WASHINGTON, Feb 5: A dismal survey released on Tuesday of the services sector of the US economy showed a contraction for the first time in nearly five years in January, raising the odds that a recession is at hand, analysts said.

The Institute of Supply Management’s index on non-manufacturing activity slumped to 41.9 per cent in January from 54.4 per cent in December.

The report on services, which makes up the lion’s share of US economic activity, is another sign of a sharp slowdown in the US economy that some analysts say means a recession is at hand.

“The extraordinary drop in the supply managers’ view of the economy raises the distinct possibility that we are in a recession,” said Joel Naroff, economist with Naroff Economic Advisors.

“I cannot describe how unbelievable this report is ... If we take the report at face value, it would be hard to dispute that a recession, if not already here, is coming.” It was the lowest reading since October 2001, when the US economy was in recession, and the first time in 58 months the index was below the level of 50 per cent which indicates expansion, the ISM said.

Andrew Busch at BMO Capital Markets called the report “horrible” and added, “recessionistas have won the argument for the day.”

The report was also well below analyst expectations of 53 per cent.

“Members’ comments in January indicate that weakness in the economy coupled with increased costs have negatively affected their business,” ISM survey chief Anthony Nieves said.

“Members have also indicated that they are experiencing inflationary pressures. The overall indication in January is that non-manufacturing has come to the end of a long-term period of growth and has contracted for the month of January.”

The ISM also reported that a new composite business index showed retrenchment with a figure of 44.6 per cent.

Several sub-indexes fell into contraction territory in January. ISM’s new orders index for services fell to 43.5 from 53.9 in December, and the employment index fell to 43.9 from 51.8.

The business activity index also fell sharply to 41.9 from 54.4 in December, while supplier deliveries and inventories also fell below 50.

The prices index of 70.7 per cent meanwhile showed strong inflation pressures.

Last week, the ISM’s manufacturing survey released showed sluggish growth with an index of 50.7 per cent.Many economists say a recession, usually defined as two consecutive quarters of shrinking economic activity, is likely in 2008 as a result of meltdown in the US housing market that has hit banks and finance companies hard.

The US economy expanded in the fourth quarter but barely at an annualised pace of 0.6 per cent according to the government’s estimate last week of gross domestic product (GDP).—AFP