US service sector weakens

Jobs in the property market have disappeared

The services sector of the US economy, which has so far dodged the recession unlike the manufacturing sector, has contracted and unemployment claims have risen.

Both figures surprised economists by giving stronger that expected indications that the US economy may be heading for recession and the US stockmarkets fell on the news.

The National Association of Purchasing Management (NAPM) on Thursday said its monthly non-manufacturing index tumbled to 47.1 in April from 50.3 in March, its lowest level in the survey's four-year history.

The downturn in the sector came two days after the NAPM reported the manufacturing sector, which makes up one-fifth of the economy, shrank for a ninth straight month.

Meanwhile, weekly figures for new unemployment benefit claims released on Thursday rose to their highest level in five years, adding to the gloom.

Interest rate cuts

The reports could boost hopes for more interest rate cuts from the US central bank, the Federal Reserve.

The US government on Friday releases its key employment report for April which will be closely watched for further signs of weakness.

In April the Federal Reserve cut interest rates for a fourth time this year to 4.5% in a bid to stimulate the nation's flagging economy.

Last week it emerged that the US economy grew faster than expected in the first three months of 2001, at a rate of 2% annually, compared to growth of only 1% in the last three months of 2000.

Bad signs

A further bad sign for the services sector was a fall in the employment index which tumbled to 46.7 in April from 49.4 in March, the second straight month the NAPM survey has suggested job losses.

The report said the industries experiencing the sharpest decrease in activity were finance and banking, real estate, communications, and business services.

But some sectors were experiencing growth including transportation, mining, utilities, construction and insurance.

The NAPM non-manufacturing report is compiled from a monthly questionnaire to more than 370 purchasing executives in over 62 different industries, and is weighted according to each industry's share of the overall economy.

A figure below 50 indicates a contraction of activity and above 50 denotes expansion.