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Economy in Brief

U.S. ISM Nonmanufacturing Index Declines Further
by Tom Moeller  May 4, 2011

Growth in U.S. nonmanufacturing activity continued to slow last month. The April Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) fell to 52.8 from 57.3 in March. The latest was the lowest level since February 2010 and fell short of Consensus expectations for 57.5. 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.

ISM Index component declines were widespread last month. The largest drop was the new orders series to 52.7 from 64.1. The business activity index also fell sharply to 53.7, its lowest since January of last year. The employment series also fell sharply to 51.9. 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 series posted a moderate increase to 53.0, indicating slower delivery speeds.

Pricing power eased again and the index slipped m/m to 70.1 but it still was near the cycle high. Fifty seven percent of respondents reported higher prices and just two percent reported them lower. 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 AS1REPNA database.

ISM Nonmanufacturing Survey Apr Mar Feb Apr'10 2010 2009 2008
Composite Index 52.8 57.3 59.7 54.6 54.0 46.3 47.3
   Business Activity 53.7 59.7 66.9 58.9 57.4 48.1 47.5
   New Orders 52.7 64.1 64.4 57.3 56.8 48.0 47.0
   Employment 51.9 53.7 55.6 48.7 49.8 40.0 43.7
   Supplier Deliveries (NSA) 53.0 51.5 52.0 53.5 52.2 49.0 51.1
Prices Index 70.1 72.1 73.3 63.1 61.4 49.4 66.1
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