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Economy in Brief

U.S. ISM Non-Manufacturing Index Improved Again
by Tom Moeller April 3, 2008

The Institute for Supply Management reported that its Business Activity Index for the non-manufacturing sector improved again in March to 52.2. That was up from 50.8 in February and from 41.9 in January. Consensus expectations had been for a decline to 48.5.

Despite the March rise the index remained near its lowest level since early 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 ticked up m/m to 50.2 from 49.6 in February.

Conversely the employment sub-index remained unchanged m/m at 46.9, near its lowest level since late 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 increased as indicated by a rise in the prices paid index which recovered the February decline. Nevertheless, the index remained below the November '07 high. 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 for the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of its five components.

Developments in Financial Markets is this morning's testimony by Fed Chairman Ben S. Bernanke and it is available here.

ISM Nonmanufacturing Survey March February March '07 2007 2006 2005
Business Activity Index 52.2 50.8 53.0 56.0 58.0 60.2
Prices Index 70.8 67.9 62.9 63.8 65.3 68.0
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