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Economy in Brief

ISM Nonmanufacturing Index Up Again, Unexpectedly
by Tom Moeller December 5, 2006

The non-manufacturing sector Business Activity Index rose unexpectedly to 58.9 from 57.1 in October. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a decline to 56.0. Thus far in 4Q the index has averaged 58.0 versus an average of 54.9 last quarter.

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 improved to 57.1 from 56.5 in October and an average 55.0 during 3Q. The employment index also notched up to 51.6 from 51.0 in October but these figures were below the 3Q average of 53.2. 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 improved modestly after sharp declines during four of the prior five months. At 55.6 the November figure remained well off the 3Q average of 68.0. 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 November October Nov. '05 2005 2004 2003
Business Activity Index 58.9 57.1 59.3 60.1 62.5 58.3
Prices Index 55.6 51.9 70.8 67.9 68.8 56.6
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