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Economy in Brief

U.S. ISM Nonmanufacturing Index Continues Higher
by Tom Moeller  February 3, 2011

Like the factory sector, the U.S. service sector continued to improve last month. The January Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 59.4 from 57.1 in December. (New seasonal factors caused data revisions back to 2007.) The latest beat Consensus expectations for a reading of 57.0 and it was the highest since August 2005, up from a low of 37.6 in November 2008. Since the series' inception in 1997 there has been a 71% 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 uniformly positive last month. The business activity index rose to its highest since 2005 while the new orders series was at its highest since August 2005. Also up was the employment figure to its highest since May 2006. Since the series' inception in 1997 there has been an 84% 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 rose to its highest since September as delivery speeds slowed.

The pricing power index rose to its highest since September 2008. An increased 46% of respondents reported higher prices while 4% reported them lower. At the worst, late in 2008, 41% reported lower prices. Since inception ten years ago, there has been a 65% 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 Jan Dec Nov Jan '10 2010 2009 2008
Composite Index 59.4 57.1 56.0 50.7 54.0 46.3 47.3
   Business Activity 64.6 62.9 59.4 52.6 57.4 48.1 47.5
  New Orders 64.9 61.4 58.5 53.8 56.8 48.0 47.0
   Employment 54.5 52.6 53.6 46.0 49.8 40.0 43.7
   Supplier Deliveries (NSA) 53.5 51.4 52.5 50.5 52.2 49.0 51.1
Prices Index 72.1 69.5 64.7 59.6 61.4 49.4 66.1
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