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Ariba: Lessons Learned from the Recession - Supply Risk

FOR RELEASE: February 3, 2010


Contact: Rose Marie Goupil
ISM, ROB Media Relations
Tempe, Arizona
800/888-6276, Ext. 3015
E-mail: rgoupil@ism.ws


January 2010 Non-Manufacturing ISM Report On Business®

NMI (Non-Manufacturing Index) at 50.5%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of January 2010.

This report reflects the U.S. Department of Commerce's recently completed annual adjustments to the seasonal adjustment factors used to calculate the indexes.


Business Activity Index at 52.2%
New Orders Index at 54.7%
Employment Index at 44.6%

(Tempe, Arizona) — Economic activity in the non-manufacturing sector grew in January, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Worldwide. "The NMI (Non-Manufacturing Index) registered 50.5 percent in January, 0.7 percentage point higher than the seasonally adjusted 49.8 percent registered in December, indicating growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 1 percentage point to 52.2 percent, reflecting growth for the second consecutive month. The New Orders Index increased 2.7 percentage points to 54.7 percent, and the Employment Index increased 1 percentage point to 44.6 percent. The Prices Index increased 1.6 percentage points to 61.2 percent in January, indicating an increase in prices paid from December. According to the NMI, four non-manufacturing industries reported growth in January. Respondents' comments overall are cautiously optimistic about business conditions."

INDUSTRY PERFORMANCE (Based on the NMI)

The four industries reporting growth in January based on the NMI composite index are: Other Services; Utilities; Information; and Wholesale Trade. The 11 industries reporting contraction in January — listed in order — are: Arts, Entertainment & Recreation; Mining; Retail Trade; Transportation & Warehousing; Management of Companies & Support Services; Professional, Scientific & Technical Services; Health Care & Social Assistance; Finance & Insurance; Educational Services; Public Administration; and Accommodation & Food Services.

WHAT RESPONDENTS ARE SAYING ...
  • "Business is better, but not robust." (Agriculture, Forestry, Fishing & Hunting)
  • "Some client capital spend plans have been delayed until 2nd or 3rd quarter." (Professional, Scientific & Technical Services)
  • "Outstanding production month, highest since March 2009, but still lower than December 2008." (Wholesale Trade)
  • "Commodity prices are starting to rise. We will be trying to mitigate inflationary price trends through longer contracts and value engineering." (Accommodation & Food Services)
  • "Improving outlook." (Educational Services)
  • "The recent unexpected rise in fuel prices, with no apparent justification, is cause for concern." (Public Administration)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
JANUARY 2010
  Non-Manufacturing Manufacturing
Index Series
Index
Jan.		 Series
Index
Dec.		 Percent
Point
Change		 Direction Rate
of
Change		 Trend**
(Months)		 Series
Index
Jan.		 Series
Index
Dec.		 Percent
Point
Change
NMI/PMI 50.5 49.8 +0.7 Growing From Contracting 1 58.4 54.9 +3.5
Business Activity/Production 52.2 53.2 -1.0 Growing Slower 2 66.2 59.7 +6.5
New Orders 54.7 52.0 +2.7 Growing Faster 5 65.9 64.8 +1.1
Employment 44.6 43.6 +1.0 Contracting Slower 25 53.3 50.2 +3.1
Supplier Deliveries 50.5 50.5 0.0 Slowing Same 2 60.1 56.8 +3.3
Inventories 46.5 51.5 -5.0 Contracting From Growing 1 46.5 43.0 +3.5
Prices 61.2 59.6 +1.6 Increasing Faster 6 70.0 61.5 +8.5
Backlog of Orders 45.5 48.0 -2.5 Contracting Faster 3 56.0 50.0 +6.0
New Export Orders 46.0 46.0 0.0 Contracting Same 2 58.5 54.5 +4.0
Imports 47.0 52.5 -5.5 Contracting From Growing 1 56.5 55.0 +1.5
Inventory Sentiment 64.5 61.0 +3.5 Too High Faster 152 N/A N/A N/A
Customers' Inventories N/A N/A N/A N/A N/A N/A 32.0 35.0 -3.0

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted for New Orders, Production, Employment, Supplier Deliveries and Inventories.

** Number of months moving in current direction.
Indexes reflect newly released seasonal adjustment factors.


COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Airfare; Beef (3); Diesel Fuel; #1 Diesel Fuel; #2 Diesel Fuel (3); Fuel; Fuel Surcharges; Gasoline (3); Heating Fuel; Latex Products; Medical/Surgical Supplies; Medications; Pharmaceuticals; Pharmacy Supplies; Produce; Tomatoes; and Trash Can Liners.

Commodities Down in Price

Computer & Peripherals; Copy Paper; Corn; Corrugated Boxes; Frozen Juice; Paper; Poultry Products; and Textile Products.

Commodities in Short Supply

Masks [for TB/H1N1 use] (4) is the only commodity reported in short supply.

Note: The number of consecutive months the commodity is listed is indicated after each item.


JANUARY 2010 NON-MANUFACTURING INDEX SUMMARIES

NMI (Non-Manufacturing Index)

In January, the NMI registered 50.5 percent, indicating growth in the non-manufacturing sector after two months of contraction. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

NMI HISTORY
Month NMI Month NMI
Jan 2010 50.5 Jul 2009 46.7
Dec 2009 49.8 Jun 2009 46.3
Nov 2009 48.4 May 2009 44.5
Oct 2009 50.1 Apr 2009 43.9
Sep 2009 50.1 Mar 2009 41.2
Aug 2009 48.2 Feb 2009 42.1
Average for 12 months — 46.8
High — 50.5
Low — 41.2

Business Activity

ISM's Non-Manufacturing Business Activity Index in January registered 52.2 percent, a decrease of 1 percentage point when compared to the seasonally adjusted 53.2 percent registered in December. Four industries reported increased business activity, and 10 industries reported decreased activity for the month of January. Four industries reported no change from December. Comments from respondents include: "Several key customers have ceased operations" and "Seeing an increase in our business; our customers are feeling more optimistic."

The industries reporting growth of business activity in January are: Information; Other Services; Construction; and Wholesale Trade. The industries reporting decreased business activity in January — listed in order — are: Arts, Entertainment & Recreation; Retail Trade; Mining; Management of Companies & Support Services; Transportation & Warehousing; Health Care & Social Assistance; Professional, Scientific & Technical Services; Public Administration; Educational Services; and Utilities.


Business Activity		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 26 44 30 52.2
Dec 2009 26 50 24 53.2
Nov 2009 23 52 25 49.6
Oct 2009 25 58 17 54.0

New Orders

ISM's Non-Manufacturing New Orders Index grew in January for the fifth consecutive month. The index registered 54.7 percent, which is an increase of 2.7 percentage points from the seasonally adjusted 52 percent reported in December. Comments from respondents include: "2010 budgets result in increased orders for operations and capital items"; "Increased patient volume"; and " [New Orders] due to a new fiscal year, which appropriates new dollars."

The eight industries reporting growth of new orders in January — listed in order — are: Construction; Information; Wholesale Trade; Other Services; Utilities; Accommodation & Food Services; Educational Services; and Health Care & Social Assistance. The eight industries reporting contraction of new orders in January — listed in order — are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Retail Trade; Mining; Finance & Insurance; Transportation & Warehousing; Professional, Scientific & Technical Services; and Public Administration.


New Orders		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 26 49 25 54.7
Dec 2009 22 55 23 52.0
Nov 2009 26 56 18 53.7
Oct 2009 25 58 17 54.2

Employment

Employment activity in the non-manufacturing sector contracted in January for the 25th consecutive month. ISM's Non-Manufacturing Employment Index for January registered 44.6 percent. This reflects an increase of 1 percentage point when compared to the seasonally adjusted 43.6 percent registered in December. Three industries reported increased employment, 11 industries reported decreased employment, and four industries reported unchanged employment compared to December. Comments from respondents include: "FTE positions that were either eliminated or downsized are not being filled" and "Attrition followed by a management decision to not fill open positions."

The industries reporting an increase in employment in January are: Other Services; Utilities; and Management of Companies & Support Services. The industries reporting a reduction in employment in January — listed in order — are: Arts, Entertainment & Recreation; Construction; Mining; Health Care & Social Assistance; Accommodation & Food Services; Professional, Scientific & Technical Services; Educational Services; Public Administration; Wholesale Trade; Information; and Finance & Insurance.


Employment		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 10 62 28 44.6
Dec 2009 9 70 21 43.6
Nov 2009 11 61 28 41.7
Oct 2009 5 68 27 41.7

Supplier Deliveries

The Supplier Deliveries Index registered 50.5 percent in January, indicating supplier deliveries were slowing in January at the same rate as in December. A reading above 50 percent indicates slower deliveries.

The five industries reporting slower deliveries in January are: Utilities; Other Services; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Public Administration. The three industries reporting faster supplier deliveries in January are: Transportation & Warehousing; Information; and Educational Services.


Supplier Deliveries		 %
Slower		 %
Same		 %
Faster
Index
Jan 2010 9 83 8 50.5
Dec 2009 8 85 7 50.5
Nov 2009 6 85 9 48.5
Oct 2009 6 89 5 50.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 46.5 percent in January, indicating that inventory levels contracted in January after one month of growth. Of the total respondents in January, 29 percent indicated they do not have inventories or do not measure them. Comments from respondents include: "Continuing to manage tighter" and "Still executing a burnoff in line with revenues."

The five industries reporting an increase in inventories in January are: Management of Companies & Support Services; Information; Utilities; Accommodation & Food Services; and Health Care & Social Assistance. The seven industries reporting decreases in inventories in January — listed in order — are: Other Services; Retail Trade; Arts, Entertainment & Recreation; Mining; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; and Wholesale Trade.


Inventories		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 16 61 23 46.5
Dec 2009 21 61 18 51.5
Nov 2009 19 53 28 45.5
Oct 2009 15 56 29 43.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in January. ISM's Non-Manufacturing Prices Index for January registered 61.2 percent, 1.6 percentage points higher than the seasonally adjusted 59.6 percent reported in December. In January, the percentage of respondents reporting higher prices is 27 percent, the percentage indicating no change in prices paid is 64 percent, and 9 percent of the respondents reported lower prices.

In January, 12 industries reported an increase in prices paid, in the following order: Mining; Construction; Finance & Insurance; Health Care & Social Assistance; Accommodation & Food Services; Educational Services; Public Administration; Utilities; Retail Trade; Wholesale Trade; Professional, Scientific & Technical Services; and Information. The three industries reporting prices as decreasing for the month of January are: Transportation & Warehousing; Other Services; and Arts, Entertainment & Recreation.


Prices		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 27 64 9 61.2
Dec 2009 19 73 8 59.6
Nov 2009 21 69 10 57.1
Oct 2009 14 73 13 53.4

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index contracted in January for the third consecutive month. The index registered 45.5 percent, 2.5 percentage points lower than the 48 percent reported in December. Of the total respondents in January, 43 percent indicated they do not measure backlog of orders.

The three industries reporting an increase in order backlogs in January are: Information; Educational Services; and Wholesale Trade. The seven industries reporting lower backlog of orders in January are: Arts, Entertainment & Recreation; Mining; Management of Companies & Support Services; Professional, Scientific & Technical Services; Retail Trade; Health Care & Social Assistance; and Finance & Insurance.


Backlog of Orders		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 13 65 22 45.5
Dec 2009 13 70 17 48.0
Nov 2009 16 65 19 48.5
Oct 2009 19 69 12 53.5

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically based personnel contracted in January for the second consecutive month. The New Export Orders Index for January registered 46 percent, which is the same as was registered in December. Of the total respondents in January, 68 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The three industries reporting an increase in new export orders in January are: Construction; Information; and Professional, Scientific & Technical Services. The six industries reporting a decrease in export orders in January — listed in order — are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Retail Trade; Transportation & Warehousing; Wholesale Trade; and Finance & Insurance.


New Export Orders		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 15 62 23 46.0
Dec 2009 13 66 21 46.0
Nov 2009 19 71 10 54.5
Oct 2009 18 71 11 53.5

Imports

The ISM Non-Manufacturing Imports Index registered 47 percent, indicating contraction for the month of January. In the month of January, 62 percent of respondents reported that they do not use, or do not track, the use of imported materials.

The three industries reporting an increase in the use of imports in January are: Agriculture, Forestry, Fishing & Hunting; Other Services; and Information. The five industries reporting a decrease in imports for the month of January are: Construction; Arts, Entertainment & Recreation; Retail Trade; Transportation & Warehousing; and Accommodation & Food Services.


Imports		 %
Higher		 %
Same		 %
Lower
Index
Jan 2010 11 72 17 47.0
Dec 2009 17 71 12 52.5
Nov 2009 5 82 13 46.0
Oct 2009 2 88 10 46.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in January registered 64.5 percent. This is 3.5 percentage points higher than the 61 percent reported in December, indicating that respondents still believe their inventories are too high at this time. In January, 33 percent of respondents said their inventories were too high, 4 percent said their inventories were too low, and 63 percent said their inventories were about right.

The nine industries reporting a feeling that their inventories are too high in January — listed in order — are: Management of Companies & Support Services; Other Services; Transportation & Warehousing; Professional, Scientific & Technical Services; Wholesale Trade; Information; Finance & Insurance; Health Care & Social Assistance; and Accommodation & Food Services. No industry reported that its inventory is too low in January.


Inventory Sentiment		 %Too
High		 %About
Right		 %Too
Low
Index
Jan 2010 33 63 4 64.5
Dec 2009 23 76 1 61.0
Nov 2009 30 63 7 61.5
Oct 2009 30 67 3 63.5

About this Report

The data presented herein is obtained from a survey of non-manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

The Non-Manufacturing ISM Report On Business® is based on data compiled from purchasing and supply executives nationwide. Membership of the Non-Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). The Non-Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response, and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the non-manufacturing economy in that index is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

The Non-Manufacturing ISM Report On Business® is published monthly by the Institute for Supply Management™, the largest supply management research and education organization in the United States. The Institute for Supply Management™, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

The full text version of the Non-Manufacturing ISM Report On Business® is posted on ISM's Web site at www.ism.ws on the third business day of every month after 10:10 a.m. (ET).

The next Non-Manufacturing ISM Report On Business® featuring the February 2010 data will be released at 10:00 a.m. (ET) on Wednesday, March 3, 2010.


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