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Economy in Brief

ISM Nonmanufacturing Index Off
by Tom Moeller August 3, 2006

The Institute for Supply Management (ISM) reported that the July Business Activity Index for the non-manufacturing sector fell for the third straight month. The 2.2 point m/m decline to 54.8 exceeded Consensus expectations for a drop to 57.0 and left the index at its lowest level since September 2005.

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 sub-index fell for the third consecutive month to the lowest level in three year. The employment index, however, recovered nearly half of a sharp six point decline in June. 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 also recovered a bit of its June decline and rose to 74.8, a level above the 2Q average. 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.

Instability in U.S. Inflation: 1967-2005 from the Federal Reserve Bank of Atlanta can be found here.

ISM Nonmanufacturing Survey July June July '05 2005 2004 2003
Business Activity Index 54.8 57.0 60.4 60.1 62.5 58.3
Prices Index 74.8 73.9 69.5 67.9 68.8 56.6
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