The bad news is starting to sink in

[J]

Bloomberg link

ISM Services Index Fell More Than Forecast in January (Update3)

By Shobhana Chandra

Feb. 5 (Bloomberg) -- U.S. service industries unexpectedly shrank in January at the fastest pace since the last recession as the housing slump deepened and consumer spending cooled.

The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of the economy, fell to 41.9, the lowest since October 2001, from 54.4 the prior month, the Tempe, Arizona-based ISM said. A reading of 50 is the dividing line between growth and contraction.

``This is a stunning fall,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. ``If accurate, it's dire news on the economy.''

The worst housing slump in a quarter-century is spreading throughout the economy, hurting businesses such as builders, retailers, wholesalers and mortgage lenders. The report adds to concern Americans are spending less as job losses mount, raising the risk the economy may tip into a recession, economists said.

The group issued the report more than an hour earlier than scheduled. The release time was moved up because of concerns about a possible ``breach'' of embargoed information in the report, ISM spokeswoman Andrea Waas said in a telephone interview.

The index was projected to fall to 53, the median forecast in a Bloomberg News survey of 65 economists. Estimates ranged from 51 to 55. The index has averaged 57.6 since its inception in July 1997.

New Composite

Today's report included a new composite index to reflect changes in current measures of business activity, new orders, employment and supplier deliveries. The contribution from each sub-index is equal.

The new composite index was 44.6 in January. It would have been 53.2 in December, according to Bloomberg calculations based on a formula provided by ISM.

Treasuries climbed and stock-index futures slumped as the release added to speculation the U.S. is falling into recession. Ten-year yields fell to 3.53 percent at 9:48 a.m. in New York, from 3.65 percent late yesterday. Standard & Poor's 500 stock index was down 2 percent to 1,353.

Europe's service industries expanded at the slowest pace in more than four years and retail sales fell the most since 1995, signaling that the region's economy may follow the slump in the U.S., reports today also showed.

Europe Slows

Royal Bank of Scotland Group Plc said its January purchasing managers' index for services dropped to 50.6, the lowest since July 2003, from 53.1 in December. December retail sales in the euro region declined 2 percent from a year earlier, the biggest drop in 13 years, according to the European Union's statistics office.

The ISM group's index of new orders for non-manufacturing industries fell to 43.5 from 53.9 the prior month.

An index of employment dropped to 43.9 from 51.8, and a gauge of supplier deliveries decreased to 49 from 52.5.

A measure of prices paid also dropped to 70.7 from 71.5.

The housing recession is hurting other parts of the economy. Employers in January reduced payrolls for the first time in more than four years, the Labor Department reported last week. Service providers added 34,000 workers to payrolls after an increase of 143,000 in December. Builders trimmed staff by 27,000 workers.

``Risks to growth remain,'' Federal Reserve policy makers said Jan. 30 when they cut the benchmark interest rate by a half point. The action followed an emergency three-quarter-point reduction the prior week. Investors are betting policy makers will lower the rate by another half point next month, according to futures trading.

Factories Expanded

Manufacturing, which accounts for about 12 percent of the economy, unexpectedly expanded in January, showing business investment is holding up even as other areas weaken, according to a report from ISM last week.

Economic growth slowed to an annual rate of 0.6 percent in October through December, down from a 4.9 percent pace in the third quarter, according to government figures last week.

Residential construction dropped in the fourth quarter by the most in 26 years, making the housing recession the worst since 1982.

Consumer spending may provide less support to the economy as property values fall and unemployment increases, economists said. Auto sales slumped last month to the lowest level in more than two years, according to industry figures issued last week. Total spending increased in December at the slowest pace in six months.

Sears Holdings Corp. last week ousted Chief Executive Officer Aylwin Lewis after a drop in holiday sales, and Home Depot Inc., the world's largest home-improvement chain, cut 10 percent of the workforce at its Atlanta headquarters.

``Sales levels are still depressed,'' Pulte Homes Inc. Chief Executive Officer Richard Dugas said on a conference call. The Bloomfield Hills, Michigan-based homebuilder reported its fifth consecutive quarterly loss on Jan. 31.

It seems even economists might get the idea that we're in trouble when the message is beaten into their heads enough times.

[Darth Wong]

Don't worry, I'm sure that there are some important "economic indicators" that they can use to convince themselves that everything is OK.

[Admiral Valdemar]

A trillion here, a trillion there. Soon you're talking real money.

[weemadando]

Well, Australia is going to implode pretty damn soon. The Real Estate industry here doesn't seem to have learnt. Nor have most people. Too many are still setting up house of card investment schemes based on leveraging new properties against their existing ones and pumping housing prices higher, ever higher.

But wait, what's that? The average house price is already far beyond the reach of the average income earner (my wife and I earn 100k+ between us and a mortgage given current prices is out of the fucking question).

But these people keep shouting: "PROPERTY CANNOT FAIL! THE ECONOMY IS STRONG! THERE IS NO PROBLEM!"

I only hope that they're close to an open window in a very tall building when the time comes.

[[R_H]]

US service sector in sharp fall

The US service sector contracted in January for the first time in almost five years, a survey has shown.

The Institute for Supply Management's (ISM) index of service sector business activity fell to 41.9, from 54.4 for the previous month.

The dividing line between growth and contraction is 50. The unexpectedly weak reading stoked fears that the US would fall into recession.

Wall Street shares tumbled on the news, while the UK's FTSE 100 fell 2.6%.

This is the first contraction of business activity in the service sector, which accounts for two thirds of US economic growth, since March 2003.

And it marks the lowest level of activity since October 2001, the month following the 11 September terrorist attacks.

The ISM report also showed a steep decline in inventories, employment and new orders, while operating costs increased. "The overall indication in January is that non-manufacturing has come to the end of a long-term period of growth," said Anthony Nieves, chairman of the Institute for Supply Management's non-manufacturing business survey committee.

Data out earlier showed that the service sector in the 15-nation euro bloc was also suffering, but still registered growth for January.

Market moves

The news sent global stock markets and oil prices tumbling as traders took it as a further sign of an impending US recession.

"On face value, this index tells you that this recession we are heading into will be worse than the one in 2001," said Christopher Low, chief economist at FTN Financial.

All three stock market indexes in the US fell, with the benchmark Dow Jones shedding more than 300 points, or 2.4% to 12,333.3, while the broader S&P 500 index and technology-heavy Nasdaq also sank.

Across the pond, the UK's FTSE 100 index fell 2.6% to 5,868, Germany's Dax shed 3.4% to 6,765, while in Paris, the Cac 40 index dropped almost 4% to 4,776.8.

Oil prices were hit on fears that a recession in the US would hurt demand.

US light crude fell $2 to $87.89 a barrel, while London Brent fell by a similar amount to $88.45 a barrel.

Widespread problems

Last week US Labor Department figures showed the first decline in employment since August 2003, shocking economists.

The fear is that an increase in unemployment will further curb US consumer spending, which will weigh heavily on economic growth despite sharp US rate cuts in the past two weeks and tax incentives from the White House.

But some analysts cautioned about overstating the gloomy prognosis for the world's largest economy.

"We do have considerable stimulus from both the Federal Reserve and from a major cut in taxes in the middle of the year so the economy could experience a decent second half", said Cary Leahy, economist at Decision Economics.

"But it's hard not to deny that the start of 2008 is somewhere between disappointing and bad," he added.

[Gerald Tarrant]

Don't worry, I'm sure that there are some important "economic indicators" that they can use to convince themselves that everything is OK.

The article has one

Manufacturing, which accounts for about 12 percent of the economy, unexpectedly expanded in January, showing business investment is holding up even as other areas weaken, according to a report from ISM last week.

If that holds steady or doesn't fall too precipitously, then the fallout from the mortgage crisis hasn't irretrievably infected traditional investments. That won't stop a recession, but if new investment were significantly lower, then recovery would take longer. Recession still looms, but it doesn't seem abnormal.

[Broomstick]

The fear is that an increase in unemployment will further curb US consumer spending

No shit - since I became unemployed I've stopped "buying" anything but rent and food. Yep, I've curbed MY spending - because I don't have any fucking money!!!!

Cutting my taxes? I'm not making enough money to have to pay taxes!

Fucking idiots - YES, there ARE economic problems! Not only is the Emperor naked, he's shivering, he's got goosebumps, and his genitals have shrunk to pea-and-noodle size.

But hey! The price of gas dropped another 10 cents! Like I have anywhere to go or the money to do anything once I get there....

[[R_H]]

The fear is that an increase in unemployment will further curb US consumer spending

No shit - since I became unemployed I've stopped "buying" anything but rent and food. Yep, I've curbed MY spending - because I don't have any fucking money!!!!

Cutting my taxes? I'm not making enough money to have to pay taxes!

Fucking idiots - YES, there ARE economic problems! Not only is the Emperor naked, he's shivering, he's got goosebumps, and his genitals have shrunk to pea-and-noodle size.

But hey! The price of gas dropped another 10 cents! Like I have anywhere to go or the money to do anything once I get there....

It's hilarious. Spend more (in an unsustainable manner)!! Even though that is a contributing cause (as far as I understand) to this problem.

[Surlethe]

Don't worry, I'm sure that there are some important "economic indicators" that they can use to convince themselves that everything is OK.

When this came up on NPR earlier this afternoon, an economist they interviewed mentioned that the layoff rate is only 300,000/day (IIRC); to be considered a recession, according to him, the rate has to to 500,000 per day. Of course, if the service sector is stocking less and consequently selling less, then one would expect layoffs to follow sometime in the next few months.

It seems to me that there's no 'silver bullet', except maybe GDP growth (oh, wait, was that just 0.6% in 4Q last year?), that convincingly proves recession or depression. Instead, one has to look at all available indicators and try to get the big picture, and from what I've seen, though I'm no economist, the "it's a recession now, bitches" evidence has been piling up as of late.

[[R_H]]

US economy concerns knock shares

World stock markets declined on Tuesday on renewed fears about the health of the US, the world's largest economy.

Wall Street saw its worst share losses in almost a year, after data showed that activity in the key US service sector unexpectedly shrunk in January.

Fears that the worst US housing slump in 25 years is crippling the wider economy sent the Dow Jones index down almost 3% and hit European shares.

The UK's FTSE 100 fell 2.6% on fears of contagion from the US slowdown.

The US benchmark Dow Jones average fell 370 points, or 2.9%, to end at 12,265.1 in New York.

The tech-heavy Nasdaq index slid 73.3 points, or 3%, to 2,309.6 and the broader S&P 500 index also fell 3% to settle at 1,336.7.

Broad sell-off

The Institute of Supply Management's index of business activity in the non-manufacturing sector slid below 50 - a level that indicates contraction.

The index fell to 41.9 from a 54.4 reading in December, the lowest reading since October 2001 and the first time business activity has shrunk in the US service industry in almost five years.

Economists had forecast a milder decrease to 53.0.

"The report drives a nail into the coffin from investors' minds that we're in a recession," said Todd Salamone, director of trading at Schaeffer's Investment Research.

"That doesn't mean stock prices in the months ahead will be lower. But when you see headline numbers like this, there tends to be a reactionary sell."

Analysts said traders were also spooked by fresh threats to the high quality credit ratings of bond insurers, which guarantee billions of dollars in investments linked to US sub-prime loans taken out by banks.

A reduction in their credit ranking would lead to banks, already reeling from losses centred on US mortgages taken out by individuals on low incomes or with poor credit, having to make further write-downs.

The sell-off was broad based, hitting banking giants, technology firms and energy stocks.

London's FTSE earlier closed down 158 points, 2.6%, at 5,868, Germany's Dax lost 3.4% to settle at 6,765.3 and France's Cac 40 fell almost 4% to 4,776.9.

[Coalition]

Not everywhere is doing bad:
link
Funny quote:

"One of the reasons I live in North Dakota is that we have a stable economy and a stable real estate market," said Kris Sheridan, a Fargo real estate agent. "We may be freezing to death today, but we're not having the tough times like everyone else in the country."

[Stuart Mackey]

snip
But these people keep shouting: "PROPERTY CANNOT FAIL! THE ECONOMY IS STRONG! THERE IS NO PROBLEM!"

I only hope that they're close to an open window in a very tall building when the time comes.

Weird..NZ has known that our housing bubble was going to pop for the last three years, it was just a question of when not if. I guess self delusion rates vary from nation to nation.