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The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 40.8, the lowest level of the year, from 41.6 the prior month. Readings below 50 signal contraction.

The ISM services index was expected to increase to 42, according to the median forecast. Estimates ranged from 38 to 45.

The ISM index of new orders fell to 38.8 from 40.7 the prior month, and its gauge of employment dropped to 32.3 from 37.3. The ISM factory index rose to 36.3 in March, a third consecutive gain bringing it closer to the breakeven point of 50.

Of the 18 industries surveyed, only one reported growth in March: real estate, rental and leasing. Those that reporting contraction were wholesale trade; management of companies and support services; and educational services.

Dan Greenhaus of the equity strategy group with Miller Tabak, says "The service sector is about 70% of our economic performance and broadly speaking, a turnaround is not going to happen without a turnaround in this sector. The bottom line is that the ISM continues to indicate contraction in the service sector and a turnaround is of vital importance."

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