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WSJ.com
November 5, 2001
Economy
Service Sector Contracted Sharply
In October in the Wake of Attacks
A WALL STREET JOURNAL
ONLINE News Roundup
The U.S. service sector contracted sharply in October as the terrorist
attacks aggravated already-weak conditions in the economy.
The National Association of Purchasing Management's nonmanufacturing
index fell to 40.6 from 50.2 in September, the biggest decline since the
index's inception in July 1997, according to NAPM. Readings above 50
indicate expansion of activity, while readings under 50 show
contraction.
The drop was much steeper than the reading of 46 that economists
expected, according to a survey by Thomson Global Markets.
The employment index, a key focus for economists and Federal Reserve
policy makers, declined to 43.5 in October from 46.7. New orders slipped to
40.4 from 49.8. The prices-paid index fell to a new low of 41.5 from 49,
indicating scant inflationary pressure on nonmanufacturing industries.
1See the full text of the NAPM report on nonmanufacturing
activity.
2Read analysis from Briefing.com on the NAPM report.
* * *
3U.S. Factory Activity Plummeted After Terror Attacks (Nov. 2)
The data confirm weakness has spread outside the manufacturing sector to
other areas of the economy. The deterioration accelerated following the
Sept. 11 attacks, Ralph Kauffman, chairman of NAPM's nonmanufacturing
business-survey committee, said in a statement.
Just as manufacturing was beginning to show signs of recovering from its
yearlong downturn, the Sept. 11 attacks pushed it back into an even deeper
slump. The NAPM said its index of manufacturing activity plummeted to 39.8
in October -- its lowest level since the depths of the 1990-91 recession.
It stood at 47 in September.
The drop, one of the largest since the index began in 1931, paints a
grim picture of the industrial sector. Its subindexes for production and
new orders, the most important indicators for manufacturing health, both
plunged to contractionary levels.
Now, it appears concerns that the overall economy will experience a
deeper recession are justified. Monday's nonmanufacturing report, comprised
mostly of services, showed 15 industry groups contracted or had no change
from September, while only the health-services sector posted growth in
October.
The events of Sept. 11 solidified earlier decisions to reduce business
commitments and employment in the service sector, Mr. Kauffman said.
Central-bank policy makers are expected to announce a cut in interest
rates Tuesday in a bid to spur the economy. Most economists expect the Fed
to drop the target on the key federal-funds rate by at least a quarter of a
percentage point, with some expecting a half-point reduction to 2%.
URL for this Article: http://interactive.wsj.com/archive/retrieve.cgi?id=SB1004972854103009480.djm
Hyperlinks in this Article: (1) http://interactive.wsj.com/documents/bbnonman-20011105
(2) http://interactive.wsj.com/documents/bcom-suboecnapmserv.htm
(3) http://interactive.wsj.com/archive/retrieve.cgi?id=SB1004621588241090640.djm
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