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Economy in Brief

U.S. ISM Nonmanufacturing Index Suggests Malaise
by Tom Moeller December 5, 2011

Activity in the service sector continued under pressure last month. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) slipped to 52.0 in November versus an unrevised 52.9 during October. The figure was the lowest since January of last year and disappointed 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 report follows last week's indication that the ISM factory sector index for November rose moderately. Haver Analytics calculates a composite index using the two readings of the factory and nonmanufacturing sectors. It slipped to 52.1 from 52.7 and was 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 improved to 56.2 and reversed most of its October fall. The new orders series also ticked up m/m but remained depressed versus last year. The supplier delivery series fell to 50.0 suggesting faster delivery speeds and more economic slack. The employment series gain fell below 50 and reversed last month's improvement. 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 jumped to 62.5 and reversed much of the last two months' deterioration. A low twenty three percent of respondents reported higher prices but a lesser 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 Nov Oct Sep Nov'10 2010 2009 2008
Composite Index 52.0 52.9 53.0 56.0 54.0 46.3 47.3
   Business Activity 56.2 53.8 57.1 59.4 57.4 48.1 47.5
   New Orders 53.0 52.4 56.5 58.5 56.8 48.0 47.0
   Employment 48.9 53.3 48.7 53.6 49.8 40.0 43.7
   Supplier Deliveries (NSA) 50.0 52.0 49.5 52.5 52.2 49.0 51.1
Prices Index 62.5 57.1 61.9 64.7 61.4 49.4 66.1
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