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Economy in Brief

ISM Nonmanufacturing Index Indicates Strength in Services
by Tom Moeller July 5, 2007

The non-manufacturing sector Business Activity Index for June rose to 60.7, up a point m/m, and the gain was to the highest level since April 2006 according to the Institute for Supply Management.

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 employment sub index ticked up to 55.0, its highest level in more than 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.

The new orders index in contrast, fell m/m to 56.9, a level which still indicates growth in new orders.

Pricing power fell a modest 0.9 points to 65.5 after a sharp 2.9 point rise during May. 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.

The Role of Small Businesses in Economic Development from the Federal Reserve Bank of Kansas City can be found here.

ISM Nonmanufacturing Survey June May June '06 2006 2005 2004
Business Activity Index 60.7 59.7 56.9 58.0 60.2 62.5
Prices Index 65.5 66.4 72.3 65.2 68.0 68.8
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