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Economy in Brief

ISM Nonmanufacturing Index Down
by Tom Moeller July 6, 2006

The June Business Activity Index for the non-manufacturing sector about matched the three point May decline and fell to 57.0, reported the Institute for Supply Management (ISM). Consensus expectations for a lesser decline to 59.0.

For 2Q the index average nevertheless rose modestly to 60.0 from 59.1 during 1Q. It was the highest quarterly average in a year. 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.

The new orders index fell three points to 56.6, the lowest level since February and the employment index dropped a large six points to 52.0, its lowest since January. 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 eased modestly and gave up half of the prior month's sharp increase. 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.

ISM Nonmanufacturing Survey June May June '05 2005 2004 2003
Business Activity Index 57.0 60.1 61.1 60.1 62.5 58.3
Prices Index 73.9 77.5 61.6 67.9 68.8 56.6
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