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Economy in Brief

U.S. ISM Nonmanufacturing Index Recovers
by Tom Moeller   October 5, 2010

The U.S. service sector last month recovered most of what it lost during August. The September Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 53.2 from 51.5 in August. The latest level still was just above the lowest since January and left the Q3 average down from Q2. The September figure beat Consensus expectations for a reading of 52.0 and it remained up from a low of 37.2 late in 2008. 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.

The performance of the components of the ISM Index was varied last month. The new orders series rose m/m to 54.9 but the Q3 average was the lowest since Q4 '09. Also, sharply higher was the supplier delivery index indicating slower delivery speeds. The employment series nearly recovered its August decline and that left Q3 roughly equal to Q2. Fifteen  percent of respondents increased hiring while 17% reported fewer jobs. 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. Weakest m/m was the new orders series which fell for the fourth straight month to its lowest level since January.

The pricing power index held roughly stable at 60.1 but the Q3 level of 57.7 was the lowest this year. Twenty-two percent of respondents reported higher prices while 8% reported them lower. At the worst, late in 2008, 41% reported lower prices. Since its inception ten years ago, there has been a 71% 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 indication of overall economic conditions 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.

The ISM data are available in Haver's USECON database.

ISM Nonmanufacturing Survey September August July Sept. '09 2009 2008 2007
Composite Index 53.2 51.5 54.3 50.1 46.2 47.3 53.5
  Business Activity 52.8 54.4 57.4 53.2 48.0 47.4 56.0
  New Orders 54.9 52.4 56.7 53.1 47.9 47.0 54.8
  Employment 50.2 48.2 50.9 44.1 39.9 43.8 52.0
  Supplier Deliveries (NSA) 55.0 51.0 52.0 50.0 49.0 51.1 51.1
Prices Index 60.1 60.3 52.7 50.2 49.4 66.0 63
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