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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves Just Slightly
by Tom Moeller January 5, 2012

In a testimony to still sluggish economic growth, service sector activity improved just slightly last month. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) ticked up to 52.6 in December versus an unrevised 52.0 during November. The figure remained near the lowest since January, 2010 and disappointed Consensus expectations for 53.0. 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 nonmanufacturing index report follows last week's indication that the ISM factory sector index for December rose moderately. Haver Analytics calculates a composite index using the two readings of the factory and nonmanufacturing sectors. It rose to 52.7 from 52.1 but remained near the lowest reading since January, 2010. 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 was unchanged m/m at 56.2. That's down from 62.9 in December, 2010. The new orders series also ticked up m/m but remained depressed versus last year. The supplier delivery series improved to 51.5 and still suggested quick delivery speeds and more economic slack. The employment series remained below 50 but was slightly higher m/m at 49.4. 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 eased slightly to 61.2 from 62.5 in November. It remained down versus early-2011. A low and stable twenty three percent of respondents reported higher prices and a higher seven 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 Dec Nov Oct Dec'10 2011 2010 2009
Composite Index 52.6 52.0 52.9 57.1 54.5 54.0 46.3
   Business Activity 56.2 56.2 53.8 62.9 57.2 57.4 48.1
   New Orders 53.2 53.0 52.4 61.4 56.3 56.8 48.0
   Employment 49.4 48.9 53.3 52.6 52.4 49.8 40.0
   Supplier Deliveries (NSA) 51.5 50.0 52.0 51.5 51.9 52.2 49.0
Prices Index 61.2 62.5 57.1 69.5 65.1 61.4 49.4
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