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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves To Highest Level Since 2005
by Tom Moeller  September 5, 2013

Activity in the nonmanufacturing sector really heated up last month. The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) surged to 58.6 during August from 56.0 in July. The latest level was the highest since December 2005 and by far beat consensus expectations for 55.0. 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 Tuesday. The August figure also jumped. Its latest level, 58.3, was the highest reading since November 2005. During the last ten years there has been a 74% correlation between the composite index and the quarterly change in real GDP.

Component improvement in the nonmanufacturing sector was broad-based. The business activity series gained to 62.2, the highest level since December 2010. The new orders series rose to 60.5 while the supplier delivery index surged to 54.5, indicating the slowest delivery speeds since September 2010. The jump in the employment series to 57.0 was to its highest level since February. 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.

In contrast to these increases, the prices index fell to 53.4 and reversed two months of gain. A greatly reduced 13% of respondents indicated higher prices while a higher 9% 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) Aug Jul Jun Aug'12 2012 2011 2010
Composite Diffusion Index 58.6 56.0 52.8 54.3 54.6 54.5 54.1
   Business Activity 62.2 60.4 51.6 56.3 57.7 57.2 57.6
   New Orders 60.5 57.7 52.9 55.6 56.6 56.3 57.0
   Employment 57.0 53.2 55.1 53.9 53.5 52.4 49.8
   Supplier Deliveries (NSA) 54.5 52.5 51.5 51.5 50.6 51.9 52.2
Prices Index 53.4 60.1 56.8 62.3 59.3 65.1 61.4
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