The ISM non-manufacturing composite index increased to 57.1 in December
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Implications:  The early stage of the economic recovery was dominated by the manufacturing sector.  That phase is now over: the service sector is growing rapidly, too.  The US economy continues to pick up steam, supporting our forecast of a 5% real GDP growth rate in Q4.  Today's ISM Services headline of 57.1 is the highest reading since May 2006.  The business activity index, which has an even higher correlation with real GDP growth, hit 63.5, the highest since 2005.  The new orders index was also the highest since 2005.  On the inflation front, the prices paid index increased to 70.0, the highest since the financial panic started in late 2008.  In other news this morning, the ADP employment index, a measure of private sector payrolls, increased by 297,000 in December, the largest increase in the index's history, dating back to 2000.  As a result, we are lifting our forecast for the gain in private sector payrolls in Friday's official Labor Department report to 230,000.  (Non-farm payrolls should climb about 215,000 due to ongoing layoffs by states and localities.)  In other news from late yesterday, automakers reported that sales of cars and light trucks hit a 12.5 million annual pace in December, up 2.3% from November and up 13% versus a year ago.  The service sector is getting stronger, firms are hiring again, and workers are confident enough about the future to ramp up their purchases of big-ticket items.  What a great way to start a new year.

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Posted on Wednesday, January 5, 2011 @ 11:43 AM

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