* U.S. service sector index slumps to record low
* U.S. private employers make deepest job cuts in 6 years
* Planned U.S. layoffs surge to highest in nearly 5 years (Adds late markets trading in paragraphs 5-6)
By Burton Frierson
NEW YORK, Nov 5 (Reuters) - The U.S. private sector jobs market deteriorated rapidly in October while the service sector contracted sharply as the worst financial crisis in 80 years hammered the world’s largest economy.
Privately released reports on Wednesday highlighted the economic challenges facing Barack Obama a day after he won the race for the White House, and foreshadowed weakness in the government’s U.S. labor market report due out on Friday.
U.S. private employers made their deepest job cuts in six years last month and companies’ planned layoffs surged to their highest in nearly five years. A key gauge of the service sector fell to the lowest since the index was launched in 1997.
“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 U.S. economist at High Frequency Economics in Valhalla, New York.
Prices of U.S. government bonds US10YT=RR, which usually benefit from signs of economic weakness, rose as stocks soured further.
The service sector accounts for about 80 percent of U.S. economic activity. The Institute for Supply Management said its non-manufacturing index came in at 44.4 versus 50.2 in September, below the level of 50 that separates expansion from contraction and worse than economists’ expectations for 47.5.
The report displayed weakness all around, with employment falling to its lowest on record and new orders tumbling.
The lone outlier of good news in the ISM report was that inflation pressures also fell sharply, which should allow the Federal Reserve — the U.S. central bank — more leeway in its efforts to stimulate the moribund economy with low interest rates and measures to support the credit markets.
In fact, the ISM said its price gauge fell to its lowest since July 2003 and recorded its largest one-month decline since the index was first reported in 1997.
U.S. private employers cut a larger-than-expected 157,000 jobs in October in a deteriorating labor market that will get worse in the months ahead, according to a report by ADP Employer Services.
ADP also said it revised the number of jobs lost in September to 26,000 from the originally reported loss of 8,000. The ADP Employer Services report was jointly developed with Macroeconomic Advisers LLC.
ADP said the private sector job losses in October were the highest since November 2002. Joel Prakken, chairman of Macroeconomic Advisers, said it was “entirely likely” to start seeing job losses of 200,000 per month.
“This is a weak number by any reckoning,” Prakken told a teleconference of journalists about the report.
“It would not to surprise me all at this point to see many more months of declines ... that are comparable to this one if not even somewhat larger and I wouldn’t expect to see a turnaround ... until sometime in the second half of next year.”
A report by outplacement firm Challenger, Gray & Christmas showed job cuts announced in October totaled 112,884, up 19 percent from September, citing evidence of widespread economic malaise as troubles that began in housing and banking infect the rest of the economy.
October represented the year’s worst month for job cuts for several industries, said Challenger, including industrial goods manufacturing, consumer products, pharmaceutical, food and electronics. (Editing by James Dalgleish)