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Economy in Brief

U.S. ISM Nonmanufacturing Index Slips
by Tom Moeller  July 3, 2014

The Composite Index for the service and construction sectors from the Institute for Supply Management (ISM) edged lower to 56.0 in June but remained near its highest level in ten months. The latest figure matched expectations in the  Action Economics Forecast Survey. 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 an index using the ISM nonmanufacturing series and the ISM manufacturing sector index released Tuesday. The June figure edged down to 55.9 but remained near its highest level in ten months. During the last ten years, there has been a 76% correlation between this composite index and the quarterly change in real GDP.

Leading the nonmanufacturing index lower last month was a sharp drop in the business activity index to 57.5 from 62.1. To the upside were new orders at 61.2, supplier deliveries at 51.0 and employment at 54.4. During the last ten years, there has been an 89% correlation between the employment index and the m/m change in private service sector plus construction payrolls.

The prices paid index slipped to 61.2 but remained nearly its highest level since October 2012. Twenty-five percent of respondents indicated paying higher prices last month while three percent reported them lower. During the last ten years, there has been a 78% 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 nonmanufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries), each 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) Jun May Apr Jun'13 2013 2012 2011
Composite Diffusion Index 56.0 56.3 55.2 53.4 54.7 54.6 54.4
   Business Activity 57.5 62.1 60.9 53.3 56.7 57.7 57.2
   New Orders 61.2 60.5 58.2 54.0 55.9 56.6 56.3
   Employment 54.4 52.4 51.3 54.9 54.4 53.5 52.4
   Supplier Deliveries (NSA) 51.0 50.0 50.5 51.5 51.7 50.6 51.9
Prices Index 61.2 61.4 60.8 56.5 55.6 59.3 65.1
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