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"Apocalyptic" ISM Services Index Signals Half a Million Job Losses, Analysts Say

The services sector deteriorated more than expected on multiple fronts in November, but no component was as bad as the employment index, which many economists say points towards half a million net job losses in the November nonfarm payrolls report to be released Friday.

The ISM Non-Manufacturing Index (NMI), a key survey of the services, construction and financial industries, fell 7.1 points from the all-time low recorded last month to a reading of 37.3, by far the worst level in the 10-year index.

Ian Shepherdson, chief U.S. economist from HFE, said the report doesn't add much that isn't already known, with the exception of the employment component, which he noted moves in line with the official data. "This is consistent with payrolls falling by about 500K; let's hope it is very wrong," he said.

Paul Ashworth, senior U.S. economist at Capital Economics, called the report "simply frightening," as the "apocalyptic" details of the report point to stunning losses in the labour sector.

"The employment index plummeted to a record low of 31.3, from 41.5, putting it at a level consistent with monthly declines in service sector payrolls of more than 500,000," he said. "That's right, half a million jobs losses in services a month which, when you (conservatively) add on another 150,000 job losses in manufacturing and construction, would work out at a 650,000 drop in overall non-farm payroll employment."

Economists from RDQ also said employment was the most important component. When combining this report with ADP figures from earlier in the morning, which showed total job losses of 250k in the month, they said the data put a downside risk to their forecast of 400k net job losses in November.

Aside from employment, new record lows were seen in the business activity, new orders, and prices paid components. Business activity fell 11.2 points to 33.3, new orders fell 8.6 points to 35.4, and prices deflated to 36.6 from 53.4.

"By every metric, activity in the non-manufacturing sector deteriorated," said Dave Resler, chief economist at Nomura. He said the record low in the prices index "heightens concern about the emergence of deflationary pressures."

The survey's cousin, the ISM manufacturing index, fell to a 26-year low on Monday. A composite index of the two surveys fell to 37.2 from the previous month's 43.8.

By Patrick McGee and edited by Sarah Sussman
©CEP News Ltd. 2008


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More From MND

Mortgage Rates:
  • 30 Yr FRM 3.94%
  • |
  • 15 Yr FRM 3.24%
  • |
  • Jumbo 30 Year Fixed 4.15%
MBS Prices:
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