U.S. ISM Service Sector Contract Less Than Forecast, Up 40.6%

January 6, 2009 2:23 p.m. EST

New York, NY (AHN) - The service sector of the U.S. economy contracted at a slower pace in the month of December, which is the third straight monthly shrink on declining consumer demand and weakening real estate market conditions, a report said on Tuesday.

The Institute for Supply Management showed in its monthly report that non-manufacturing businesses in the U.S. has contracted higher than forecast for the month of December.

The non-manufacturing index, which constitutes almost 90 percent of the economy, increased to 40.6 last month, compared to its record-low of 37.3 percent in the month of November, according to a key ISM report released on Tuesday.

A reading of the index above 50 indicates that it is expanding, while a reading below 50 is a sign of overall business contraction.

The report on the ISM index indicated that there are signs of easing concern on the slowing down of the U.S. economy as the country struggles with deepening recession.

The Tempe-Arizona-based group reported that 17 out of 18 industries reported contraction in December including real estate, rental and leasing; mining; health care and social assistance; educational services; utilities; agriculture, forestry, fishing and hunting; construction; professional, scientific and technical services; other services; and information.

The market analysts on Wall Street had projected that the index would decline to 37.0 percent during last month on increasing unemployment rate and rising raw-material costs.

Non-manufacturing activity increased led by the demand from the international market for the U.S.-made products as the U.S. consumer spending declined.

The report showed that one out of 18 industries were contracting in the month of December include retail trade.

The ISM employment gauge increased to 34.7 percent in December, which is the third straight month of contraction, compared to a record-low 31.3 percent reading in November.

The inventory index for non-manufacturers registered to 49 percent last month, indicating that inventory levels contracted in December for the fourth consecutive month, from 46 percent in the prior month.

Non-manufacturing business activity in December registered 39.6 percent, an increase of 6.6 percentage points when compared to the 33 percent registered in November, the ISM report showed on Tuesday.

New Orders contracted in December for the third consecutive month. The index registered 39.9 percent, which is an increase of 4.5 percentage points from the 35.4 percent recorded in the month of November.