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Economy in Brief

U.S. ISM Nonmanufacturing Index Rebounds Along With Pricing Power
by Tom Moeller  August 5, 2013

Activity in the nonmanufacturing sector improved last month. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) recovered to 56.0 during July from 52.2 in June. This latest level matched its February high and beat consensus expectations for 53.0. 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 on Thursday. The July figure recovered to 55.9, its highest level since February 2011. During the last ten years there has been a 74% correlation between the composite index and the quarterly change in real GDP.

Driving the improvement in last month's nonmanufacturing index was a higher business activity series. It jumped to 60.4, the highest level since December. The new orders series improved to 57.7 and showed just slightly less of a m/m gain. The supplier delivery index recovered moderately to 52.5, indicating somewhat slower delivery speeds. The employment component slipped m/m to a still-firm 53.2. 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 prices index also rose sharply to its highest level (60.1) since February. An improved 21% of respondents reported higher prices while a steady 7% 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. 

Horseshift! (With Reference to Gordian Knots) is this morning's speech by Richard W. Fisher, President, Federal Reserve Bank of Dallas, and it can be found here.

ISM Nonmanufacturing Survey (SA) Jul Jun May Jul'12 2012 2011 2010
Composite Diffusion Index 56.0 52.2 53.7 52.9 54.6 54.5 54.1
   Business Activity 60.4 51.7 56.5 56.9 57.7 57.2 57.6
   New Orders 57.7 50.8 56.0 55.4 56.6 56.3 57.0
   Employment 53.2 54.7 50.1 49.9 53.5 52.4 49.8
   Supplier Deliveries (NSA) 52.5 51.5 52.0 49.5 50.6 51.9 52.2
Prices Index 60.1 52.5 51.1 57.2 59.3 65.1 61.4
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