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Economy in Brief

U.S. ISM Nonmanufacturing Activity Index Unexpectedly Strengthens in June
by Tom Moeller  July 6, 2020

• Overall reading jumps to four-month high.

• Business activity is pronounced.

• Pricing power improves.

Continued re-openings of businesses are reflected in the latest report from the Institute for Supply Management (ISM). The Composite Index of Nonmanufacturing Business Activity increased to 57.1 during June after rising to 45.4 in May. It was the highest level since February. A reading of 49.3 had been expected in the Action Economics Forecast Survey.

Haver Analytics constructs a composite index combining the nonmanufacturing index and the manufacturing reading which was released last Wednesday. The composite index strengthened to 56.6, the highest level since February 2019. During the last 15 years, there has been a 63% correlation between the index level and the q/q change in real GDP. The composite is based on GDP shares.

The index of business activity surged  to 66.0 last month and added to its May gain to 41.0. A strengthened 50% (NSA) of respondents reported improved activity while a greatly lessened 19% reported deterioration. The new orders index rebounded  to 61.6 and added to its May improvement from April's record low of 32.9. The employment figure improved to a three-month high. An improved 16% of respondents reported increased hiring while a greatly lessened 25% reported less. The supplier delivery series offset these increases with a decline to 57.5 (NSA) as delivery speeds picked up.

The prices index increased to 62.4 from May's 55.6. Thirty-five percent of respondents reported higher prices, the most since May 2018, while a lessened nine percent reported lower. The percentage reporting no change in prices was little changed.

The export orders series surged to 58.9 after falling to a low of 36.3 in April and the imports index rose sharply to 52.9. The order backlogs index rose moderately. These series are not seasonally adjusted and are not included in the nonmanufacturing composite.

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.

An Update to the Economic Outlook: 2020 to 2030 from the Congressional Budget Office can be found here.

ISM Nonmanufacturing Survey (SA) Jun May Apr Jun'19 2019 2018 2017
Composite Diffusion Index 57.1 45.4 41.8 55.4 55.5 59.0 56.9
   Business Activity 66.0 41.0 26.0 58.4 58.0 61.7 60.2
   New Orders 61.6 41.9 32.9 56.6 57.5 61.4 59.3
   Employment 43.1 31.8 30.0 55.2 54.9 56.9 55.1
   Supplier Deliveries (NSA) 57.5 67.0 78.3 51.5 51.5 55.8 53.2
Prices Index 62.4 55.6 55.1 58.8 57.6 62.1 57.7
ISM Manufacturing and Nonmanufacturing Composite 56.6 45.1 41.8 55.0 55.0 59.0 57.0
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