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Economy in Brief

U.S. ISM Nonmanufacturing Index Retreats
by Tom Moeller  October 3, 2013

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) pulled back to 54.4 during September from an unrevised 58.6 in August. The latest figure was the lowest since June and disappointed consensus expectations for 57.5. During the last ten years there has been a 76% 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 September figure also fell sharply to 54.6, the lowest level in three months. During the last ten years there has been a 74% correlation between the composite index and the quarterly change in real GDP.

Declines in the component series were led by a lower business activity series, which reversed the gains of the prior two months. The supplier deliveries index also declined sharply to 50.0, indicating the fastest delivery speeds this year. The employment index fell hard to 52.7, its lowest since May. 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 jobs in the service-producing plus the construction industries. Finally, the new orders series fell just moderately to 59.6, still the next highest level since February 2011. 

In contrast to these declines, the prices paid index rose modestly to 57.2. Sixteen percent of respondents indicated 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) Sep Aug Jul Sep'12 2012 2011 2010
Composite Diffusion Index 54.4 58.6 56.0 55.2 54.6 54.5 54.1
   Business Activity 55.1 62.2 60.4 59.6 57.7 57.2 57.6
   New Orders 59.6 60.5 57.7 57.8 56.6 56.3 57.0
   Employment 52.7 57.0 53.2 52.0 53.5 52.4 49.8
   Supplier Deliveries (NSA) 50.0 54.5 52.5 51.5 50.6 51.9 52.2
Prices Index 57.2 53.4 60.1 66.1 59.3 65.1 61.4
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