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Economy in Brief

U.S. ISM Non-Manufacturing Index Ticked Up
by Tom Moeller August 5, 2008

The Composite Index for the non-manufacturing sector, from the Institute for Supply Management, ticked up in July to 49.5 from an unrevised 48.2 during June. Nevertheless, the figure remained below the 2Q average of 50.6. Consensus expectations had been for a slightly lower July reading of 48.8.

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 fell slightly to 49.6 from 49.9. These readings were down from 56.0 averaged 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 also fell to 47.9 from 48.6 during June. The latest was the lowest level since January.

The employment index bucked the trend and rose off its historic low to 47.1. 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 slightly to a reading of 80.8 after the June surge. 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.

Economy in Low Gear Through 2008 from the Federal Reserve Bank of Chicago can be found here.

ISM Nonmanufacturing Survey July June July '07 2007 2006 2005
Composite Index 49.5 48.2 53.1 53.5 55.7 58.0
Prices Index 80.8 84.5 63.1 63.8 65.3 68.0
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