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Economy in Brief

U.S. ISM Nonmanufacturing Index Works Higher
by Tom Moeller  June 4, 2014

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) improved to 56.3 in May, its highest level in nine months. The latest figure beat expectations for 55.5 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 May figure increased to 56.2, also a nine month high. During the last ten years, there has been a 76% correlation between this composite index and the quarterly change in real GDP.

Leading the nonmanufacturing index higher last month was a jump in the new orders figure to 60, its highest point since January 2011. The business activity index also rose moderately to 62.1 and nonmanufacturing payrolls improved to 52.4. 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 supplier delivery index slipped to 50.0, indicating the quickest delivery speeds since October.

The prices paid index gained to 61.4, its highest level since October 2012. Twenty-seven percent of respondents indicated paying higher prices last month while five percent reported them 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 nonmanufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries), each 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.

The Fed's latest Beige Book covering regional economic conditions is available here.

ISM Nonmanufacturing Survey (SA) May Apr Mar May'13 2013 2012 2011
Composite Diffusion Index 56.3 55.2 53.1 54.0 54.7 54.6 54.4
   Business Activity 62.1 60.9 53.4 57.0 56.7 57.7 57.2
   New Orders 60.5 58.2 53.4 56.6 55.9 56.6 56.3
   Employment 52.4 51.3 53.6 50.3 54.4 53.5 52.4
   Supplier Deliveries (NSA) 50.0 50.5 52.0 52.0 51.7 50.6 51.9
Prices Index 61.4 60.8 58.3 54.4 55.6 59.3 65.1
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