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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves
by Tom Moeller  June 05, 2018

The pace of business activity in the service sector firmed last month. The Composite Index of Nonmanufacturing Sector Activity from the Institute for Supply Management (ISM) rose to 58.6 during May from an unrevised 56.8 in April. The Action Economics Forecast Survey expected a rise to 57.5 last month. Despite being below the January high of 59.9, the index remained up sharply versus the August 2016 low of 51.6. 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 released Tuesday. This composite increased to 58.6 from 56.9 in both April and in May 2017. During the last ten years, there has been a 71% correlation between this index and the q/q change in real GDP.

Movement amongst the component series was all positive last month. The business activity reading increased 61.3 and was improved versus the 2016 low. The new orders index rose modestly to 60.5 and also remained up versus 2016. The vendor delivery index rebounded and equaled the slowest rate of order fulfillment since 2005.

The employment measure ticked higher m/m but remained near the lowest level since April of last year. During the last ten years, there has been an 87% correlation between the ISM nonmanufacturing sector jobs index and the m/m change in private service plus construction sector payrolls. An increased 26% (NSA) of industries reported a rising jobs level and a roughly stable 14% indicated a decline.

The prices paid index increased to 64.3 and remained up sharply versus its February 2016 low. A strengthened 41% (NSA) of firms reported paying higher prices while five percent of firms reported paying less.

Amongst the other detail indexes, which are not seasonally adjusted, the export order series declined sharply to the lowest level since December. Nevertheless, it remained up sharply versus 2016. The import index backed away from March's twelve-month high. The order backlog index surged to a record high.

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.

ISM Nonmanufacturing Survey (SA) May Apr Mar May'17 2017 2016 2015
Composite Diffusion Index 58.6 56.8 58.8 57.1 56.9 54.9 57.1
   Business Activity 61.3 59.1 60.6 60.6 60.1 58.0 60.8
   New Orders 60.5 60.0 59.5 58.9 59.3 57.5 59.2
   Employment 54.1 53.6 56.6 57.3 55.2 52.6 56.0
   Supplier Deliveries (NSA) 58.5 54.5 58.5 51.5 53.2 51.5 52.5
Prices Index 64.3 61.8 61.5 50.1 57.7 52.6 50.6


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