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Economy in Brief

U.S. ISM Nonmanufacturing Index Declines
by Tom Moeller  April 5, 2011

The U.S. nonmanufacturing sector activity back-pedaled last month. The March Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) fell to 57.3 from 59.7 in February. The latest was the lowest level since December and fell short of Consensus expectations for 59.5. Since the series' inception in 1997 there has been a 71% correlation between the level of the nonmanufacturing composite index and the q/q change in real GDP for the services and the construction sectors.

The components of the ISM Index all declined last month. The business activity index fell to 59.7, its lowest since November, while employment also fell sharply to 53.7, its lowest since December. 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 new orders and the supplier deliveries series posted relatively modest declines.

Earlier strength in the pricing power index eased slightly as it slipped m/m to 72.1 but it still was near the cycle high. An increased 51% of respondents reported higher 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. The expectations figure from ACTION ECONOMICS is in the AS1REPNA1 database.

Clearinghouses, Financial Stability, and Financial Reform is the title of yesterday's speech by Fed Chairman Ben S. Bernanke and it can be found here.

ISM Nonmanufacturing Survey Mar Feb Jan Mar '10 2010 2009 2008
Composite Index 57.3 59.7 59.4 54.1 54.0 46.3 47.3
   Business Activity 59.7 66.9 64.6 58.1 57.4 48.1 47.5
   New Orders 64.1 64.4 64.9 61.0 56.8 48.0 47.0
   Employment 53.7 55.6 54.5 47.9 49.8 40.0 43.7
   Supplier Deliveries (NSA) 51.5 52.0 53.5 49.5 52.2 49.0 51.1
Prices Index 72.1 73.3 72.1 62.0 61.4 49.4 66.1
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