, said this week. At 12 months, the contraction is already the longest since the 16-month slump that ended in November 1982, and exceeds the postwar average of 10 months. Later today, the Federal Reserve’s beige book survey, a compendium of regional economic activity, may underscore the worsening outlook. The information will be used by policy makers when they meet later this month to discuss whether of cut interest rates again to revive the economy. Spending Slump Consumer spending, which accounts for about 70 percent of the economy, faltered last quarter and is likely to keep sliding. Purchases from July through September posted the biggest drop since 1980, causing the economy to shrink. The housing downturn, likely to extend into a fourth year, will remain a drag. Retailers are concerned the holiday shopping season may be the worst in at least six years. Sears Holdings Corp., the largest U.S. department-store company, yesterday abandoned its earnings forecast for the remainder of the year, citing “severe conditions in the economy.” Financial services remain in distress. Citigroup Inc., which is planning to eliminate 52,000 jobs, this week said it dropped a portion of the severance payment offered to employees who have been at the bank for a decade or longer. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

Source