Contraction Action

Bad news on the job front, it looks like the service sector is contracting, and since that's a massive majority of the American economy, that's bad news for everyone.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

The report indicates that most of the economy has yet to benefit from government programs, such as the cash-for-clunkers plan, aimed at reviving manufacturing. The highest jobless rate in a quarter-century, stagnating wages, falling home values and mounting bankruptcies mean consumer spending will be slow to recover.

“The consumer is still facing a weak labor market,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “There are still plenty of problems out there. To declare everything is fine is premature at this stage.”

Economists forecast the index would rise to 48, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from 44 to 49.3.

That's bad. It means that for nearly 90% of the economy, the average is that companies are still shedding jobs and will continue to do so for the forseeable future.

"Slow to recover" will look like an understatement by this time next year.