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Economy in Brief

U.S. ISM Nonmanufacturing Index Falls Sharply
by Tom Moeller  April 3, 2013

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) declined significantly to 54.4 last month from 56.0 during February. This latest level was the lowest since August and compared to expectations for stability at 56.0. 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 a composite index using the ISM nonmanufacturing and the ISM manufacturing sector index released Monday. The figure declined m/m to 54.0, its lowest level also since August. During the last ten years there has been a 74% correlation between the composite and the quarterly change in real GDP.

Last month's deterioration in the nonmanufacturing index reflected a lower new orders figure at 54.6. In addition, the employment component fell to 53.3, its lowest level in six months. 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. Accompanying these declines was comparative stability in the business activity index at 56.5. Also, the supplier delivery figure increased to 53.0, indicating substantially slower delivery speeds.

The prices index retraced its recent improvement. The decline to 55.9 was to its lowest level in nine months. A lessened 26% of respondents reported higher prices while 6% 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) Mar Feb Jan Mar'12 2012 2011 2010
Composite Diffusion Index 54.4 56.0 55.2 55.0 54.6 54.5 54.1
   Business Activity 56.5 56.9 56.4 58.4 57.7 57.2 57.6
   New Orders 54.6 58.2 54.4 56.6 56.6 56.3 57.0
   Employment 53.3 57.2 57.5 55.4 53.5 52.4 49.8
   Supplier Deliveries (NSA) 53.0 51.5 52.5 49.5 50.6 51.9 52.2
Prices Index 55.9 61.7 58.0 64.3 59.3 65.1 61.4
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