Private jobs, services slump show recession toll

By Burton Frierson

NEW YORK (Reuters) - Private employers cut 250,000 jobs in November, an unexpectedly large number and the biggest in seven years, while the service sector, which powers most of the economy, posted its worst slump on record.

Wednesday's reports were the latest signs that the slide in the U.S. job market is nowhere near bottom and suggested Friday's government payrolls report could exceed current expectations for 320,000 job losses in November.

The Institute for Supply Management said its index of non-manufacturing businesses dropped to the lowest in the survey's 11-year history, while a record low in its employment gauge raised worries about the payrolls report.

"This is consistent with payrolls falling by about 500,000; let's hope it is very wrong," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

ADP Employer Services, a major payroll servicer for the private sector, said private companies cut jobs for a fourth straight month in November.

The Federal Reserve reported economic activity had weakened across the United States since early October, while price pressures eased with declines in retail and energy prices.

The Fed's Beige Book summary portrayed grim conditions in most areas of economic activity and noted that labor markets weakened as firms in many districts reported accelerating layoffs. Wage pressures were largely subdued, the Fed added.

The ISM non-manufacturing index came in at 37.3, below October's already weak 44.4 and well below the 50 level that separates expansion from contraction. It was also much worse than the median forecast of 42.0 expected in a Reuters poll.

This was consistent with global trends, with the euro zone's services economy falling deeper into recession last month than initially thought. That will add pressure on the European Central Bank to cut interest rates on Thursday by more than the 50 basis points expected.

Every major category in the ISM survey hit a record low, particularly bad news for the United States, where 80 percent of economic activity is driven by the service sector, including businesses such as banks, airlines, hotels and restaurants.

The data reflected the heavy constraints on the economy as the U.S. recession enters its second year, the worst financial crisis in a generation.

"The severe damage to the service industry is another indication of the extraordinary force of this recession," said Pierre Ellis, senior economist at Decision Economics in New York.

U.S. stocks .DJI were higher, recovering from earlier losses in the wake of the surprisingly weak ISM. U.S. Treasury debt prices were mixed, while the dollar slipped against the yen.

NOT A RAY OF LIGHT

The ADP data was the first reading of the job market since the U.S. economy was formally declared on Monday to have entered recession.