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Economy in Brief

U.S. ISM Nonmanufacturing Index Recovers A Bit; Pricing Power Declines
by Tom Moeller  December 5, 2012

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) improved to 54.7 last month from an unrevised 54.2 during October. The figure compared to Consensus expectations for a decline to 53.7. 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 ticked up m/m to 54.1. 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 improved sharply to 61.2, its highest level since February. The new orders series also rose to 54.8, its highest since March. The supplier delivery series fell sharply to 49.0, its lowest since late 2009 and indicated quicker delivery speeds. The employment series fell sharply to 50.3, its lowest since July. 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 fell sharply to 57.0, its lowest since July. A lessened 18% of respondents reported higher prices while 10% 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'11 2011 2010 2009
Composite Index 54.7 54.2 55.1 52.6 54.5 54.1 46.3
   Business Activity 61.2 55.4 59.9 56.1 57.3 57.5 48.1
   New Orders 58.1 54.8 57.7 54.1 56.4 56.9 48.0
   Employment 50.3 54.9 51.1 50.3 52.4 49.7 40.0
   Supplier Deliveries (NSA) 49.0 51.5 51.5 50.0 51.9 52.2 49.0
Prices Index 57.0 65.6 68.1 62.2 65.1 61.6 49.5
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