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Economy in Brief

U.S. ISM Non-manufacturing Index Fell Again
by Tom Moeller January 4, 2008

According to the Institute for Supply Management, the December Business Activity Index for the non-manufacturing sector fell to 53.9 from 54.1. 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%.

Both the new orders sub index and the employment sub index rose, though the latter remained ear the 2007 average which was down from 2006 which was down from 2005. 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 eased m/m, but only slightly. 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.

Sticky Prices: Why Firms Hesitate to Adjust the Price of Their Goods from the Federal Reserve Bank of New York an be found here.

ISM Nonmanufacturing Survey December November December '06 2007 2006 2005
Business Activity Index 53.9 54.1 56.7 56.0 58.0 60.2
Prices Index 72.7 76.5 59.7 63.9 65.2 68.0
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