Service Sector Reports Show Positive Signals

Service sector growth is improving, at least that's what Markit's U.S. sample is reporting. The composite index for September is 52.3, up slightly from 51.9 in the month's flash reading and up solidly from a 5-month low of 51.0 in August. But the composite hides what is disappointing slowing in new orders which are at their weakest growth rate since May. And in a negative indication for Friday's employment report, hiring slowed to a 3-1/2 low in the month. Reports from Markit, unlike other reports, continue to cite uncertainty over the presidential election as a negative factor. A positive in the report is a third straight build in backlog orders which posted their second best gain since April last year. But another negative is a near recovery low in 12-month optimism. Input costs and selling prices are both very subdued.

...meanwhile...

August was a weak month for the ISM non-manufacturing report but not September! The composite index shot up to 57.1 from August's recovery low of 51.4 which now looks like a very odd outlier for this report which otherwise has been consistently strong this year. And new orders are especially strong, up nearly 9 points to 60.0 which points to brisk activity for other readings in the months ahead. Employment is also a very solid plus in the report, up 6.5 points to 57.2 which is the strongest rate of growth since September last year. This particular reading will help offset some of the disappointment over this morning's weak estimate from ADP. Service exports are a specific strength of the U.S. economy and this report points to September gains, at 56.5 for the best reading in a year. Business activity is at 60.3, again very strong, with total backlog orders back in the plus column at 52.0. The great bulk of the nation's economy accelerated sharply at the end of the third quarter, at least based on this report.

Recent History Of This Indicator:
The ISM non-manufacturing index slowed suddenly and sharply in August, down more than 4 points to a new cycle low at 51.4. New orders fell nearly 9 points to a multi-year low at 51.9 with export orders and total backlog orders in sub-50 contraction. Until August, this report had been holding very solidly in the mid-50s range. Forecasters see the index rebounding sizably, to 52.9 in September.