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Economy in Brief

ISM Nonmanufacturing Index Down, Components Up
by Tom Moeller October 4, 2006

The September Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) fell unexpectedly to its lowest level in over three years. The decline to 52.9 compared to Consensus expectations for a lesser drop to 56.0.

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 rose to 57.2, recovering a sharp drop in August, and the employment index also recovered most of its August decline. 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 dropped to its lowest level in three years. 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 September August Sept. '05 2005 2004 2003
Business Activity Index 52.9 57.0 53.7 60.1 62.5 58.3
Prices Index 56.7 72.4 78.4 67.9 68.8 56.6
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