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Economy in Brief

ISM Nonmanufacturing Index Slipped
by Tom Moeller January 4, 2007

The non-manufacturing sector Business Activity Index fell as expected to 57.1 last month and reversed all of November's 1.8 point increase. The figure from the Institute for Supply Management (ISM) averaged 57.9 last year versus an average of 60.1 during 2005 but did improve slightly during the fourth quarter from 3Q.

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 hard during December to 54.4, the lowest level since August. The employment index, however, improved to 53.3, its highest since September. 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 for the second month and rose to 59.1. 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 December November Dec. '05 2006 2005 2004
Business Activity Index 57.1 58.9 61.0 57.9 60.1 62.5
Prices Index 59.1 55.6 67.2 65.4 67.9 68.8
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