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January 05, 2006
The Service Sector Stages A Comeback
Nonmanufacturing sectors of the U.S. economy expanded at a faster pace during December, the Institute for Supply Management reported Thursday. The ISM nonmanufacturing index rose to 59.8% from 58.5% in November. The improvement in December almost entirely erases a drop in the previous month. The rise was larger than expected. Economists were looking the index to inch higher to 58.9%. New orders rose to 61.9% from 59.5%. The employment index inched higher to 57.1% from 57.0%. Inflation pressures eased somewhat. The price index slipped to 69.5% from 74.2% in the previous month.
Commentators were particularly attracted to the employment piece of the report. From MarketWatch:
Economists said the details in the report suggest a strong December unemployment report to be released on Friday.
Jennifer Lee, economist at Nesbitt Burns, said the strength in the ISM services employment component raises the odds of a 200,000 or more increase in nonfarm payroll employment.
Ken Kim, economist at Stone & McCarthy, said the data suggests about 172,000 new jobs in December.
The experts were somewhat less impressed with the price data. From Reuters:
While the prices paid component did fall, ISM cautioned it remained at historically high levels.
"The main reason for the decline in the price index in December was the decline in energy prices -- while the index is down, it's still at a historically high level," said Ralph Kauffman, chair of the ISM Non-Manufacturing Business Survey Committee.
"The pressure on prices may be relieved a little bit, but not a whole lot," Kauffman said.
In other news today, retails sales for December were "slightly ahead of modest expectations", and initial unemployment claims fell to a five-year low. Put it all together and what do you get? How about this:
... the expansion in economic activity appears solid... Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.
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