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Economy in Brief

U.S. ISM Non-manufacturing Index Slipped, Prices Soared
by Tom Moeller December 5, 2007

According to the Institute for Supply Management, the November Business Activity Index for the non-manufacturing sector slipped to 54.1 from 55.8. A figure above 50 indicates rising activity and the m/m decline somewhat outpaced Consensus expectations for a lesser fall.

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 fell sharply to 51.1 from 55.7. The latest was the lowest reading since early 2003.

The employment sub index similarly fell to 50.8, just barely suggesting rising employment. 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 surged m/m to its highest level since 2005. 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.

ISM Nonmanufacturing Survey November October November '06 2006 2005 2004
Business Activity Index 54.1 55.8 57.4 58.0 60.2 62.5
Prices Index 76.5 63.5 52.6 65.2 68.0 68.8
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