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Economy in Brief

ISM Nonmanufacturing Index Fell
by Tom Moeller February 3, 2006

The Institute for Supply Management (ISM) reported that the Business Activity Index for the non-manufacturing sector fell last month to 56.8 from an upwardly revised 61.0 in December. A reading above 50 indicates expansion. The latest reading was weaker than Consensus expectations for a decline to 59.5.

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

The new orders component slipped sharply to its lowest level since May 2003 and the employment index, though still indicating growth at 51.1, was at its lowest since July 2004. 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 was stable last month with December. 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 Jan Dec Jan '05 2005 2004 2003
Business Activity Index 56.8 61.0 60.3 60.1 62.5 58.3
Prices Index 67.2 67.2 66.8 67.9 68.8 56.6
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