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Economy in Brief

U.S. ISM Nonmanufacturing Index Slips Further Though Orders Crater
by Tom Moeller  January 6, 2014

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) fell during December to 53.0 after a sharp November decline to 53.9. The latest fell short of consensus expectations for improvement to 54.5 and roughly equaled the lowest readings of the last three years. For all of 2013 the index was roughly unchanged from 2012 at 54.7. During the last ten years there has been a 75% correlation between the level of the nonmanufacturing composite index and the q/q change in real GDP for the service and the construction sectors.

Haver Analytics calculates a composite index using the ISM nonmanufacturing series and the ISM manufacturing sector index released Thursday. The December figure fell to 53.5, the lowest reading in six months. For all of last year the index ticked up to 54.6, about where it's been since 2010. During the last ten years there has been a 74% correlation between the composite index and the quarterly change in real GDP.

The new orders index fell out of bed last month to a reading of 49.4, the lowest level since May 2009. The business activity slipped to 55.2 but the employment index improved to 55.8, making up most of its November decline. Since the series' inception in 1997, there has been an 88% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll jobs in the service-producing plus the construction industries. The supplier delivery series improved to 51.5, indicating the slowest rate of delivery speeds since August.

The prices paid index gained to 55.1 and made up most of its November decline. The index fell, however, during all of 2013 to 55.7, down roughly ten points since the  2011 high. Fourteen percent of respondents indicated higher prices last month while 10% reported them lower. During the last ten years there has been a 76% 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. Readings above 50 indicate expansion in activity.

The ISM data are available in Haver's USECON database. The expectations figure from ACTION ECONOMICS is in the AS1REPNA database. 

ISM Nonmanufacturing Survey (SA) Dec Nov Oct Dec'12 2013 2012 2011
Composite Diffusion Index 53.0 53.9 55.4 54.8 54.7 54.6 54.5
   Business Activity 55.2 55.5 59.7 60.9 56.8 57.7 57.2
   New Orders 49.4 56.4 56.8 58.0 55.9 56.6 56.3
   Employment 55.8 52.5 56.2 51.4 54.4 53.5 52.4
   Supplier Deliveries (NSA) 51.5 51.0 49.0 49.0 51.7 50.6 51.9
Prices Index 55.1 52.2 56.1 56.9 55.7 59.3 65.1
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