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Economy in Brief

ISM Nonmanufacturing Index Recovered
by Tom Moeller March 3, 2006

The Institute for Supply Management (ISM) reported that the February Business Activity Index for the non-manufacturing sector recovered most of the prior month's loss with a 3.3 point advance to 60.1. A reading above 50 indicates expansion. The gain outpaced Consensus expectations for a rise to 58.0.

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 employment index seemed to lead the m/m improvement and rose sharply to 58.2, 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. The new orders index was roughly stable after a sharp decline during January.

Pricing power deteriorated to the weakest level since June. 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.

"Measured Pace" in the Conduct of Monetary Policy from the Federal Reserve Bank of St. Louis can be found here.

ISM Nonmanufacturing Survey Feb Jan Feb '05 2005 2004 2003
Business Activity Index 60.1 56.8 60.4 60.1 62.5 58.3
Prices Index 64.8 67.2 67.0 67.9 68.8 56.6
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