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Economy in Brief

ISM Nonmanufacturing Index Up More Than Expected
by Tom Moeller February 5, 2007

The non-manufacturing sector Business Activity Index rose more than expected to 59.0 last month and more than reversed the 1.6 point decline during December. Consensus estimates had been for a lesser gain to 57.0 and the figures from the Institute for Supply Management were revised to reflect revisions to seasonal factors.

The figure contrasts with the 2.1 point deterioration in the NAPM composite manufacturing index of factory sector activity for January.

Since the series' inception in 1997 there has been a 46% 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 and the employment index both fell during January, employment to the lowest level in a year. Since the series' inception in 1997 there has been a 56% 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 deteriorated a sharp 4.5 points to 55.2, the lowest level since October. 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 January December Jan. '06 2006 2005 2004
Business Activity Index 59.0 56.7 59.1 58.0 60.2 62.5
Prices Index 55.2 59.7 67.8 65.2 68.0 68.8
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