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Economy in Brief

ISM Non-Manufacturing Index Back Down
by Tom Moeller October 5, 2005

The Business Activity Index for the non-manufacturing sector from the Institute for Supply Management fell a sharp 11.7 points to 53.3 in September. It was a record m/m drop and was at least partly due to Hurricane Katrina. Consensus expectations had been for a lesser decline to 59.7.

Since the series' inception in 1997 there has been a 50% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.

The orders index reversed more than all of the gains during the prior two months with a 9.2 point decline. The employment index similarly fell to the lowest level since May. Since the series' inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.

Pricing power surged 14.3 points to a record high.

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.

Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

ISM Nonmanufacturing Survey Sept Aug Sept '04 2004 2003 2002
Business Activity Index 53.3 65.0 58.7 62.4 58.2 55.1
Prices Index 81.4 67.1 70.1 69.0 56.8 54.0
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