US services sector contracted for first time in a decade as coronavirus freezes economy

Readings below 50 represent contraction in the manufacturing sector

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The U.S. services sector contracted for the first time in more than a decade in April as the coronavirus pandemic paralyzed the nation's economy, according to the Institute for Supply Management.

The ISM non-manufacturing index plunged to 41.8 in April from 52.5 in March, marking the first contraction since services since December 2009. Economists surveyed by Refinitiv expected activity in the services sector to plummet to 36.8.

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Readings above 50 represent an expansion in the non-manufacturing sector, while readings below 50 represent contraction.

The steep decline was driven by the biggest drop in business activity since 1997, according to the report. Business activity plummeted by 22 percentage points, compared to March.

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"Respondents are concerned about the continuing coronavirus impacts on the supply chain, operational capacity, human resources and finances, as well as the uncertain timelines for the resumption of business and a return to normality," Anthony Nieves, ISM chair, said in a statement.

The virus outbreak triggered a majority of states to close non-essential businesses and direct residents to stay at home to mitigate the spread of COVID-19, leading to a massive surge in layoffs. Over the past six weeks, more than 30 million Americans have filed for unemployment benefits, according to the Labor Department.

The U.S. economy also contracted by 4.8 percent in the first quarter, the steepest decline since the 2008 financial crisis.

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