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Recession in US Services Sector ? Determinants of US services consumption. By Orlando Gracia and Jaime Niņo
May 6, 2001

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  • For the first time since the National Association or Purchase Managers –NAPM introduced the index of business activity in the non-manufacturing sector a reading indicated a contraction in services sector activity. This happened in April 2001 after the index hit 47.3 and was bellow the 50-point breakeven level. Similarly, April was the first month since the long expansion of the US economy that registered a decrease in services sector employment. The 59,000 layoffs in services industries contributed to a slightly higher unemployment rate in the US according to data released by the US Department of Labor in May 4 2001. This data confirms recent reports about the slowing of growth in US services industries in the first quarter of 2001 triggered by slower personal consumption of Services.

    While services consumption averaged 4.6% quarterly growth in 2000, in the first quarter of 2001 services personal consumption increased by 1.7%. The performance of services consumption follows two quarters of negative growth in consumption of durable goods and a slower growth in consumption of nondurables that caused a considerable reduction in manufacturing output. Also, investment in software and equipment has presented two consecutive negative quarterly growth rates indicating that expenditure in services may be decreasing sharply at the outlet level. The question is no longer whether services will avoid slowing down like the rest of the economy, but just how bad will it get. History as portrayed in the graph above gives some interesting insights.

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