Service sector activity backpedaled last month. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) fell to 56.0 in March versus an unrevised 57.3 during February and 56.8 in January. The latest was just below Consensus expectations for 56.8. 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 Monday. The figure fell to 55.7 from 56.7. Nevertheless, the Q1'12 figure of 56.3 was up sharply from 52.7 in Q4. 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 fell sharply to 58.9, more-than-giving back its February gain. The new orders series also retrenched m/m to 58.8 while the supplier delivery series was stable at 49.5, indicating quickened delivery speeds and more economic slack. The employment series improved to 56.7 and retraced some of its February decline. It remained near the highest level since 2006. 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 reversed its earlier gain and fell to 63.9. An improved 40% of respondents reported higher prices and just 2% 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.