Service sector shrinks as new orders drop

The Institute for Supply Management, a trade group of purchasing executives, said Wednesday its service sector index suffered a sharper-than-expected drop to 44.4 in October from 50.2 in September.

Wall Street economists surveyed by Thomson Reuters expected a reading of 47.5. A reading below 50 signals contraction.

"In short, horrible, but only to be expected in the wake of the equity plunge and the subsequent collapse in confidence," said Ian Shepherdson, chief economist at High Frequency Economics, a private research firm.

Asked in a one-time question whether the financial crisis was affecting business, 82.2 percent of respondents said they had reduced spending, hiring or both, according to the ISM report.

New orders, deliveries, backlogs and inventories all fell.

The one glimmer of good news could also be further evidence of a recession: After a summer of price hikes, the index of prices paid showed its largest one-month decline since the index was first reported in 1997.

One of the few industries reporting growth was utilities, but that business is not immune to the downturn. Duke Energy Corp., one of the nation's largest electric power companies, said Wednesday its third-quarter profit fell 65 percent. It blamed the worsening economy, as well as record Midwest storm outages, for the decline.

On the retail front, intimate apparel maker Maidenform Brands Inc. on Wednesday lowered its 2008 profit and sales outlook to reflect the bankruptcies of department store chains Mervyns LLC and Boscov's Department Store LLC.

A manufacturing report issued Monday by ISM showed the worst reading since September 1982, when the country was near the end of a 16-month recession.