ISM Services Report Growth, Employment Lingers

A key survey of the services, financial, and construction industries unexpectedly reported growth in September, beating Wall Street forecasts by more than 2 points.

The Institute for Supply Management said its non-manufacturing index rose to 50.9 last month, marking the first sign of growth in a year and the highest level since May 2008. A score above 50 indicates overall growth; analysts had only forecast a 48.8 score after the 48.4 level is August.

“Unlike the September jobs report, these data suggest the bounce in real activity in the third quarter may be providing some traction for further growth,” said economists at Nomura Global Economics. “The increase in new orders and bigger increase in backlogs suggests these businesses may soon need to resume hiring.”

The jump was led by gains in production, new orders, order backlogs, and imports. Employment continued to deteriorate but at a slower pace than in August, and prices deflated compared to the month before.

“We believe this is further corroboration that the economy continued to recover toward the end of the third quarter, though employment remained a lagging area,” said analysts at RDQ Economics.

Despite the headline gain, only 5 industries reported growth in the month, while 13 said business continued to slow down. That may help to explain why the equities market pared gains upon the release. Stocks do remain positive on the day though.

Details:

• Production improved 3.8 points to 55.1, its highest level since October 2007.
• New Orders climbed 4.3 points to 54.2 â€