We Just Got An Employment Indicator That Was So Good It's Unbelievable

According to new purchasing manager surveys from the ISM and Markit, the US services sector is in great shape.

Economists noted the unusually strong ISM employment sub-index which jumped to 59.6, the highest level since August 2005.

Combined with today’s better-than-expected ADP private payrolls report, it’s starting to seem more likely that this coming Friday’s official payrolls report could beat expectations. Currently, economists forecast nonfarm payrolls climbed by 235,000 in October, driven by a 224,000 gain in private payrolls.

Pantheon Macroeconomics’ Ian Shepherdson cautions against getting too excited. From his note to clients: “The employment index, however, is still enjoying a hefty seasonal boost, which helps explain why the Oct reading rose to a nine-year high of 59.6. This appears to be consistent with payroll growth of 450,000 per month, which is not going to happen. Had the ISM used the average seasonal factor from 1997 – when the survey started – through 2007, before the financial crisis, the October employment index would have been reported at a much more plausible 57.2, signaling payroll gains at a more plausible – but still very strong – 300,000 or so.”

300,000 would be very strong for private payrolls. Of the 44 economists surveyed by Bloomberg, the highest estimate is 265,000.

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