New York: The slumping US housing, factory and service sectors produced more misery for the world’s largest economy in the last two months of 2008 as the year-old recession looked set to drag on into 2009, data showed on Tuesday.
The Federal Reserve, in minutes of its December interest rate meeting, did nothing to dispel worries over the economy.
Fed officials believed the US economy would face “substantial” risks even after benchmark interest rates were cut to near zero, with some worrying about the risk of deflation, the minutes showed.
In the housing market, the original source of the US economic morass, pending sales of existing US homes plunged to their lowest in at least seven years in November, according to data from a real estate industry group.
The service sector, which represents about 80% of US economic activity, contracted for a third straight month in December, the Institute for Supply Management said in a separate statement.
Though the slump in services was less severe than expected, the ISM’s employment gauge painted a bleak picture of the job market, while tumbling factory orders in November also indicated a weak outlook.
“We are in the throes of the worst recession since the early 1980s,” said Kevin Flanagan, fixed income strategist for global wealth management at Morgan Stanley in Purchase, New York.
On Wall Street, US stocks rose as hopes of a government stimulus package from the incoming Obama administration outweighed the earlier economic reports.
US government bond prices, however, rallied on the Federal Reserve’s grim assessment of the economy.
The Institute for Supply Management said its non-manufacturing index came in at 40.6 in December versus November’s record-low 37.3. The level of 50 separates expansion from contraction. The index dates back to July 1997.
Economists had expected a reading of 37.0, according to the median of 56 forecasts in a Reuters poll, which ranged from 34.5 to 42.0. Like the overall index, the ISM’s employment gauge was also at its second-lowest on record.
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in November, dropped 4% to 82.3, the lowest since the series started in 2001.
Economists polled by Reuters ahead of the report had forecast pending home sales dropping by 1%.
New orders received by US factories plunged a much-greater-than-expected 4.6% in November, the fourth straight monthly decline and a sign the sharp drop in manufacturing is deepening the recession, a government report showed.
It was the first time factory orders had fallen for four consecutive months since the government began assembling the data in its current form in 1992, the Commerce Department said.
Analysts polled by Reuters were expecting factory orders to drop 2.5 percent.
This was consistent with a report by the the Institute for Supply Management published on Friday that showed US factory activity fell to a 28-year low in December.