U.S. ISM Nonmanufacturing IndexIncreases To Highest Since May '08

Improvement in service sector activity broadened last month to its highest level since May of last year. The Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) rose to 50.9, a level that indicates there was growth in overall service sector activity. The latest level was the highest since May of last year and the figure outpaced Consensus expectations for an increase to 50.0. A level of the ISM index above 50 indicates rising overall service sector activity. Since the series' inception in 1997 there has been a 64% correlation between the level of the composite index index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997. The figures are available in Haver's USECON database.

The improvement in the index again was broad-based amongst the component series. The business activity index for the service sector remained above the break-even level of 50 for the second month. The new orders series also broached 50, up from November's low of 35.6. In addition, the employment index rose to 44.2 and that was the highest level since August of last year. 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.

>Beginning with the January 2008 Nonmanufacturing Report On Business®, the composite index is calculated as an indicator of the overall economic condition 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.

Housing's Great Fall: Putting Household Balance Sheets Together Again from the Federal Reserve Bank of St. Louis can be found here. 

There is a little good news in today's preliminary estimates of August retail trade for the Euro Area. The value of trade managed a small increase of 0.40% after three successive monthly declines. The volume of trade actually declined by 0.18%. It was only a rise in prices of 0.58% that accounted for the rise in the value of trade. The first chart shows indexes of the value, volume and prices of Euro Retail Trade. (We calculated the index of prices by dividing the index of value of trade by the index of volume and multiplying the result by 100.).These are preliminary estimates for the whole area because not all 16 countries have yet reported retail sales data.

France and Italy are important omissions.Eurostat estimates total sales after a significant number of countries have reported sales data. Data are revised as more countries report.Among those countries that have reported, Austria, Belgium, Portugal, Slovenia, and Germany show declines in value; Finland showed no change and Slovakia and Spain showed small gains..The Producer Price Index was also released today and it, too, shows a small increase in August. While one month rise does not set a trend, it may be an indication that the deflationary impact of falling oil prices has run its course.