Services sector contraction slows in Dec.

updated 10:31 a.m. ET Jan. 6, 2009

NEW YORK - An index of activity in the U.S. services sector contracted at a slower pace in December as new orders and employment improved.

In a surprisingly upbeat reading, the Institute for Supply Management, a trade group of purchasing executives, said Tuesday that its services sector index rose to 40.6 in December from 37.3 in November. Wall Street economists surveyed by Thomson Reuters had expected the index to slip slightly to 37.0.

The index continues to signal the sector is contracting. A reading below 50 signals contraction, while a reading above 50 indicates growth.

The survey is in sharp contrast to last week's manufacturing report by the same organization, which showed the worst reading in 28 years. The manufacturing index dropped to levels last seen in June 1980. The separate services index had declined for the three months through November.

The report is based on a survey of the institute's members in industries including hotels, retail and health care. It covers such indicators as new orders, employment inventories and backlog.

Prices continued to fall, with the prices component of the index hitting its lowest level since it was first reported in 1997.

The retail sector was the only one of 18 industries that reported growth in December, despite what most analysts anticipate will be an especially weak holiday season for retailers.

Borders Group Inc. said Monday that same-store sales at its superstores fell 14.4 percent for the nine weeks ended Jan. 3. Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.

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