Service Sector Activity Surges to Post-Crisis Record

Stock Market

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Markets reached for modest gains Thursday afternoon, buoyed by a motley array of economic and business reports. Initial jobless claims, reported before the opening bell by the U.S. Bureau of Labor Statistics, declined to a four-week average of just 328,500, the lowest level since October 2007.

ADP and Moody’s Analytics reported that employers added 176,000 people to payrolls last month, roughly in line with the average monthly gain over the past two years. However, planned job cuts, as reported by consultancy firm Challenger, Gray & Christmas, increased 57 percent on the year to 50,462 in August, the highest level since February.

Not to be left out of the party, the Institute for Supply Management published its August Non-Manufacturing Report on Business, which left little to the imagination. The headline index jumped 2.6 percentage points to 58.6, indicating a record rate of accelerating expansion.

ISM’s non-manufacturing Report on Business gauges activity in the notoriously hard-to-measure services sector. The services sector accounts for the majority of gross domestic product and much of the business activity is more relevant to investors. In particular, the highly watched Business Activity Index within the Report on Business can be used as an indicator of the overall health the services sector.

This index increased 1.8 points between July and August to 62.2, signaling expansion at a faster rate and the 49th consecutive period of expansion. Anecdotal reports from nearly every sector show strong increases in demand, as evidenced by a 2.8 point increase in the New Orders index to 60.5.

Complementing the battery of labor market data released Thursday morning, the Employment Index increased 3.8 points to 57, one of its strongest readings to date. A majority of industries reported increases in employment in August, but areas such as mining, utilities, and arts and entertainment suffered.

Adding to the economic indicator jamboree on Thursday was Gallup’s payroll-to-population ratio, which is a measure of the percentage of the total adult population that is employed full time. This metric declined from 44.6 in July to 43.7 in August, while Gallup’s adjusted headline unemployment metric increased from 7.4 to 8.6 percent over the same period.

The news stirred up some uncertainty about Friday’s Employment Situation report, which is the benchmark for the headline unemployment rate. Economists are expecting the headline rate to remain unchanged at 7.4 percent with the addition of about 175,000 payrolls.

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