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Economy in Brief

U.S. ISM Nonmanufacturing Index Garners Strength
by Tom Moeller  August 5, 2014

Activity in the service & construction sectors increased last month at its quickest rate since August 2005. The Composite Index for the service & building sectors from the Institute for Supply Management (ISM) rose to 58.7 in July from an unrevised 56.0 in June. The latest figure surpassed expectations for 56.5 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 a composite index using the ISM nonmanufacturing series and the ISM manufacturing sector index released Friday. The July figure improved to 58.5, the highest level since December 2005. During the last ten years, there has been a 76% correlation between this composite index and the quarterly change in real GDP.

The new orders series led the total higher with a 3.7 point increase. Settling at 64.9, the index was at its highest point since August 2005. The business activity series of 62.4 was at its highest level since February 2011. The employment series rose for the third month in the last four to the highest point in six months. 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 supplier deliveries series nudged up to 51.5, the highest level since March.

The prices paid index slipped to 60.9 and gave back the increases of the last three months. Twenty five percent of respondents paid higher prices while five percent paid less.

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) Jul Jun May Jul'13 2013 2012 2011
Composite Diffusion Index 58.7 56.0 56.3 55.9 54.7 54.6 54.4
   Business Activity 62.4 57.5 62.1 59.5 56.7 57.7 57.2
   New Orders 64.9 61.2 60.5 57.7 55.9 56.6 56.3
   Employment 56.0 54.4 52.4 53.9 54.4 53.5 52.4
   Supplier Deliveries (NSA) 51.5 51.0 50.0 52.5 51.7 50.6 51.9
Prices Index 60.9 61.2 61.4 58.3 55.6 59.3 65.1
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