INSTANT VIEW: U.S. services sector shrinks in November

NEW YORK (Reuters) - The U.S. services sector unexpectedly contracted in November, with an index measuring activity falling to its lowest reading since July, according to an industry report released on Thursday.

KEY POINTS: * The Institute for Supply Management said its services index shrank to 48.7 in November from 50.6 in October. * That was slightly below the 51.5 median forecast of 62 economists surveyed by Reuters. * A reading above 50 indicates expansion in the sector.

COMMENTS:

ANTHONY NIEVES, CHAIRMAN OF THE ISM NON-MANUFACTURING BUSINESS SURVEY COMMITTEE, BEVERLY HILLS, CALIFORNIA:

"Employment will lag as it always has. These new orders will transpose into business activity down the road and it's all contingent on the cycle time for that particular industry segment or company. If you measure productivity, which we don't, people are doing more with less. We're not going to see employment come back as strongly as we might have in the past.

"The expansion in new orders needs to be sustainable and a long-term trend. Traditionally we see a lull between Thanksgiving and Christmas, but this was leading up to Thanksgiving, I was surprised the business activity dipped below 50. Once we get past the holidays -- because retail is driving some of this while other areas tend to slow down -- I think we'll see a pickup in the first quarter of 2010. But employment will still lag. This is not just cyclical unemployment. People are doing business differently today."

NICK KALIVAS, SENIOR EQUITY INDEX ANALYST, MF GLOBAL, CHICAGO:

"I'm a little bit surprised by the weakness. I think what was most shocking was the employment situation, which is really indicative of the caution businesses have.

"I was looking for more bounce in the inventory number, and that too is indicative of the caution that is present in the sector."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO, GREENWICH, CONNECTICUT:

"It's a slow transition. It's not a V. It does give a little argument that maybe we are likely to have a slow recovery unlike other times."

MARK VITNER, ECONOMIST, WELLS FARGO ADVISORS, CHARLOTTE, NORTH CAROLINA:

"It doesn't surprise me that it came in a little below expectations given the weak retail reports that we have been getting. It seemed like people were getting a little bit bulled up on some of the news that was driven by direct stimulus spending like cash for clunkers and the first time home buyers tax credit, and behind the curtain there just wasn't that much going on. There has not been as much healing in the economy as those headlines suggested."

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS, CHICAGO:

"Seeing that number below the 50 there, that to me is pretty harsh. The markets will view it as that. We actually had a pretty good feeling going into this with the Bank of America payback, that had a lot of people almost jovial. But when we drop below that dividing line between expansion and contraction. The ISM services doesn't seem to get as much weight as the manufacturing, but seeing it head in this direction is not a positive sign, particularly after all the month after month we've started to see some of these things -- manufacturing, services really pick up some steam. Taking a step backward right now, particularly with the market looking for some excuses to find the timing to get out of some of the riskier assets and kind of window dress before the end of the year. This might give some people that news or that feeling that now could be the time particularly if we get this backed up by less than positive non-farm tomorrow."

GARY THAYER, CHIEF MACROSTRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

"It's a disappointing number. It looks like some of the positive things we've seen on the manufacturing side of the economy are not yet helping the service sector. Manufacturing is being helped by low inventories, but the service sector is taking longer to get a turnaround started. The orders subindex is still above 50 which is positive, but while we did get a bump up in the service sector, things are cooling off again."

MARKET REACTION: STOCKS: U.S. stock indexes pare gains BONDS: U.S. Treasury debt prices pare losses DOLLAR: Euro pares gains versus dollar