In the most ominous sign yet for the U.S. economy, the vast services sector — covering everything from restaurants to retailers to banks — contracted in January for the first time in almost five years. Some economists said that if the sector doesn't bounce back this month, it probably will mean the economy is in a recession. The last U.S. recession occurred in 2001. Nazareth College economics professor April Laskey said national indicators point to an economy already in recession, triggered by the housing market collapse in parts of the country and worsened by tapped-out American households that largely have failed to save enough. "That fact is catching up to us now," Laskey said. The shrinkage in the services sector was reported by the Institute for Supply Management, which said its nonmanufacturing index fell to 41.9 in January from 54.4 in December. Any reading below 50 indicates contraction. Services account for almost 350,000 jobs in the five-county Rochester metropolitan statistical area. That's two-thirds of the total, with manufacturing and government jobs making up the rest. The nation's economic outlook is grim, said Robert Manning, research professor of consumer finance at Rochester Institute of Technology. Unless the decline in home values that has afflicted some areas is reversed, more Americans will run out of borrowing options and begin defaulting on their mortgages.

This story ran on Rochester Democrat and Chronicle on February 6, 2008.