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Economy in Brief

U.S. ISM Nonmanufacturing Index Deteriorates Along With Pricing Power
by Tom Moeller  May 3, 2013

The Activity Index for the service and construction sectors from the Institute for Supply Management (ISM) declined further to 53.1 last month from 54.4 during March. This latest level was the lowest in nine months and disappointed expectations for 54.0. 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 Wednesday. The figure declined m/m to 52.8, also its lowest level since July. 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 reading of business activity (55.0) while the employment component fell to 52.0. 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 fell to 51.0, suggesting the fastest delivery speeds this year, but the new orders reading was roughly stable at 54.5.

The prices index continued downward to 51.2, its lowest reading since last June. A lessened 22% of respondents reported higher prices while an increased 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 (SA) Apr Mar Feb Apr'12 2012 2011 2010
Composite Diffusion Index 53.1 54.4 56.0 53.7 54.6 54.5 54.1
   Business Activity 55.0 56.5 56.9 55.2 57.7 57.2 57.6
   New Orders 54.5 54.6 58.2 56.6 56.6 56.3 57.0
   Employment 52.0 53.3 57.2 53.9 53.5 52.4 49.8
   Supplier Deliveries (NSA) 51.0 53.0 51.5 51.5 50.6 51.9 52.2
Prices Index 51.2 55.9 61.7 55.9 59.3 65.1 61.4
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