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Economy in Brief

ISM: Activity Outside the Factory Sector Recovered
by Tom Moeller January 5, 2006

The Business Activity Index for the non-manufacturing sector recovered in December about all that it lost in November. The 1.3 point gain to 59.8 followed an unrevised 1.5 point slip in November. A reading above 50 indicates expansion. The latest reading was firmer than Consensus expectations for a rise 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.

The new orders component rose for the third straight month and the employment index added marginally to a 4 point November rise 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 third month to the lowest level since August. 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 Dec Nov Dec '04 2005 2004 2003
Business Activity Index 59.8 58.5 63.9 60.1 62.4 58.2
Prices Index 69.5 74.2 73.6 68.2 69.0 56.8
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