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Economy in Brief

U.S. ISM Nonmanufacturing Activity Weakens
by Tom Moeller  January 7, 2019

The Composite Index of Nonmanufacturing Sector Activity from the Institute for Supply Management (ISM) declined to 57.6 during December from 60.7 in November. It was the lowest level since July, down from a high of 61.6 in September. Expectations had been for 59.0 in the Action Economics Forecast Survey. During all of 2018, the index improved to a record 58.9. A reading above 50 indicates expansion and the figures date back to 1998.

Haver Analytics constructs a Composite Index using the ISM factory sector series released on Thursday and the ISM nonmanufacturing index. The index fell sharply to a five-month low of 57.2. During the last ten years, there has been a 71% correlation between the index level and the q/q change in real GDP.

Leading the nonmanufacturing weakness last month was a decline in the business activity index to 59.9, its lowest level since July. The prices paid series weakened sharply to 57.6, the lowest point since July 2017. A greatly lessened 18% of firms reported higher prices. The supplier deliveries index indicated much quicker delivery speeds as it fell sharply to 51.5, the lowest level since August of 2017. Working upward was the new orders index with an uptick to 62.7, a six-month high.

The employment component also fell sharply to a five-month low of 56.3. Twenty-six percent of respondents reported a rise in payrolls while 14 percent reported a decline.

Amongst the other series in the nonmanufacturing survey, the export order series increased modestly m/m and has been trending upward since early 2017. The order backlog series fell sharply to the lowest point since January of last year. The inventory change index also weakened to the lowest level since last January.

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.

Monetary Policy Frameworks and the Effective Lower Bound on Interest Rates from the Federal Reserve Bank of New York can be found here here.

ISM Nonmanufacturing Survey (SA) Dec Nov Oct Dec'17 2018 2017 2016
Composite Diffusion Index 57.6 60.7 60.3 56.0 58.9 56.9 54.9
   Business Activity 59.9 65.2 62.5 57.8 61.5 60.1 58.0
   New Orders 62.7 62.5 61.5 54.5 61.4 59.3 57.5
   Employment 56.3 58.4 59.7 56.3 57.0 55.2 52.6
   Supplier Deliveries (NSA) 51.5 56.5 57.5 55.5 55.8 53.2 51.5
Prices Index 57.6 64.3 61.7 59.9 62.1 57.7 52.6
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