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Economy in Brief

U.S. ISM Nonmanufacturing Index Drops to Four Year Low
by Tom Moeller  March 5, 2014

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) plunged last month to 51.6, the lowest reading since February 2010. The latest figure fell short of expectations for 53.2 in the Action Economics Forecast Survey. During the last ten years, 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 an index using the ISM nonmanufacturing series and the ISM manufacturing sector index released Monday. The February figure fell to 51.8, also the lowest reading since February 2010. During the last ten years, there has been a 76% correlation between the composite index and the quarterly change in real GDP.

Dragging the total index lower last month was an 8.9 point drop in the employment component to 47.5. This indication of m/m contraction in non-manufacturing payrolls was the weakest reading since March 2010. During the last ten years, there has been an 89% correlation between the employment index and the m/m change in private service sector plus construction payrolls. The business activity index showed a lesser 1.7 point decline to 54.6, the weakest reading since December. The supplier delivery index nudged up to 53.0, indicating the slowest delivery speeds since March of last year. The new orders series also inched up to 51.3 but remained near the four year low.

The prices paid index fell to 53.7 and reversed most of the gains in the prior two months. Twenty three percent of respondents indicated higher prices last month while six percent reported lower. During the last ten years, there has been a 78% 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. Readings above 50 indicate expansion in activity.

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) Feb Jan Dec Feb'13 2013 2012 2011
Composite Diffusion Index 51.6 54.0 53.0 54.8 54.7 54.6 54.4
   Business Activity 54.6 56.3 54.3 56.3 56.7 57.7 57.2
   New Orders 51.3 50.9 50.4 56.0 55.9 56.6 56.3
   Employment 47.5 56.4 55.6 55.5 54.4 53.5 52.4
   Supplier Deliveries (NSA) 53.0 52.5 51.5 51.5 51.7 50.6 51.9
Prices Index 53.7 57.1 54.7 57.4 55.6 59.3 65.1
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