The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 41.6 from 42.9 in January. Readings below 50 signal contraction.

Companies from retailer J.Crew Group Inc. to financial- services firm JPMorgan Chase & Co. have slashed payrolls and spending as consumers retrench, fueling more cutbacks and weakening confidence further. President Barack Obama has pledged to create jobs and help Americans keep their homes, and Federal Reserve Chairman Ben S. Bernanke yesterday said policy makers may need to expand aid to the banking system.

“It doesn’t look like we’ll pull out of this recession anytime soon,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who had forecast a 41.5 reading for the index. “The labor market is very weak at this point. Firms are trimming inventories and feel they have to cut more.”

Economists forecast the Tempe, Arizona-based ISM’s services gauge would fall to 41, according to the median of 70 projections in a Bloomberg News survey. Estimates ranged from 37 to 44.

Companies in the U.S. cut an estimated 697,000 jobs in February, a report from ADP Employer Services today showed. Job cuts announced by U.S. employers more than doubled from the same month a year earlier, placement firm Challenger, Gray & Christmas Inc. also said today.

Stocks Rebound

China’s announcement that it was considering additional stimulus to revive growth helped push stocks higher around the world, lifted commodity prices and drove down Treasury securities. The Standard & Poor’s 500 Index rose 1.7 percent to 708.14 at 10:42 a.m. in New York. The yield on the 10-year note jumped to 3.00 percent from 2.88 percent late yesterday.

ISM’s measure of employment for non-manufacturing businesses climbed to 37.3 from a record-low 34.4 in January.

Today’s report comes two days before the Labor Department publishes February employment data. Economists predict payrolls dropped by 650,000, the most since 1949, and the jobless rate surged to 7.9 percent, the highest level since 1984, according to the median survey estimates.

The ISM group’s index of new orders for non-manufacturing businesses fell to 40.7 from 41.6 in January. Its gauge of prices paid climbed to 48.1 from 42.5.

Industries in Decline

Wholesalers, retailers and management companies were among the 14 industries that shrank the most last month, today’s report showed. Only one industry, arts and entertainment, expanded in February.

JPMorgan said Feb. 26 it will eliminate 2,800 jobs at Washington Mutual through attrition, bringing to 12,000 the total number of positions lost since the bank bought the failed thrift in September.

J.Crew said Feb. 27 that it is cutting about 95 jobs and suspending matching contributions to employee retirement-savings plans, following companies such as Saks Inc., Macy’s Inc. and Limited Brands Inc., which have recently reduced employment to control costs.

“We are operating in a very tough economic environment,” Chief Executive Officer Millard Drexler said in a statement.

Economy Shrank

The U.S. economy contracted at a 6.2 percent annual pace in the fourth quarter, the most since 1982, the Commerce Department said last week. Consumer spending dropped at a 4.3 percent rate, the most since 1980. Economists say the current recession may turn out to be the worst in seven decades.

Bernanke, who has called the economy’s contraction “severe,” yesterday told the Senate Budget Committee that policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.

“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said.

The Treasury today issued eligibility guidelines for homeowners seeking federal aid that will allow troubled borrowers to lower mortgage rates to as low as 2 percent. The rules require applicants to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” the Treasury said.

A report two days ago showed consumers took advantage of retailers’ post-holiday discounts. Personal spending rose 0.6 percent in January, the first increase in seven months, the Commerce Department said.

“Companies are trying to generate revenue and yet the few buyers that are out there are trying to drive down pricing,” Anthony Nieves, chairman of ISM’s non-manufacturing survey, said in a press conference. “It’s really frustrating.”

Americans collecting jobless benefits reached the highest on record last month, and the Conference Board’s index of consumer confidence plunged to a record-low 25, the New York-based group said on Feb. 24.

 SOURCE: Bloomberg