Index Suggests Non-Factory Sector Pinched

U.S. business other than manufacturing expanded in January at the slowest pace in at least 3 1/2 years, suggesting that the contraction at factories is spreading to the rest of the economy, an industry survey showed.

The National Assn. of Purchasing Management’s non-factory business index fell to 50.1 during the month from 61.1 in December, reflecting the first-ever drop in orders and slower growth in employment and exports.

The report is one of the first to show that retailers such as Home Depot Inc. and online bookseller Amazon.com Inc. are starting to feel the spillover effects from a six-month contraction in factory activity.

“The decline is still nowhere near as sharp as in manufacturing,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., “but these data now sound a warning where before there was none.”

The purchasers association’s companion report on manufacturing last week showed that performance during January was the worst by the nation’s factories in almost 10 years. The index fell to 41.2, below the point the association says corresponds with a recession in the broader economy.

Index readings above 50 suggest growth, and readings below that number indicate a decline in business. The purchasing survey has not showed a decline in non-manufacturing business since its inception in July 1997.

The employment index fell to 52.3, its lowest in six months, from 52.8. The report said purchasers cited staff reductions and downsizing through early-retirement programs.

The non-manufacturing report’s index of new orders fell to 49.9 in January, the lowest reading since the report’s inception, from 57 in December.