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Economy in Brief

U.S. ISM Nonmanufacturing Index Decline Stabilizes
by Tom Moeller  September 6, 2011

The August Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 53.3 from an unrevised 52.7 during July. The figure beat Consensus expectations for a further decline to 51.0. 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 service and the construction sectors.

The figure follows last week's report that the ISM factory sector index for August slipped to 50.6 from 50.9 during July. Haver Analytics calculates a composite index using the two readings of the factory and nonmanufacturing sectors. It ticked up to 53.0 last month but still was nearly 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 slight improvement in the Nonmanufacturing Index was due to a higher (slower) supplier deliveries index (53.0) and an uptick in  new orders (52.8). The business activity index (55.6) and the employment series (51.6) both slipped m/m. 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 prices index recovered m/m to 64.2, its highest since May. A lesser twenty eight percent of respondents reported higher prices but also a slightly reduced eight 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.

Rebalancing the Housing Market is last week's speech by Fed Governor Elizabeth A. Duke and it can be found here.

ISM Nonmanufacturing Survey Aug Jul Jun Aug'10 2010 2009 2008
Composite Index 53.3 52.7 53.3 52.8 54.0 46.3 47.3
   Business Activity 55.6 56.1 53.4 55.8 57.4 48.1 47.5
 New Orders 52.8 51.7 53.6 55.0 56.8 48.0 47.0
   Employment 51.6 52.5 54.1 49.5 49.8 40.0 43.7
   Supplier Deliveries (NSA) 53.0 50.5 52.0 51.0 52.2 49.0 51.1
Prices Index 64.2 56.6 60.9 60.9 61.4 49.4 66.1
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