Service sector activity continued to improve last month and was at its highest level since last February. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 57.3 in February versus an unrevised 56.8 during January. The latest beat Consensus expectations for 56.5. 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.

Haver Analytics calculates a composite index using this number and the ISM manufacturing sector index released on Thursday. The figure rose to 56.7, its highest in a year. During the last ten years there has been a 77% correlation between the figure and the quarterly change in real GDP.

The business activity component of the nonmanufacturing index again rose sharply to 62.6, its highest since February. The new orders series also rose m/m to 61.2 while the supplier delivery series fell to 49.5, indicating quicker delivery speeds and more economic slack. The employment series fell to 55.7. That retraced a small piece of the January rise which was to its highest since 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 sharply to 68.4 in February, its highest level since March. An improved 41% of respondents reported higher prices and just 4% 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.