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Economy in Brief

U.S. ISM Nonmanufacturing Index Eased Slightly
by Tom Moeller March 4, 2009

The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) slipped in February to 41.6 from an unrevised January reading of 42.9. Consensus expectations were for a somewhat larger decline to 41.0. Despite the latest drop the index remained, for the third month, improved from the low of last November. A level of the ISM indices below 50 indicates declining activity. 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.

Deterioration in the overall figure last month was broad based including moderate declines in the business activity sub-component and the new orders sub-index The supplier deliveries index fell to a new low indicating little delay in making deliveries.

The employment index improved again and was up moderately from the November low. 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 rose further to the highest level since October. 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 indices 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 February January February '08 2008 2007 2006
Composite Index 41.6 42.9 49.7 47.4 53.5 55.7
Prices Index 48.1 42.5 70.1 66.0 63.8 65.3
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