Service industries show a decline

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TEXT OF INTERVIEW

Kai Ryssdal: In a very small nutshell, the Institute for Supply Management describes itself this way: they's the one who keep track of resources, logistics... everything you need to make an organization tick.

It's also got some economists on staff and their work is what had everybody reeling today.

The ISM comes out every month with two reports: one that tracks the manufacturing sector, one that tracks the service part of the economy, and whether or not they're growing.

The service side is not.

Today's report showed service industries drew back last quarter by a big chunk.

If ever there was an economic report that needed explaining, this is it and Marketplace's Bob Moon's here to do just that.


Ryssdal: Hey Bob.

Bob Moon: Hello Kai.

Ryssdal: You know, we don't about the service economy too much on the program, but this is a serious number and it's a very big deal today.

Moon: It is. You know, once upon a time, we were a country of workers who manufactured things or built things or turned out crops or produced raw materials, but all that evolved over the second half of the last century and our economy is now overwhelmingly made up of workers who offer services. In fact, this is a sector that these days makes up no less than 90 percent of the economy, so that's why this number in particular is so significant and so worrisome on Wall Street. We've got financial services, legal services, computer, health, educational, retail services, even the entertainment industry and I guess you could say that you and I fall into that category of providing some kind of service here. You think about it: a big share of the workers in a lot of the biggest corporations in this country are contract workers, where they come from small vendors, from specialized services. So that gives you an idea why the financial markets took a very close look at this report today and shuddered.

Ryssdal: Alright, here's another group of service workers: economists. They keep track of these things, they're supposed to know what's coming, and yet, last week's unemployment report caught them off guard and today's number as well caught them off guard.

Moon: Yeah, the general consensus was for this index to fall to around 52. Now keep in mind, 50 is the dividing line between growth and contraction here and last month it fell to 42 from 54 the prior month, so it was a big, big drop.

Ryssdal: Is it now official? Can we finally get off the fence and say "Hey, bam; we're in a recession?"

Moon: Yeah, I get the impression you'd like that.

Ryssdal: Well, a little clarity would be nice.

Moon: Yeah, it does make our job easier if we can talk about something that's really happening. Well, guess what? There's still more guess work ahead. I spoke to economist Ken Mayland today at ClearView Economics. I pushed him really hard on this recession question -- the number now says the service sector is contracting; what more of an indication do you need? Well, as economists often do, he has one of those "other hands:"

Ken Mayland: One thing that's holding me back from making the recession call is the fact that the manufacturing number, which was in a declined state for the month of December, actually bounced back in January to come up above the 50 level indicative of manufacturing advancing rather than declining.

Moon: So there you go: Maybe, we're almost certainly looking at a recession.

Ryssdal: Yeah, maybe certainly. Listen, one source does not a story make though. What are other people saying?

Moon: We heard something similar today from the president of the Richmond Federal Reserve Bank, Jeffrey Lacker. He told a group of bankers in West Virginia he sees sluggish growth in the first half of the year, a recovery in the second half, but he says he can also see the possibility of a mild recession.

Ryssdal: Let's get to the parent organization of the Richmond Fed, Ben Bernanke and the rest of the big cojones in Washington. What are they going to do now about interest rates and the whole thing?

Moon: Well, I can tell you how the market is betting right now. The market is betting that the Fed is going to cut it's benchmark rate by another half percentage point at, or maybe even before, their scheduled meeting in March.

Ryssdal: Here we go again. Marketplace's Bob Moon; thank you Bob.

Moon: Thanks Kai.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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