Housing, factories and services remain in slump

By Burton Frierson

NEW YORK (Reuters) - The slumping U.S. housing, factory and service sectors produced more misery for the world's largest economy in the last two months of 2008 as the year-old recession looked set to drag on into 2009, data showed on Tuesday.

The Federal Reserve, in minutes of its December interest rate meeting, did nothing to dispel worries over the economy.

Fed officials believed the U.S. economy would face "substantial" risks even after benchmark interest rates were cut to near zero, with some worrying about the risk of deflation, the minutes showed.

In the housing market, the original source of the U.S. economic morass, pending sales of existing U.S. homes plunged to their lowest in at least seven years in November, according to data from a real estate industry group.

The service sector, which represents about 80 percent of U.S. economic activity, contracted for a third straight month in December, the Institute for Supply Management said in a separate statement.

Though the slump in services was less severe than expected, the ISM's employment gauge painted a bleak picture of the job market, while tumbling factory orders in November also indicated a weak outlook.

"We are in the throes of the worst recession since the early 1980s," said Kevin Flanagan, fixed income strategist for global wealth management at Morgan Stanley in Purchase, New York.

"Factory orders are getting hit again. The economy is really not receiving any support from any cylinders of the engine. Pending home sales are down much more than expected as well," Flanagan added.