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Economy in Brief

ISM Nonmanufacturing Index Recovered
by Tom Moeller November 3, 2006

The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month's decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a lesser rise to 54.5.

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 slipped to 56.5 after a sharp September increase though the employment index gave back all of its September gain. At 51.0 it was at the lowest monthly level since 2004 and just 14% of survey respondents reported higher employment. 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 worst since 2003. 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 October September Oct. '05 2005 2004 2003
Business Activity Index 57.1 52.9 59.2 60.1 62.5 58.3
Prices Index 51.9 56.7 74.1 67.9 68.8 56.6
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