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Economy in Brief

U.S. ISM Nonmanufacturing Index Dipped
by Tom Moeller October 3, 2007

According to the Institute for Supply Management, the nonmanufacturing sector Business Activity Index for September dipped to 54.8 versus August which was unchanged from July. The dip was in line with Consensus expectations for a decline to 55.0.

Since the series' inception in 1997 there has been a 44% 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 provided much of the downward drift to the Business Activity Index and fell to 53.4 from 57.0 in August. The latest reading is near the lowest level since 2003.

The employment sub index, however, recovered most of the declines during the prior two months with a rise to 52.7, back signaling positive jobs growth. Since the series' inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.

Pricing power improved and recovered most of the declines during the prior three months. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q 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.

The Business Activity Index for the nonmanufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average of five components.

ISM Nonmanufacturing Survey September August September '06 2006 2005 2004
Business Activity Index 54.8 55.8 54.6 58.0 60.2 62.5
Prices Index 66.1 58.6 58.2 65.2 68.0 68.8
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