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Economy in Brief

ISM Non-Manufacturing Index Fell, Hiring Rose
by Tom Moeller June 3, 2004

The Institute for Supply Management reported that its Business Activity Index for the Nonmanufacturing Sector dipped last month to 65.2 from the record high of 68.4 in April. Consensus expectations had been for a lesser decline to 66.0.

Since the series' inception in 1997 there has been a 59% correlation between the Business Activity Index and the q/q change in GDP services plus construction.

The employment index rose further to 56.3 as 23% of firms reported higher employment; up from 21% in April, 12% in 2002 and 17% last year. May was the tenth month in eleven the employment reading was above 50.

Since the series' inception in 1997 there has been a 62% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.

The new orders index fell to 61.3 from 65.6 in April.

Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.

The seasonally adjusted prices index rose to a series' high of 74.4.

ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.

ISM Nonmanufacturing Survey May April May '03 2003 2002 2001
Business Activity Index 65.2 68.4 56.1 58.1 55.1 48.9
Prices Index 74.4 68.6 50.7 56.7 53.9 51.5
U.S. Light Vehicle Sales Up
by Tom Moeller June 3, 2004

Aggressive price discounting raised unit sales of light vehicles 8.7% last month to 17.84M (9.3% y/y). May was the highest monthly selling rate since last July. Consensus expectations were for sales of 16.6M.

Car sales jumped 8.9% to 8.01M. Sales of light trucks rose 8.5% to 9.82M.

Domestic light vehicle sales gained 8.9% m/m to 14.27M (+9.2% y/y). Imported vehicle sales rose 7.7% to 3.56M (9.6% y/y).

Imports' share of the US market for new vehicles in May was 20.0%.

Light Vehicle Sales (SAAR, Mil.Units) May April Y/Y 2003 2002 2001
Total 17.84 16.41 9.3% 16.69 16.81 17.26
  Autos 8.01 7.36 7.5% 7.63 8.07 8.48
  Trucks 9.82 9.06 10.7% 9.06 8.74 8.78
Initial Claims for Jobless Insurance Edge Lower
by Tom Moeller June 3, 2004

Initial claims for jobless insurance fell 6,000 last week to 339,000. The prior week was revised up slightly. Consensus expectations had been for 340,000 initial claims.

The 4-week moving average of initial claims rose for the second week to 341,000 (-19.6% y/y).

Continuing claims for unemployment insurance rose 65,000 but the prior week's increase was revised down.

The insured rate of unemployment ticked up to 2.4%.

Unemployment Insurance (000s) 5/29/04 5/22/04 Y/Y 2003 2002 2001
Initial Claims    339 345 -22.2% 403 404 406
Continuing Claims    -- 3,003 -17.8% 3,533 3,573 3,023
1Q04 U.S. Productivity Revised Up
by Tom Moeller June 3, 2004

Non-farm labor productivity growth for 1Q04 was revised up to 3.8% from 3.5%, about as expected.

The revision reflected an upward revision to output growth to 5.4% (5.9% y/y) from 4.9%. Hours worked by all persons (employment times hours) were little revised, up 1.5% (0.4% y/y).

Growth in unit labor costs was revised up to 0.8% from 0.5% as compensation growth was revised to 4.6% from 4.0%.

Productivity growth in the nonfinancial corporate sector fell to 2.3% (6.4% y/y) from 4.3% in 4Q and 9.5% in 3Q. The slowdown lifted unit labor costs by 2.7% versus declines of 0.4% and 4.2% in the prior two quarters. Compensation growth was relatively stable at 5.1% (4.9% y/y).

During the last ten years there has been a 84% (negative) correlation between quarterly growth in unit labor costs and growth in unit profits in the nonfinancial corporate sector.

Productivity in the manufacturing sector was revised down to 2.9% (5.2% y/y) from 3.1%. Unit labor costs in the factory sector rose 3.1% (0.9% y/y) versus the initial report of 2.0% growth.

Non-farm Business Sector (SAAR) 1Q '04 (Revised) 1Q '04 (Prelim) 4Q '03 (Final) Y/Y 2003 2002 2001
Output per Hour 3.8% 3.5% 2.5% 5.5% 4.4% 5.0% 2.1%
Compensation 4.6% 4.0% 4.2% 4.6% 3.5% 2.3% 3.9%
Unit Labor Costs 0.8% 0.5% 1.7% -0.8% -0.9% -2.5% 1.7%
Factory Inventory Accumulation Continued
by Tom Moeller June 3, 2004

Factory inventories rose for the fifth straight month in April. The 0.4% gain followed an upwardly revised March increase and pulled the y/y comparison positive for the first time since June 2003. Nondurable goods industries (mostly chemicals) have dominated the swing to inventory accumulation. The swing amongst durable industries has been scattered.

Factory orders fell 1.7% in April following an upwardly revised March gain. The decline was about as expected. It reflected a 3.2% decline in durable goods orders which was revised from the advance report of a 2.9% drop.

Non-durable goods orders (which equal shipments) were unchanged (11.2% y/y) following a 4.0% March jump.

Factory shipments fell 0.5%. Excluding the transportation sector shipments rose 0.2% (12.4% y/y).

Factory Survey (NAICS) April Mar Y/Y 2003 2002 2001
Inventories 0.4% 0.4% 0.2% -1.3% -1.8% -6.1%
New Orders -1.7% 5.0% 12.5% 3.7% -1.9% -6.7%
Shipments -0.5% 4.2% 12.0% 2.6% -2.0% -5.4%
Unfilled Orders 0.5% 1.4% 7.2% 4.2% -6.1% -5.9%
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