Services dip after 5 years on recession fears
Lingering hopes that the US economy might avert a recession withered on Tuesday after the nation’s service sector, its banks, travel companies, contractors and stores, among others, shrank for the first time in five years.
By Agencies |
NEW YORK: Lingering hopes that the US economy might avert a recession withered on Tuesday after the nation’s service sector, its banks, travel companies, contractors and stores, among others, shrank for the first time in five years.
It was unwelcome news for many investors, who were beginning to believe that the Federal Reserve might engineer a way out of the worst economic slowdown since 1991.
Stocks tumbled, with the Dow Jones industrial average losing 370 points, its biggest point drop since August. Much of the talk was not about whether there would be a recession, but about how bad it might be.
“The number’s so terrible it’s almost beyond belief, especially among the optimists,” said Scott Anderson, senior economist at Wells Fargo & Co. “I think the writing’s on the wall. More and more economists are talking about recession, and whether it’ll be a severe or mild one.”
The January reading from the Institute of Supply Management “was about as big a shock as you can probably get,” said Joel Naroff, chief economist at Commerce Bancorp. Anderson said he believes January may end up being the official start of a recession.
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Many businesses already suspect as much. Moving company Allied Van Lines filed for bankruptcy on Tuesday, saying it had fallen victim to the downturn in the housing market and its own heavy debt load. Charming Shoppes, which runs the Petite Sophisticate and Lane Bryant clothing stores, said it would cut 200 jobs and close 150 stores. Stocks of rental car companies plunged Monday after Dollar Thrifty Automotive Group slashed its 2007 earnings guidance. The company said it sees weak demand in the travel market and soft used-car sales.
Ryan Kaminski, who runs a Mexican restaurant in Sarasota, said the squeeze he has felt as both a business owner and a consumer since last summer is growing worse. The restaurant’s traffic started thinning out last summer, pulling 2007 sales down 10% from a year earlier, and so far this year sales are down 15% from a year ago.
“I used to be able to find a person from any trade — carpenters, electricians, plumbers, in the restaurant every day,” he said. “Since the housing market crashed, it’s just dried up. Those type of customers are just gone.” Kaminski, 31, said he and his wife don’t spend much anymore either. “We’ve cut out eating out and we didn’t go on vacation last year,” he said.
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In the tourism sector, water park operator Great Wolf Resorts is seeing a drop in business at its resorts in Traverse City, Mich., and Sandusky, Ohio, two areas where jobs are dependent on the sagging auto industry, said CEO chief executive, John Emery. Business is up slightly overall for the Madison-based operator of 10 resorts. But at the Rust Belt parks, families are cutting their spending by 2% to 4%. “Those are tough markets for families for right now,” Emery said.
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