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Economy in Brief

U.S. ISM Non-Manufacturing Index Lowest Since January, Pricing Power Surged
by Tom Moeller July 3, 2008

In June, the Composite Index for the non-manufacturing sector from the Institute for Supply Management fell to its lowest level since this past January. At 48.2, the index fell from 51.7. Consensus expectations had been for a higher reading of 51.0.

Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is now calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indexes for 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 non-manufacturing business activity sub-index fell to 49.9 from 53.6 and so far in 2008 has averaged a break-even 49.9, down from 56.0 during all of last year. Since the series' inception in 1997 there has been a 48% correlation between the level of the business activity index for the non-manufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.

The new orders sub-index fell hard to 48.6 from 53.6 in May. The employment index fell even harder to 43.8, a historic low for this series. 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 surged to a historic high for this series. 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.

Liquidity Crisis from the Federal Reserve Bank of Philadelphia can be found here.

ISM Nonmanufacturing Survey June May June '07 2007 2006 2005
Composite Index 48.2 51.7 55.1 53.5 55.7 58.0
Prices Index 84.5 77.0 65.6 63.8 65.3 68.0
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