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Economy in Brief

U.S. ISM Nonmanufacturing Index Firms Again
by Tom Moeller  March 3, 2011

The U.S. nonmanufacturing sector showed improvement last month. The February Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) rose to 59.7 from 59.4 in January. The latest beat Consensus expectations for a reading of 59.5 and it was the highest level since August 2005, up from a low of 37.6 in November 2008. Since the series' inception in 1997 there has been a 71% correlation between the level of the nonmanufacturing composite index and the q/q change in real GDP for the services and the construction sectors.

The performance of the components of the ISM Index, again, was uniformly positive last month. The business activity index rose to its highest since January 2004 while the new orders series dipped m/m but still was near its highest since August 2005. The employment figure increased to its highest since April 2006. Since the series' inception in 1997 there has been an 84% 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 slipped as delivery speeds picked up slightly.

The pricing power index again was strong and rose to its highest since September 2008. A stable 46% of respondents reported higher prices while 4% reported them lower. At the worst, late in 2008, 41% reported lower prices. Since inception ten years ago, there has been a 65% 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. The expectations figure from ACTION ECONOMICS is in the AS1REPNA1 database.

Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events? from the Federal Reserve Bank of San Francisco can be found here.

ISM Nonmanufacturing Survey Feb Jan Dec Feb '10 2010 2009 2008
Composite Index 59.7 59.4 57.1 52.7 54.0 46.3 47.3
   Business Activity 66.9 64.6 62.9 55.1 57.4 48.1 47.5
   New Orders 64.4 64.9 61.4 54.9 56.8 48.0 47.0
   Employment 55.6 54.5 52.6 47.4 49.8 40.0 43.7
   Supplier Deliveries (NSA) 52.0 53.5 51.4 53.5 52.2 49.0 51.1
Prices Index 73.3 72.1 69.5 59.6 61.4 49.4 66.1
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