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Service Sector Expanded at Faster Rate in October

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Dec. 4 2020, Updated 10:52 a.m. ET

ISM non-manufacturing sector stood at 59.1 in October

According to the ISM (Institute for Supply Management), the non-manufacturing sector rose by 2.2 points in October to 59.1. The reading is way above the consensus estimate of 56.7. Over the past year, the ISM non-manufacturing index has risen 3.9%, whereas the Direxion Daily S&P 500 Bull 3X ETF (SPXL) has jumped 7.7% over the same period as of November 4.

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Broad-based expansion in October

The broad-based expansion occurred in almost all indices in October. Due to the business activity, the index climbed to 63.0 and new orders jumped to 62.0 in October. Both these indices grew at a faster rate. About 80% of total employment is represented by the non-manufacturing sector. In October, the employment index rose by 0.9 points to 59.2, indicating improving labor market conditions. Though contracting, prices have seen a modest increase in October.

Other than mining, all the other industries such as transportation, retail healthcare, and utilities reported growth in October. Over the past year, healthcare stocks like PerkinElmer (PKI) and Quest Diagnostics (DGX) have gained 19.1% and 10.1%, respectively, as of November 4. On the other hand, mining stocks like Nucor (NUE) and Freeport-McMoRan (FCX) fell by 19.6% and 56.4%, respectively, over the same period.

Both imports and new export orders are growing at a faster rate

With the dollar strengthening, imports are becoming cheaper. Imports have risen by 1.5% to 54.5 in October. The rising dollar impacted exports adversely. However, businesses are adjusting to the strong dollar. A 2.0% jump in export orders reflects this trend.

The service sector makes up more than 85% of the US economy. With manufacturing picking up in October, faster growth in the service sector may further ramp up economic growth and may trigger positive developments on the rate hike during the December FOMC (Federal Open Market Committee) meeting. In the next article, let’s look at what the Markit report has to say about the US service sector.

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