US Service-Sector Growth Unexpectedly Rose to a 10-Month High in December

The Institute for Supply Management (ISM) non-manufacturing index increased to 56.1 in December 2012 from 54.7 in the previous month, thereby beating expectations for a decline to 54.0.
The increase in December was driven by surge in "employment" while "new orders" also posted a solid gain. The "business activity" and "supplier delivery" components declined in the month to provide a partial offset.
The growth in the US service sector as represented by the ISM non-manufacturing index has surprised to the upside in recent months and picked up sharply since hitting a recent low in June 2012 despite the reports of uncertainty about the global economic backdrop and US fiscal policy weighing on activity in the second half of 2012. Most encouragingly, today's report and the complementary manufacturing report released earlier this week point to the US economy gaining momentum to the end of the year despite concerns over the potential effect of the fiscal cliff. With US policymakers reaching an agreement to avert income tax increases on the majority of US workers, some of the uncertainty lingering over the economic outlook has been diminished. This, combined with the highly accommodative monetary policy stance of the Fed, should pave the way for the US economy to maintain its upward trajectory during the coming months.
The pace of growth in the US service sector accelerated in December 2012 as indicated by the ISM non-manufacturing index rising by 1.4 points to 56.1. The increase in the month exceeded market expectations for a decline to 54.0 and moved the index to its highest level since last February.

The increase in the headline index in December reflected gains in the "employment" and "new orders" components that more than offset declines in the other main components. "Employment" jumped 6.0 points to 56.3, more than reversing the 4.6 point decline recorded in November and representing the fastest pace of service-sector employment growth since March of last year. Growth in new orders accelerated for the second straight month, with the component building on the 3.3 point gain recorded in November with a 1.2 point gain in December. The 59.3 reading in the "new orders" index is the highest since last February. "Business activity" declined by 0.9 points in December; however, this is only a slight retracement of the previous month's sizable 5.8 point gain, and the index remains historically elevated at 60.3. "Supplier deliveries" also declined in the month, falling to 48.5 from 49.0 in November, and indicated that suppliers' delivery times were faster than the previous month (delivery times tend to be faster when there is decreasing demand).

The growth in the US service sector as represented by the ISM non-manufacturing index has surprised to the upside in recent months and picked up sharply since hitting a recent low in June despite the anecdotal reports of uncertainty about the global economic backdrop and US fiscal policy weighing on activity in the second half of 2012. Most encouragingly, today's report and the complementary ISM manufacturing report released earlier this week point to the US economy gaining momentum to the end of the year despite concerns over the potential effect of the fiscal cliff. With US policymakers reaching an agreement to avert income tax increases on the majority of US workers, some of the uncertainty lingering over the economic outlook has been diminished. This, combined with the highly accommodative monetary policy stance of the Fed, should pave the way for the US economy to maintain its upward trajectory during the coming months.

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