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Economy in Brief

U.S. ISM Non-Manufacturing Index Fell in May; Prices Rose
by Tom Moeller June 4, 2008

The May Composite Index for the non-manufacturing sector, from the Institute for Supply Management, held about steady with April at 51.7; an improvement from 49.6 in March and well up from the recent low of 44.6 in January. Consensus expectations had been for a lower May reading of 51.0.

Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is now calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indexes for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found here.

The non-manufacturing business activity sub-index also improved to 53.6 from 50.9 in April. So far in 2008 the index has averaged a beak-even 49.9, down from 56.0 during all of last year. Since the series' inception in 1997 there has been a 48% correlation between the level of the business activity index for the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

The new orders sub-index improved to 53.6 from 50.1 in April but the employment index gave back half of its April improvement and fell to 48.7. The series remained below last year's level of 52.0. 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 rose further as the prices paid index rose to 77.0. The latest was the highest level since last November and it was well up from the 2007 average of 63.8. 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.

ISM Nonmanufacturing Survey May April May '07 2007 2006 2005
Composite Index 51.7 52.0 54.5 53.5 55.7 58.0
Prices Index 77.0 72.1 64.3 63.8 65.3 68.0
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