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Economy in Brief

U.S. ISM Nonmanufacturing Index Up, Prices Down
by Tom Moeller September 4, 2008

The Composite Index for the nonmanufacturing sector, from the Institute for Supply Management, again ticked up. For August it rose to 50.6 from an unrevised 49.5 during July. The latest was the highest level since May. Consensus expectations had been for a slightly lower August reading of 49.5.

Beginning with the January 2008 Nonmanufacturing 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 nonmanufacturing business activity sub-index rose to 51.6 from 49.6 in July and the latest level equaled the 2Q average. Since the series' inception in 1997 there has been a 48% correlation between the level of the business activity index for the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

The new orders sub-index also made up the prior month's decline and rose to 49.7, the highest level since May.

The employment index, conversely, fell m/m to 45.4 and reversed half of its July improvement. Since the series' inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.

Pricing power fell sharply to 72.9 which was its lowest level since May. 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 nonmanufacturing survey dates back to July 1997.

ISM Nonmanufacturing Survey August July August '07 2007 2006 2005
Composite Index 50.6 49.5 52.8 53.5 55.7 58.0
Prices Index 72.9 80.8 60.1 63.8 65.3 68.0
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