U.S. ISM Nonmanufacturing Index Is Unchanged But Job Growth At New High

The rate of expansion in service sector activity has been steady this Spring. The Institute for Supply Management's (ISM) Composite Index for the service & construction sectors during May held at 55.4 for the third month, though that still was the highest level since early-2006. In addition, the series has risen considerably from a low of 37.2 late in 2008. The latest figure roughly matched Consensus expectations for a reading of 55.7. Since the series' inception in 1997 there has been a 65% correlation between the level of the composite index in the nonmanufacturing sector and the q/q change in real GDP for the services and the construction sectors.

The employment index posted a gain to 50.4, its first month above the break-even level since December 2007. Twenty-two percent of respondents reported increased hiring while 13% reported fewer jobs. Since the series' inception in 1997 there has been an 80% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries. The business activity index also rose m/m but new orders fell. Thirty-five percent of respondents reported higher orders while only 13% reported them lower. Vendor delivery speeds sped up marginally m/m but they're much slower than early last year.

The pricing power index slipped to 60.6 but remained up sharply from the 2008 low. Thirty-five percent of respondents reported higher prices while 5% reported them lower. At the worst, late in 2008, 41% reported lower prices. Since its inception ten years ago, there has been a 73% correlation between the price index and the q/q change in the GDP services chain price index.

Beginning with the January 2008 Nonmanufacturing Report On Business ®, the composite index is calculated as an indication of overall economic conditions for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found here.

The Bureau of Labor Statistics indicated that initial claims for jobless insurance slipped another 10,000 to 453,000. That followed last week's 11,000 decline which was less than initially reported. The latest number matched Consensus expectations and claims remained near this cycle's lowest. Last week's figure was down from the recession peak of 651,000 reached in March of 2009 but the four-week moving average of initial claims ticked up to 459,000.

A 31,000 increase in continuing claims for unemployment insurance during the latest week reversed the declines during the prior two weeks. Nevertheless, claims remained near the cycle low and down by one-third from the June '09 peak. The overall decline is a function of the improved job market but also reflects the exhaustion of 26 weeks of unemployment benefits. Continuing claims provide an indication of workers' ability to find employment. The four-week average of continuing claims at 4.654M remained near the cycle low. This series dates back to 1966.

Extended benefits for unemployment insurance rose further w/w to 314,311 with recent changes to the duration benefits paid. However, they were down sharply from a peak of 597,688 reached in November.

The insured unemployment rate remained at 3.6% where it has been since mid-February. The rate reached a high of 4.9% during May of 2009. During the last ten years, there has been a 96% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.

The highest insured unemployment rates in the week ending May 15 were in Puerto Rico (5.9 percent), Alaska (5.8), Oregon (5.2), Nevada (4.8), California (4.6), Pennsylvania (4.5), Wisconsin (4.4), North Carolina (4.3), Connecticut (4.1), Michigan (4.0), Montana (4.0), New Jersey (4.0), Rhode Island (4.0), and South Carolina (4.0). The lowest insured unemployment rates were in Virginia (1.8), Texas (2.2), Tennessee (2.6), Wyoming (2.7), Georgia (2.8), Maryland (2.8), Ohio (2.9), Maine (3.0) Florida (3.2) and New York (3.3). These data are not seasonally adjusted but the overall insured unemployment rate is.

The unemployment insurance claims data is available in Haver's WEEKLY database and the state data is in the REGIONW database.