US: Payroll expectations revised higher after ISM services index

On Thursday, the ISM service sector report for January showed better-than-expected numbers, with the main index hitting multi-month highs. The employment component showed a significant increase and analysts at Wells Fargo revised higher their expectations for Friday’s Non-farm payrolls.

Key Quotes:

“According to the ISM services index, the groundhog was wrong—it could be an early spring after all. The composite index rose to a post-pandemic high of 58.7 despite expectations for a decline.”

“Among the various sub-components, the improvement was broadly based. New orders and order backlogs both moved higher.”

Business activity edged slightly lower to 59.9 from 60.5 perviously, but on balance, this report reveals unexpected vitality in a service sector that is still beset by an ongoing pandemic and COVID case counts that only began falling in the second half of last month.

“Hiring seems to be back on track as well. Employment saw the biggest increase of any sub-component, jumping out of negative territory to 55.2—the highest reading since the pandemic struck nearly a year ago. Along with a stronger employment reading from the ISM manufacturing report, we are upwardly revising our January payroll forecast to a gain of 60K (previously a decline of 20K). Like in the manufacturing sector, however, labor shortages were reported as a constraint on activity and a contributing factor to longer delivery times.”

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