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Economy in Brief

ISM: Activity Expanded Outside the Factory Sector
by Tom Moeller December 5, 2005

The Institute for Supply Management reported that the Business Activity Index for the non-manufacturing sector in November slipped to 58.5 from an unrevised 60.0 the prior month. A reading above 50 indicates expansion. The latest about matched Consensus expectations for a decline to 59.0.

Since the series' inception in 1997 there has been a 53% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.

Despite the decline in the Business Activity gauge, the new orders component rose for the second month after a sharp September decline. In addition, the employment index rose 4 points to the highest level since August. 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 fell for the second month after a 14 point September surge. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP Services chain price index.

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 Nov Oct Nov '04 2004 2003 2002
Business Activity Index 58.5 60.0 61.9 62.4 58.2 55.1
Prices Index 74.2 78.0 73.2 69.0 56.8 54.0
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