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Economy in Brief

ISM Nonmanufacturing Index Decline As Expected
by Tom Moeller June 5, 2006

The Business Activity Index for the non-manufacturing sector in May retraced all of the gains posted during the prior two months. The nearly three point m/m decline to 60.1, reported by the Institute for Supply Management (ISM), was in line with Consensus expectations for a drop to 60.0.

For 2Q, the index has averaged 61.6 versus 59.1 during 1Q. Since the series' inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.

A five point decline in the new orders index to 59.6 gave back all of the prior month's improvement but the employment index rose for the second consecutive month to near the 2006 high. 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 surged to the highest level (77.5) since 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 back to July 1997.

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.

New Views on Immigration from the Federal Reserve Bank of St. Louis can be found here.

ISM Nonmanufacturing Survey May April May '05 2005 2004 2003
Business Activity Index 60.1 63.0 59.2 60.1 62.5 58.3
Prices Index 77.5 70.5 62.4 67.9 68.8 56.6
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