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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves
by Tom Moeller  June 3, 2011

The May Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 54.6 from 52.8 in April. Nevertheless, the index remained near the lowest since February 2010. The figure roughly matched Consensus expectations for 54.0. 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.

ISM Index component improvement was widespread, but modest, last month. The new orders component rose to 56.8 while the employment series increased to 54.0. 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 series also posted a moderate increase to 54.0, indicating slower delivery speeds. Offsetting these gains was a slip in the business activity series to 53.6.

Pricing power slipped again and the index fell m/m to 69.6 but remained near the cycle high. Fifty three percent of respondents reported higher prices and five percent reported them lower. 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 AS1REPNA database.

ISM Nonmanufacturing Survey May Apr Mar May'10 2010 2009 2008
Composite Index 54.6 52.8 57.3 54.8 54.0 46.3 47.3
   Business Activity 53.6 53.7 59.7 60.0 57.4 48.1 47.5
   New Orders 56.8 52.7 64.1 56.7 56.8 48.0 47.0
   Employment 54.0 51.9 53.7 49.4 49.8 40.0 43.7
   Supplier Deliveries (NSA) 54.0 53.0 51.5 53.0 52.2 49.0 51.1
Prices Index 69.6 70.1 72.1 61.0 61.4 49.4 66.1
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