- ISM non-manufacturing index dips below 50 for the first time in 3 months.
- The business activity index dropped sharply, plunging to 49.6 from 55.2.
- Despite the drop in the headline ISM non-manufacturing index, we are inclined to believe that the U.S. economic recovery remains intact.

The ISM Non-manufacturing index surprisingly dipped below the all-important 50-threshold in November to 48.7 after two consecutive months of sitting just above the 50 mark, suggesting that the U.S. non-factory sector (which accounts for over 80% of the U.S. economy) contracted in November. This was weaker than the market consensus for a 51.5 print, and was far worse than our expectation for a more meaningful rise to 53.0. The biggest drag on the headline number was the business activity sub-index, which dropped to 49.6 in November from 55.2 the month before. New orders, however, were more-or-less unchanged, falling to 55.1 from 55.6. The employment sub-index rose marginally, rising to 41.6 from 41.1 in October. But with this sub-index continuing to languish well below the 50-threshold, there appears to little prospect of a positive print on nonfarm payrolls in the near term, though we suspect that the Census 2010 hiring in Q1 2010 will likely provide a significant temporary boost to employment. New export orders gained on the month, climbing to 54.5 from 53.5, while prices paid rose sharply to 57.8 from 53.0. On the whole, the drop below 50 in the headline index comes as a big disappointment to markets as it signals a decline in the non-factory sectors of the U.S. economy. However, given the positive tone of other recent economic indicators and reports (such as the strong housing sector reports and the Fed’s Beige Book), suggesting that the U.S. economic recovery may have gained some traction in Q4, we are inclined to believe that this dip in the ISM nonmanufacturing index may be a temporary.