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Economy in Brief

U.S. ISM Nonmanufacturing Index Weaker-Than-Expected
by Tom Moeller December 3, 2008

The November Composite Index for the nonmanufacturing sector from the Institute for Supply Management fell sharply to 37.3 from an unrevised 44.4 during October. The figure was weaker than Consensus expectations for a reading of 42.0 and it was the lowest in the series' relatively brief ten year history.

The nonmanufacturing business activity sub-index also fell sharply to 33.0 which was a record low for the series. 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 employment index fell to 31.3 which also was a new low for the series. 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.

The new orders sub-index fell sharply to a recession level of 35.4.

Pricing power also collapsed. The reading of 36.6 was a new record low for the series. Since its 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.

Beginning with the January 2008 Nonmanufacturing Report On Business®, the composite index is 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.

ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.

ISM Nonmanufacturing Survey November October November '07 2007 2006 2005
Composite Index 37.3 44.4 52.4 53.5 55.7 58.0
Prices Index 36.6 53.4 73.7 63.8 65.3 68.0
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