The Institute for Supply Management reported that its Business Activity Index for the non-manufacturing sector improved again in March to 52.2. That was up from 50.8 in February and from 41.9 in January. Consensus expectations had been for a decline to 48.5.

Despite the March rise the index remained near its lowest level since early 2003. A level of 50 is the break even point between rising and falling activity in the service sector.

Since the series' inception in 1997 there has been a 44% correlation between the level of the Business Activity Index in the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors. The correlation of the factory sector ISM index with the change in real GDP less just services is a higher 57%, though over the last ten years it only has been 34%.

The new orders sub index ticked up m/m to 50.2 from 49.6 in February.

Conversely the employment sub-index remained unchanged m/m at 46.9, near its lowest level since late 2002. Since the series' inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.

Pricing power increased as indicated by a rise in the prices paid index which recovered the February decline. Nevertheless, the index remained below the November '07 high. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.

ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.

The Business Activity Index for the non-manufacturing sector reflects a question separate for the subgroups mentioned above. In contrast, the ISM manufacturing sector composite index is a weighted average of its five components.

Developments in Financial Markets is this morning's testimony by Fed Chairman Ben S. Bernanke and it is available here.