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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves To Break-Even
by Tom Moeller January 6, 2010

The nonmanufacturing sector has improved from its worst condition at year-end 2008 but it has yet to show much expansion. The December figure from the Institute for Supply Management (ISM) for the service & construction sectors improved to 50.1 last month from  below the break-even level of 50 during November. The latest fell just short of Consensus  expectations. For the year as a whole the index reading of 46.3 was the lowest in the series' history. 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 moved back above break-even at 53.7 and that was up sharply from one year ago. Also, the employment index improved for the second month and was up sharply from its low in November 2008. 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. Countering these gains were declines in the new orders and the speed of vendor deliveries indexes. This latter reading indicates that delivery speeds quickened.

Pricing power improved for the third straight month, but just slightly. The pricing index rose m/m to 58.7 and was up sharply from one year ago. 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.

News About the Future and Economic Fluctuations from the Federal Reserve Bank of Philadelphia is available here

ISM Nonmanufacturing Survey December November October Dec. '08 2009 2008 2007
Composite Index 50.1 48.7 50.6 40.1 46.3 47.4 53.5
   Business Activity 53.7 49.6 55.2 38.9 48.1 47.4 56.0
   New Orders 52.1 55.1 55.6 38.9 48.0 47.0 54.8
   Employment 44.0 41.6 41.1 34.5 40.0 43.8 52.0
   Supplier Deliveries 50.5 48.5 50.5 48.0 49.0 51.1 51.1
Prices Index 58.7 57.8 53.0 36.1 49.4 66.0 63.8

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