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Economy in Brief

U.S. ISM Nonmanufacturing Index Highest Since 2006
by Tom Moeller  January 05, 2011

For the fourth consecutive month the U.S. service sector improved. The December Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 57.1.0 from 55.0 in November. The latest beat Consensus expectations for a reading of 55.5. It was the highest since May 2006 and was 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 split last month. The business activity index recovered its November decline with a rise to its highest since 2005. The new orders series also was at its highest since 2005. To the downside, the employment figure declined to barely break-even. Eighteen percent (NSA) of respondents increased hiring while an increased 16% 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. The supplier deliveries index also fell as delivery speeds sped up.

The pricing power index improved to its highest since September 2008. An increased 35% of respondents reported higher prices while 5% 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 ISM data are available in Haver's USECON database.

ISM Nonmanufacturing Survey Dec Nov Oct Dec '09 2010 2009 2008
Composite Index 57.1 55.0 54.3 49.8 54.1 46.2 47.3
    Business Activity 63.5 57.0 58.4 53.2 57.5 48.0 47.4
    New Orders 63.0 57.7 56.7 52.0 56.9 47.9 47.0
    Employment 50.5 52.7 50.9 43.6 49.7 39.9 43.8
    Supplier Deliveries (NSA) 51.5 52.5 51.0 50.5 52.2 49.0 51.1
Prices Index 70.0 63.2 68.3 59.6 61.5 49.4 66.0
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