24/7 Wall St.

The services sector is improving. Today’s report from the Institute for Supply Management (ISM) for December rose to 56.1%. Bloomberg was calling for 54.5% and Dow Jones was looking for only 54.0%. The November reading was 54.7%. Today’s ISM data showed expansion in 13 industries and contraction in only five industries.

It is the individual components of this report that stand out. The ISM said that its Business Activity Index was 60.3% (actually down marginally), its New Orders Index was at 59.3%, and its Employment Index came in up six full points at 56.3%. The prices-paid component fell to 56.6% from 57.0%.

So, why does this matter? A reading above 50% indicates the nonmanufacturing sector economy is generally expanding, while a reading below 50% indicates the sector is generally contracting. The United States has been a services and resources economy for what is now about two decades.

Today’s report was the third best reading for 2012, as February 2012 was 57.3% and January 2012 was 56.8%. The lowest reading of 2012 was 52.1% in June. Today’s report also showed the 41st consecutive month of growth in the Business Activity Index.