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Economy in Brief

U.S. ISM Nonmanufacturing Index Improves Further
by Tom Moeller   December 03, 2010

For the third consecutive month the U.S. service sector improved. The November Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 55.0 from 54.3 in October. The latest beat Consensus expectations for a reading of 54.7 and it remained up from a low of 37.2 late in 2008. 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 performance of the components of the ISM Index was mostly positive last month. Only the business activity slipped to 57.0 from its highest level since June. The new orders series rose to its highest since April. Finally, the employment figure increased to the highest level since 2007. Sixteen percent (NSA) of respondents increased hiring while a lessened 11% 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 supplier deliveries index increased as delivery speeds slowed a bit.

The pricing power index fell back and reversed half of its October increase. A lessened twenty-eight 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 71% 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 ISM data are available in Haver's USECON database.

ISM Nonmanufacturing Survey Nov. Oct. Sept. Nov. '09 2009 2008 2007
Composite Index 55.0 54.3 53.2 48.4 46.2 47.3 53.5
    Business Activity 57.0 58.4 52.8 49.6 48.0 47.4 56.0
    New Orders 57.7 56.7 54.9 53.7 47.9 47.0 54.8
    Employment 52.7 50.9 50.2 41.7 39.9 43.8 52.0
    Supplier Deliveries (NSA) 52.5 51.0 55.0 48.5 49.0 51.1 51.1
Prices Index 63.2 68.3 60.1 57.1 49.4 66.0 63.8
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