NEW YORK – The vast U.S. services sector in December grew at its fastest clip in 10 months, boosted by a rise in new orders, according to an industry report released on Friday.
The Institute for Supply Management said its services index rose to 56.1 last month from 54.7 in November.
The December reading was the highest since February and was well above economists' forecasts of 54.2, according to a Reuters poll.
A reading above 50 indicates expansion in the sector.
New orders rose for a second straight month, with the sub-index hitting a 10-month high of 59.3 in December after 58.1 the prior month. The employment index jumped to 56.3, the highest since March. It stood at 50.3 in November.
The survey's business activity index slipped to 60.3 from 61.2 while prices paid fell to 56.6, the lowest in five months, from 57.0.
ANDREW WILKINSON, CHIEF ECONOMIC STRATEGIST, MILLER TABAK & CO., NEW YORK:
"The ISM data certainly looks strong given that the employment component showed its biggest jump in about a year. This supports the view that the economy is picking up steam and employers added to payrolls even with worries about the fiscal cliff.
"This should not change Fed policy, but yesterday was a wake up call. Nobody was expecting the end of Fed bond buying and the onset of tightening and that has given the bond market something to play with. The economy is recovering at the hands of Fed policy and it is getting restored to a point of critical mass where the Fed will eventually remove itself. We could see the central bank tapering off its bond buying across 2013, but do not see it walking away from low interest rates quickly."
AVERY SHENFELD, CHIEF ECONOMIST, CIBC WORLD MARKETS, TORONTO:
"The U.S. services ISM was solid in December...(but) we don't view the services ISM as being as meaningful as the factory ISM survey, given that purchasing managers are less relevant for some services, and less involved in tracking activity.
"Oddly the strength came from a big jump in the employment indicator, which did not line up with today's payrolls figures for the service sector, where gains were quite moderate. Separately, factory orders were slightly disappointing. All told, the two reports roughly cancel out in terms of growth expectations, limiting the likely market response.
JOSEPH TREVISANI, CHIEF MARKET STRATEGIST, WORLDWIDEMARKETS, WOODCLIFF LAKE, NEW JERSEY:
"Overall a good number, especially when combined with the wage improvement in the jobs report. Neutral for the dollar, balancing the hints of QE end in Thursday's Fed minutes against the improved risk environment."
FOREX: The dollar slightly extended gains versus yen, trimmed losses versus the euro
BONDS: U.S. bond prices weaken after stronger-than-expected December ISM
GRAPHIC: The U.S. services sector grew at a faster pace in December, expanding for the 36th consecutive month. Services also expanded in China, but contracted in the euro zone for the eleventh month in a row. http://link.reuters.com/syx44t
(Americas Economics and Markets Desk; +1-646 223-6300)