ISM non-Manufacturing Index shows recovery is broadening and accelerating

We’ve had a string of solid reports out in the last week, including a drop in weekly jobless claims, gains in manufacturing and retail sales, and today, a report by ADP that the private sector created nearly 300,000 new jobs last month (see ADP report shows huge jump in employment).

But the good news on the employment front is also being shared by a very respectable increase in the ISM non-Manufacturing Index from 55.0 in November to 57.1 in December. A reading of 50 suggests the service sector is neither expanding nor contracting.



December’s gain is the fourth consecutive monthly increase, indicating that the economy is shrugging off the slowdown experienced during the summer.  Further, key subcomponents, new orders and production, posed sizable increases, foreshadowing additional gains during the first quarter of this year.

A couple of notable items, however, the employment index slipped from 52.7 to 50.5, while prices paid continues  to put modest pressure on profit margins.

Employment in focus
Attention is quickly shifting to Friday’s labor report. Despite the very encouraging data from ADP, we’ll need confirmation on Friday when the government is expected to show that employers added 140,000 new positions, per Bloomberg.

That’s up from a lackluster 39,000 in November, which came on the heals of a solid ADP report.  But after the outsized increase from ADP, many investors will be looking for another upside surprise, as government's number carries more weight when it comes to trends in job growth.

Jobless claims are in a downward trend and the number today suggests we may finally be entering a more self-sustaining phase for what so far has been a rather weak recovery.

If we get confirmation on Friday that the ADP figure was not a fluke, we may finally start to see a level of job creation that is needed to make a dent in an unemployment rate that stands near 10%.