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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves To The Highest Level Since Last September
by Tom Moeller July 6, 2009

The service sector continued to show signs of improvement during June. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 47.0 from an unrevised reading of 44.0 during May. Though still below the break-even level of 50, the latest was the highest level since September of last year and it beat Consensus expectations for a reading of 46.0. A level of the ISM index below 50 indicates declining activity. Since the series' inception in 1997 there has been a 60% correlation between the level of the business activity index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

That latest rise came as the employment index jumped to its highest level (43.4) since September. 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 overall business activity index for the service sector rose to 49.8 which was its highest level since September. Also rising to a nine-month high was the new orders series. The gain to 48.6 pulled it well above from last November's low of 35.6. Continuing to suggest that some slack remains in the service sector was a decline in the supplier deliveries component which fell back to near the series' lowest level.

With an upside breakout, the price index rose about as it did during May. The strong 6.8 point gain to 53.7 was also the highest level since last September. 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 of 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.

Lessons Learned from the Financial Crisis from the Federal Reserve Bank of New York can be found here.

ISM Nonmanufacturing Survey June May June '08 2008 2007 2006
Composite Index 47.0 43.7 48.8 47.4 53.5 55.7
   Business Activity 49.8 42.4 50.7 47.4 56.0 58.0
   Employment 43.4 39.0 45.2 43.8 52.0 53.8
Prices Index 53.7 46.9 82.1 66.0 63.8 65.3
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