Sam Bullard, Economist

sam.bullard@wachovia.com ● 704-383-7372

January 06, 2009

Service Sector Activity Surprises in December

The Institute for Supply Management’s non-manufacturing index beat expectations, rising to 40.6 in December from
the record low of 37.3 posted in November. Most subcomponents rebounded from their record low, but weakness in
the service sector persists as we enter 2009. Activity will remain depressed with little relief in sight.
Activity Rebounds from Record Lows Outlook Remains Challenged for 2009
• While most subcomponents rebounded from record lows, the • The new orders index posted a moderate increase in December
prices paid index and the imports index fell further on the but at these levels the index suggests activity in the service
month. sector will remain challenged for most of 2009.
• The business activity index remained depressed, confirming • Even though the employment index rebounded last month, the
our expectation for a sharp economic contraction in the final December level is consistent with our -550K call for December
quarter of 2008. nonfarm employment to be released this Friday.

ISM Non-Manufacturing Composite Index (NMI) ISM Non-Manufacturing Index

Index New Orders Index
65 65 75 75

70 70
60 60
65 65

55 55 60 60

55 55
50 50
50 50

45 45 45 45

40 40
40 40
ISM Non-Manufacturing Composite: Dec @ 40.6 35 35
12-M Mov. Avg.: Dec @ 47.8 New Orders SA: Dec @ 39.9
35 35 30 30
98 99 00 01 02 03 04 05 06 07 08 98 99 00 01 02 03 04 05 06 07 08

ISM Non-Manufacturing Index ISM Non-Manufacturing Index

Business Activity Index Employment Index
70 70 65 65

65 65 60 60

60 60
55 55

55 55
50 50
50 50
45 45
45 45

40 40
40 40

35 35 35 35
ISM Non-Manufacturing Index SA: Dec @ 39.6
12-Month Moving Average: Dec @ 47.5 Employment Index SA: Dec @ 34.7
30 30 30 30
98 99 00 01 02 03 04 05 06 07 08 98 99 00 01 02 03 04 05 06 07 08

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