In September, the US non-manufacturing ISM came out remarkable strong, jumping to its highest level in six months. The headline index rose from 53.7 to 55.1, while a slight drop to 53.4 was expected. The details show a significant improvement in business activity (59.9 from 55.6) and new orders (57.7 from 53.7) and a slight pick-up in imports, from 49.5 to 50.0. Backlog of orders (48.0 from 50.5), inventory change (48.5 from 52.5), inventory sentiment (65.0 from 67.0), employment (51.1 from 53.8) and new export orders (50.5 from 52.0), on the contrary, weakened somewhat. Supplier deliveries stayed unchanged at 51.5, while the prices paid index rose significantly from 64.3 to 68.1. The headline index is surprisingly strong, which might be partly due to a significant improvement in consumer confidence recently and the Fed’s decisiveness to boost growth. Nevertheless, the breakdown continues to show a mixed picture as strength was only based in production and new orders. It will therefore be interesting to see whether the strength continues in the coming months as uncertainty remains high with the upcoming fiscal cliff.
According to the ADP report, US private sector employment rose by 162 000 in September, slightly stronger than the expected 140 000 increase. The previous month’s figure was however downwardly revised from 201 000 to 189 000. Looking at the details, hiring picked up in the goods producing sector (to 18 000 from 14 000), of which part was based in the manufacturing sector (4 000 from 2 000). In the services sector, on the contrary, employment growth slowed from 175 000 to 144 000 in September. The firm-size details show that both across small (81 000 from 94 000) and medium-sized (64 000 from 79 000) firms, net employment rose less than in the previous month. Within large firms, employment rose by 17 000, broadly the same pace as in August (16 000). The ADP report surprised on the upside of expectations, although hiring slowed somewhat from the previous month. All in all, the report came out close to expectations and doesn’t alter our view for tomorrow’s payrolls. Recently the correlation between the ADP and payrolls report was quite poor as the ADP report mostly overestimated the strength of the US labour market.