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Economy in Brief

ISM Nonmanufacturing Index Sustained Improvement
by Tom Moeller April 5, 2006

The March Business Activity Index for the non-manufacturing sector inched up to 60.5 from 60.1 during February, reported the Institute for Supply Management (ISM). These levels are much improved versus the low January reading of 56.8 and the latest beat Consensus expectations for a decline to 59.0.

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 new orders index improved to the highest level this year, though at 59.5 remained below the 2005 average. The employment index backpedaled to 54.6 and so far this year is down slightly from the 2005 average of 55.9. 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 again and has fallen continually since the series peak last September. 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.

"This is Bangalore Calling: Hang Up or Speed Dial? What Technology-Enabled International Trade in Services Means for the U.S. Economy and Workforce from the Federal Reserve Bank of Cleveland can be found here.

ISM Nonmanufacturing Survey Mar Feb Mar '05 2005 2004 2003
Business Activity Index 60.5 60.1 61.8 60.1 62.5 58.3
Prices Index 60.5 64.8 65.9 67.9 68.8 56.6
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