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Economy in Brief

U.S. ISM Non-manufacturing Index Improved Slightly
by Tom Moeller November 5, 2007

According to the Institute for Supply Management, the October Business Activity Index for the non-manufacturing sector increased one point to 55.8. The rise made up the one point m/m decline in September and was a better reading than Consensus expectations for a slight decline to 54.

Since the series' inception in 1997 there has been a 44% correlation between the level of the Business Activity Index in the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the factory sector ISM index with the change in real GDP less just services is a higher 57%, though over the last ten years it only has been 34%.

The new orders sub index of the Business Activity Index recovered most of its September decline and rose to 55.7, still down from last year's average level of 57.1. So far this year the orders index has averaged 55.3

The employment sub index, conversely, fell slightly to 51.8. It has averaged 52.1 this year versus 53.8 last 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 fell lightly m/m and for the year so far the index has averaged 61.7 versus 65.2 for all of 2006. 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 non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of five components.

Financial Instability and Monetary Policy is Federal Reserve Board GovernorFrederic S. Mishkin's speech and it is available here.

What Are the Chances? from the Federal Reserve Bank of St. Louis can be found here.

ISM Nonmanufacturing Survey October September October '06 2006 2005 2004
Business Activity Index 55.8 54.8 57.4 58.0 60.2 62.5
Prices Index 63.5 66.1 52.6 65.2 68.0 68.8
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