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Economy in Brief

U.S. ISM Nonmanufacturing Index Shows Sluggish Activity
by Tom Moeller  August 3, 2011

This summer has started out with indications of economic weakness relative to the lethargic Q2. The July Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) fell to 52.7 from an unrevised 53.3 in June. The figure was short of Consensus expectations for 53.7. 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 figure is consistent with Monday's indication that the ISM factory sector index fell last month to 50.9 from 55.3 in June. Haver Analytics calculates a composite index using the two readings of the factory and nonmanufacturing sectors. It fell to 52.5 last month, the lowest reading since January of last year. It was below the Q2 average of 53.90. This index has a 73% correlation with Q/Q real GDP growth during the last ten years.

The Nonmanufacturing Index was led by lower readings for new orders (51.7), supplier deliveries (50.5) and employment (52.5). 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. These declines contrasted with a rise in the business activity index to 56.1.

At 56.6, the prices index was down sharply m/m and was its lowest in twelve months. A reduced thirty percent of respondents reported higher prices while nine 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 Jul Jun May Jul'10 2010 2009 2008
Composite Index 52.7 53.3 54.6 53.7 54.0 46.3 47.3
   Business Activity 56.1 53.4 53.6 56.3 57.4 48.1 47.5
   New Orders 51.7 53.6 56.8 56.1 56.8 48.0 47.0
   Employment 52.5 54.1 54.0 50.3 49.8 40.0 43.7
   Supplier Deliveries (NSA) 50.5 52.0 54.0 52.0 52.2 49.0 51.1
Prices Index 56.6 60.9 69.6 53.2 61.4 49.4 66.1
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