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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves Sharply
by Tom Moeller February 3, 2012

Service sector activity rose again last month. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) jumped to 56.8 in January versus 53.0 during December. Figures for 2011 were revised. The latest beat Consensus expectations for 53.2. Since the series' inception in 1997 there has been a 58% 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 Wednesday's indication that the ISM factory sector index for January rose moderately. Haver Analytics calculates a composite index using the two readings of the factory and nonmanufacturing sectors. It rose to 56.5 from 53.0 and was its highest since March. 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 rose sharply to 59.5, its highest since February. The new orders series also rose m/m to 59.4, its highest since March. The supplier delivery series slipped to 51.0 yet still suggested quick delivery speeds and more economic slack. The employment series rose sharply to 57.4. That was its highest since February 2005. Since the series' inception in 1997 there has been an 87% 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 rose moderately to 63.5 from 62.0 in December. It remained down versus early-2011. An improved 32% of respondents reported higher prices and a lesser 5% 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.

Yesterday's testimony by Fed Chairman Ben S. Bernanke is available here.

ISM Nonmanufacturing Survey Jan Dec Nov Jan'11 2011 2010 2009
Composite Index 56.8 53.0 52.6 58.3 54.5 54.1 46.3
   Business Activity 59.5 55.9 56.1 62.4 57.3 57.5 48.1
   New Orders 59.4 54.6 54.1 63.2 56.4 56.9 48.0
   Employment 57.4 49.8 50.3 54.1 52.4 49.7 40.0
   Supplier Deliveries (NSA) 51.0 51.5 50.0 53.5 51.9 52.2 49.0
Prices Index 63.5 62.0 62.2 71.9 65.1 61.6 49.5
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