An early report by the Institute for Supply Management shows that the non-manufacturing (mostly service sector) index fell to 41.9 in January. Any reading below 50 is considered a contraction.
This is a huge variance from bullish economists that expected a 53 reading. It is also a clear sign that recession is ominous. Investors agreed, sending stock prices immediately tumbling.
The report was actually released prior to trading, even though it was not supposed to be available until 10 a.m. eastern. Rumors of a leaked report led to the Institute releasing the information early.
A contraction in the service sector is a clear indicator that recession may be here. It does not actually signal a recession, however.
We are still watching for signs of a manufacturing slowdown. Contraction in manufacturing will signal that the US economy is in recession.
Such a recession will likely result in even further foreclosures and other defaults. This period of economic uncertainty is expected to run at least through 2008.
Tags: contraction, Institute for Supply Management, recession