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Economy in Brief

U.S. ISM Nonmanufacturing Index Steady But Pricing Reaches New High
by Tom Moeller May 5,2010

Recovery in the service sector continued last month. The Institute for Supply Management's (ISM) Composite Index for the service & construction sectors held steady in April at 55.4, the highest level since early-2006. Moreover, the series has risen considerably from a low of 37.2 late in 2008. The latest figure fell slightly short of Consensus expectations for a reading of 56.0. Since the series' inception in 1997 there has been a 65% 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.

The business activity index for the nonmanufacturing sector nudged up to 60.3 which was the highest level since early-2006. The supplier delivery index also rose indicating slower delivery speeds. Working the other way, the new orders index retraced a piece of its March surge but remained near the highest level since 2006. Thirty-six percent of respondents reported higher orders while only 11% reported them lower. Finally, the employment index also slipped from the highest level since April 2008 and remained up sharply from the late-2008 low. 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 continued to firm. At its strongest since September 2008, the index at 64.7 was up sharply from the 2008 low. Forty-two percent of respondents reported higher prices while just 2% reported them lower. At the worst, late in 2008, 41% reported lower prices. 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.

ISM Nonmanufacturing Survey April March February April '09 2009 2008 2007
Composite Index 55.4 55.4 53.0 43.9 46.2 47.3 53.5
   Business Activity 60.3 60.0 54.8 45.7 48.0 47.4 56.0
   New Orders 58.2 62.3 55.0 47.4 47.9 47.0 54.8
   Employment 49.5 49.8 48.6 36.9 39.9 43.8 52.0
   Supplier Deliveries (NSA) 53.5 49.5 53.5 45.5 49.0 51.1 51.1
Prices Index 64.7 62.9 60.4 40.6 49.4 66.0 63.8
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