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Economy in Brief

U.S. ISM Nonmanufacturing Index Declines; Pricing Power Eases
by Tom Moeller  April 5, 2017

The Composite Index of Nonmanufacturing Sector Activity from the Institute for Supply Management (ISM) fell sharply to 55.2 in March from an unrevised 57.6 during February. It was the lowest level since October. The Action Economics Forecast Survey expected a reading of 57.0. The ISM data are diffusion indexes where readings above 50 indicate expansion.

Haver Analytics constructs a Composite Index using the nonmanufacturing ISM index and the ISM factory sector measure which was released Monday. This composite fell to 55.4 in March from 57.6 in February, and also was the lowest level since October. During the last ten years, there has been a 73% correlation between this index and the q/q change in real GDP.

Most of the nonmanufacturing index components declined last month. The business activity index retreated to 58.9 and reversed its February jump. The new orders reading similarly backpedaled to 58.9, reversing all of its February rise. The employment index fell to 51.6, its lowest level since August. During the last ten years there has been an 89% correlation between the ISM nonmanufacturing sector jobs index and the m/m change in private service plus construction sector payrolls. Working the other way last month was the supplier delivery index where delivery speeds slowed modestly as indicated by the index rise to 51.5.

The prices paid index declined to 53.5, the lowest level in six months. Twenty-one percent (NSA) of firms reported paying higher prices, up from 14% in March 2016. Nine percent of firms paid lower prices, the same as twelve months earlier.

Amongst the other detail indexes, which are not seasonally adjusted, export orders jumped m/m to 62.5, the highest level since May 2007. The import index also strengthened m/m to 56.5, up from 53.0 one year earlier. The order backlog index slightly y/y to 53.0 from 52.0.

The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.

Did the Fiscal Stimulus Work? from the Federal Reserve Bank of Philadelphia is available here.

ISM Nonmanufacturing Survey (SA) Mar Feb Jan Mar'16 2016 2015 2014
Composite Diffusion Index 55.2 57.6 56.5 54.9 54.9 57.1 56.2
   Business Activity 58.9 63.6 60.3 59.7 58.0 60.8 59.6
   New Orders 58.9 61.2 58.6 57.4 57.5 59.2 58.5
   Employment 51.6 55.2 54.7 51.5 52.6 56.0 54.8
   Supplier Deliveries (NSA) 51.5 50.5 52.5 51.0 51.5 52.5 51.8
Prices Index 53.5 57.7 59.0 50.0 52.7 50.6 56.7
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