Service sector shrinks as spending, jobs are cut

Hotels, construction firms and retailers saw business shrink in October as slower spending and declining employment sent the service sector into contraction, another gloomy sign for the economy.

The Institute for Supply Management, a trade group of purchasing executives, said Wednesday that its service-sector index suffered a sharper-than-expected drop to 44.4 in October from 50.2 in September.

Wall Street economists surveyed by Thomson Reuters expected a reading of 47.5. A reading below 50 signals contraction.

“In short, horrible, but only to be expected in the wake of the equity plunge and the subsequent collapse in confidence,” said Ian Shepherdson, chief economist at High Frequency Economics, a private research firm.

Asked whether the financial crisis was affecting business, 82.2% of respondents said they had reduced spending or hiring or both, according to the ISM report.

New orders, deliveries, backlogs and inventories fell.

The one glimmer of good news could also be further evidence of a recession: After a summer of price hikes, the index of prices paid showed its largest one-month decline since the index was first reported in 1997.

One of the few industries reporting growth was utilities, but that business is not immune to the downturn. Duke Energy Corp., one of the nation’s largest electric power companies, said Wednesday that its third-quarter profit fell 65%. It blamed the worsening economy, as well as storm-related outages in the Midwest, for the decline.