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Economy in Brief

U.S. ISM Non-Manufacturing Index Somewhat Improved
by Tom Moeller March 5, 2008

The Business Activity Index for the non-manufacturing sector, from the Institute for Supply Management, last month improved somewhat to a reading of 50.8 from 41.9 in January. Consensus expectations had been for less of an improvement to 47.7.

Despite the rise in February, the index remained near its lowest since 2003. A level of 50 is the break even point between rising and falling activity in the service sector.

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 rose m/m to a reading of 49.6 and made up a little more than half of its ten point decline during January.

Conversely, the employment sub index also rose but its 3.0 point rise to 46.9 made up less than half the January decline. That was to its lowest level since 2002. 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 again eased slightly m/m for the third month, however, the level of 67.9 remained well above that of the last two years. 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 February January February '07 2007 2006 2005
Business Activity Index 50.8 41.9 54.9 56.0 58.0 60.2
Prices Index 67.9 70.7 53.9 63.8 65.3 68.0
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