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Economy in Brief

U.S. ISM Nonmanufacturing Index Falls Sharply
by Tom Moeller  December 4, 2013

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) declined sharply during November to 53.9 after an increase to 55.4 in October. The latest was the lowest level since June and fell short of consensus expectations for 55.0. 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 series and the ISM manufacturing sector index released Monday. The November figure fell to 54.3 and remained below the Q3 average of 56.3. During the last ten years there has been a 74% correlation between the composite index and the quarterly change in real GDP.

The business activity series dropped sharply as did the employment index. 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. The new orders index slipped to its lowest level since June but the supplier delivery series improved, indicating slower delivery speeds.

The prices paid index dropped to its lowest level since May. Eleven percent of respondents indicated higher prices while 12% 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. 

The Federal Reserve's latest Beige Book covering regional economic conditions can be found here.

ISM Nonmanufacturing Survey (SA) Nov Oct Sep Nov'12 2012 2011 2010
Composite Diffusion Index 53.9 55.4 54.4 54.8 54.6 54.5 54.1
   Business Activity 55.5 59.7 55.1 60.9 57.7 57.2 57.6
   New Orders 56.4 56.8 59.6 58.0 56.6 56.3 57.0
   Employment 52.5 56.2 52.7 51.4 53.5 52.4 49.8
   Supplier Deliveries (NSA) 51.0 49.0 50.0 49.0 50.6 51.9 52.2
Prices Index 52.2 56.1 57.2 56.9 59.3 65.1 61.4
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