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Economy in Brief

U.S. ISM Nonmanufacturing Index Declines Sharply
by Tom Moeller  April 3, 2019

The Composite Index of Nonmanufacturing Sector Activity from the Institute for Supply Management (ISM) weakened to 56.1 in March, the lowest level since August 2017. The figure remained below the cycle peak of 60.8 reached in September 2018 and was weaker than the 58.0 expected in the Action Economics Forecast Survey. The ISM data are seasonally-adjusted 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 Monday. This composite declined to 56.0, its lowest level since August 2017 and was below the cycle high of 60.7 reached six months earlier. During the last ten years, there has been a 55% correlation between the Composite Index and the quarterly change in real GDP.

Weakness amongst the component series was widespread. The new orders and business activity readings fell sharply from their cycle-highs reached one month earlier. The supplier deliveries index declined and indicated a greatly quickened rate of product delivery.

The employment index improved slightly m/m but remained well below September's cycle peak. During the last ten years, there has been an 82% correlation between the ISM nonmanufacturing sector jobs index and the month-on-month change in private service plus construction sector payrolls. An improved 25% of industries reported a rising jobs level while a stable 13% indicated a decline (both of these readings are not seasonally adjusted).

The prices paid index increased to 58.7 and reversed most of its decline during February. It remained well below its May high. A reduced 21% of respondents (NSA) reported paying higher prices while just two percent of firms paid less.

Among the other detail indexes, which are not seasonally adjusted, the export order series fell and remained well below year-ago levels. It also was down sharply from the cycle peak reached in April 2017. The import index recovered its February decline, but also remained sharply below the 2017 peak. The order backlog measure rose and was up sharply versus its 2016 lows.

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) Mar Feb Jan Mar'18 2018 2017 2016
Composite Diffusion Index 56.1 59.7 56.7 58.8 58.9 57.0 54.9
   Business Activity 57.4 64.7 59.7 60.8 61.5 60.2 58.0
   New Orders 59.0 65.2 57.7 59.4 61.3 59.3 57.6
   Employment 55.9 55.2 57.8 56.3 56.9 55.1 52.5
   Supplier Deliveries (NSA) 52.0 53.5 51.5 58.5 55.8 53.2 51.5
Prices Index 58.7 54.4 59.4 61.9 62.1 57.6 52.6
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