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Service industries in the U.S. unexpectedly contracted in March at a faster pace as unemployment climbed and consumer confidence held near a record low.

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, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.

Labor Department figures today showed the economy lost 663,000 jobs in March and unemployment jumped to the highest since 1983, a sign spending may once again falter and prevent the economy from stabilizing. Sales at service providers may stay subdued until policy steps to unclog credit gain traction.

“These are tell-tale signs that we’re not there yet” in terms of an end to the slump, Anthony Nieves, chairman of ISM’s non-manufacturing survey, said in a conference call with reporters. “It’ll take time for different things to kick in. It’s not going to happen overnight.”

Including the 663,000 cut in March payrolls, the economy has lost about 5.1 million jobs since the start of the recession in December 2007.

Increase Projected

The ISM services index was projected to increase to 42, according to the median forecast in a Bloomberg News survey of 67 economists. Estimates ranged from 38 to 45.

The ISM index of new orders industries fell to 38 free car insurance quotes.8 from 40.7 the prior month, and its gauge of employment dropped to 32.3 from 37.3.

A measure of prices paid decreased to 39.1 from 48.1, the ISM report showed.

Manufacturing, which makes up the other 12 percent of the economy, is shrinking at a slower pace. The ISM factory index rose to 36.3 in March, a third consecutive gain that brought it closer to the breakeven point of 50, figures showed on April 1.

Some segments of the service industry are steadying. Retail sales excluding cars and trucks unexpectedly gained in February, the Commerce Department said March 12, and consumer purchases increased for a second straight month.

New autos sold at an annual rate of 9.86 million units, according to sales tracker Autodata Corp. of Woodcliff Lake, New Jersey, after February’s 9.1 million pace that was the lowest since 1981.

Still, the contraction in services has led to failures at several store chains. More than a dozen retailers have filed for bankruptcy since last year, including Circuit City Stores Inc., once the second-largest consumer-electronics retailer, and house wares retailer Linens ‘n Things Inc. This week, Gottschalks Inc., a 105-year-old chain, won permission to shut its remaining department stores.

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