U.s. Ism Non-manufacturing Index Commentary

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TD Economics Commentary February 4, 2009

U.S.: ECONOMY STILL WEAK ACCORDING TO ISM •

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The Non-Manufacturing ISM was better than consensus in January, but still remains tangled in weak territory All sub-components continue to improve from November’s all time lows The economy is still weak, but report suggests pace of decline is moderating

The U.S. non-manufacturing ISM composite for January was stronger than expected at 42.9 compared to 40.1 in December. The market consensus was for a print of 39.0. There was broad based strength in the underlying components of the index, with 3 of 4 components rising during the month. Of note, the employment sub-index was the only component to not post improvement. Business activity increased to 44.2 in January, compared to 38.9 in November, while prices paid improved to 42.5 from 36.1 the prior month. In concert, the inventory change sub-index contracted during the month to 41.5 from 49.0, which suggests to us that the slight pick up in busi-

ness activity has been able to reduce inventories which bodes well for the broader economy. However, we maintain our bias that considerable slack exists in the economy and will ultimately keep business activity under the 50threshold for the foreseeable future. The employment sub-index inched marginally lower to 34.4 in January form 34.5 the prior month, though the move is effectively negligible. The evidence we have seen for the labor market in 2009 has been weak across the board, though with the latest ADP employment report released this morning we continue to believe that conditions are still dire, but not as distressing as they were a few months ago. On balance, this report is more optimistic than the market was expecting but is still weak by historical standards. The entirety of the sub-components remain well below the important 50-threshold, suggesting that while the economy is not contracting as fast as it was, it is still exhibiting continued signs of weakness. Ian Pollick Economics Strategist TD Securities

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TD Economics Commentary

February 4, 2009