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Economy in Brief

U.S. ISM Nonmanufacturing Index Slips Again
by Tom Moeller December 3, 2009

Unexpectedly, the November Composite Index for the nonmanufacturing sector deteriorated for the second consecutive month. The figure from the Institute for Supply Management (ISM) fell below the break-even level of 50 to 48.7 and fell short of Consensus expectations for a reading of 51.2. Since the series' inception in 1997 there has been a 64% correlation between the level of the composite index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

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. The figures are available in Haver's USECON database.

Amongst the components, the business activity index for the service sector fell the hardest to 49.6 and just below the break-even level. The new orders series also fell slightly to 55.1 but remained up from November's low of 35.6. The speed of vendor deliveries increased (lower index level) to its quickest since June. Only the employment index showed slight improvement m/m but it remained well below the September level. Since the series' inception in 1997 there has been an 80% 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 increased slightly despite the weakening in business activity. The pricing index rose m/m 57.9 and was up sharply from the December low of 36.1. Since its inception ten years ago, there has been a 73% 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 Nonmanufacturing Survey November October September Nov. '08 2008 2007 2006
Composite Index 48.7 50.6 50.9 37.4 47.4 53.5 55.7
   Business Activity 49.6 55.2 55.1 33.3 47.4 56.0 58.0
   New Orders 55.1 55.6 54.2 35.6 47.0 54.8 57.1
   Employment 41.6 41.1 44.3 31.1 43.8 52.0 53.8
   Supplier Deliveries 48.5 50.5 50.0 49.5 51.1 51.1 53.8
Prices Index 57.8 53.0 48.8 37.0 66.0 63.8 65.3
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