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Economy in Brief

U.S. ISM Nonmanufacturing Index Continues Sideways Movement
by Tom Moeller  November 3, 2011

The service sector just can't generate improvement. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) was 52.9 last month versus an unrevised 53.0 during September. The figure was just shy of Consensus expectations for 53.5. 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 service and the construction sectors.

The nonmanufacturing index follows Monday's report that the ISM factory sector index for October fell. Haver Analytics calculates a composite index using the two readings of the factory and nonmanufacturing sectors. It fell minimally to 52.7 from 52.8 and was nearly the lowest reading since January of last year. The composite index has a 71% correlation with Q/Q growth in real GDP during the last ten years.

The business activity component of the Nonmanufacturing Index fell back to 53.8, its lowest level since June. The new orders series reversed course and fell to its lowest level (52.4) since July. The supplier delivery series improved to 52.0 and made up most of its September decline. The employment series also recovered to 53.3 after its one-month drop below the break-even level of 50. 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 fell again m/m to 57.1 in October. A lessened twenty one percent of respondents reported higher prices and an improved eleven 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 Oct Sep Aug Oct'10 2010 2009 2008
Composite Index 52.9 53.0 53.3 54.6 54.0 46.3 47.3
   Business Activity 53.8 57.1 55.6 58.5 57.4 48.1 47.5
   New Orders 52.4 56.5 52.8 56.6 56.8 48.0 47.0
   Employment 53.3 48.7 51.6 52.1 49.8 40.0 43.7
   Supplier Deliveries (NSA) 52.0 49.5 53.0 51.0 52.2 49.0 51.1
Prices Index 57.1 61.9 64.2 66.4 61.4 49.4 66.1
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