US ISM nonmanufacturing index posts strong advance in October

The ISM nonmanufacturing index rose to 59.1 in the October reading (previous: 56.9), solidly above forecast (57.5) and consensus (56.5) expectations. The details of the survey suggest a strong rebound in service sector activity on the month. Business activity rose to 63.0 (previous: 60.2), new orders reversed their September decline (62.0; previous: 56.7) and new export orders rose to a three-month high of 54.5 (previous: 53.0).

The employment index, which measures the net share of nonmanufacturing industries that saw employment growth during the month, rose to 59.2 (previous: 58.3). This index has historically been a good predictor of private nonmanufacturing payroll growth, but the two series have diverged in recent months.

"The broad-based improvement across the survey components supports our expectation of a rebound in service sector payroll growth in Friday's October employment report. With the composite nonmanufacturing index at the three-month high and the second-strongest level since the recession, we continue to view US service sector activity as solid", says Barclays.