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Economy in Brief

U.S. ISM Nonmanufacturing Index Improvement Stalls
by Tom Moeller  February 5, 2013

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) matched expectations and slipped to 55.2 last month from a revised 55.7 during December. (Earlier figures were revised due to updated seasonal factors.) Since the series' inception in 1997 there has been a 75% 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 an index using the ISM nonmanufacturing and the ISM manufacturing sector index released last Friday. The figure was roughly unchanged m/m at 55.0. During the last ten years there has been a 74% correlation between the composite and the quarterly change in real GDP.

Last month's nonmanufacturing index was supported by the employment component, which rose to 57.5, its highest level since February 2006. Since the series' inception in 1997 there has been an 88% 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 supplier delivery index also recovered to 52.5, its highest level since May, indicating slower delivery speeds. Offsetting these improvements were declines in the business activity and new orders components.

The prices index improved m/m to 58.0 but remained near its lowest level since July. An increased 23% of respondents reported higher prices while just 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.  

ISM Nonmanufacturing Survey (SA) Jan Dec Nov Jan'12 2012 2011 2010
Composite Diffusion Index 55.2 55.7 54.8 56.0 54.6 54.5 54.1
   Business Activity 56.4 60.8 60.9 58.7 57.7 57.2 57.6
   New Orders 54.4 58.3 58.0 57.8 56.6 56.3 57.0
   Employment 57.5 56.3 51.4 46.5 53.5 52.4 49.8
   Supplier Deliveries (NSA) 52.5 48.5 49.0 51.0 50.6 51.9 52.2
Prices Index 58.0 56.1 56.9 62.3 59.3 65.1 61.4
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