Service Sector Stronger Than Expected

Non-manufacturing ISM in October for the U.S. unexpectedly rose to 55.8 (consensus 54, prior 54.8). A reading above 50 tends to indicate expansion. This is good news for the economy as services account for approximately 88% of the total GDP (manufacturing 12%). Continued employment growth indicates that consumers are enjoying income growth even as the housing market slumps.

New orders picked up their growth pace to 55.7, and the price index fell to 63.5, a surprise in light of the higher oil prices. On the weaker side, the backlog of orders fell to 43.5 from 47 (a five year low), and employment also declined. Nine sub industries reported growth, while four reported a slow-down. Imports growth increased as export demand grew even faster. Fewer participants cited concerns about inventory levels. The number of supply managers indicating their inventories are too high fell to 26% versus 35% back in July.