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December 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: January 5, 2006

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
Business Activity at 59.8%

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 December 2005.


New Export Orders Index Up 4.5 Points to 61.5%; New Orders Index Up 2.4 Points to 61.9%;
Prices Index Down 4.7 Points to 69.5%; Supplier Deliveries Index Down 4 Points to 56.5%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in December 2005, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee and coordinator of the Supply Chain Management Program, University of Houston-Downtown. "Non-manufacturing business activity increased for the 33rd consecutive month in December," Kauffman said. He added, "Business Activity and New Orders increased at faster rates in December than in November. Employment increased at a slightly faster rate while Order Backlogs increased at the same rate as in November. Eleven of 17 non-manufacturing industry sectors report increased activity in December compared to 12 that reported increased activity in November. Supporting the increases in both the Business Activity and New Orders indexes, members' comments in December are generally positive concerning current business conditions. Concern about the relatively high level of energy prices has lessened somewhat, although the effects of high energy prices are still being felt through price increases and surcharges for other products. While the Prices Index continues to decline this month, it is still in a historically high range for the ISM Non-Manufacturing Business Survey. The overall indication in December is continued economic growth in the non-manufacturing sector with a cautiously optimistic outlook as we enter 2006."

TOP PERFORMING INDUSTRIES

The 11 industries reporting growth in December — listed in order — are: Entertainment; Business Services; Retail Trade; Finance & Banking; Insurance; Communication; Utilities; Public Administration; Health Services; Other Services*; and Transportation. The three industries reporting activity the same as last month are: Mining; Wholesale Trade; and Legal Services. The three industries reporting decreased activity from November to December are: Agriculture; Real Estate; and Construction.

WHAT RESPONDENTS ARE SAYING …
  • "Proposal requests remain at a high level." (Construction)
  • "Fuel and energy pricing remains erratic, dollar/euro exchange rate positive." (Finance & Banking)
  • "Activity continues steady — high for this time of year." (Health Services)
  • "We are seeing charges for 'fuel costs' added to bids and invoices." (Other Services)
  • "Prices are fluctuating in many areas. Seeing price increases passed on now from firms that tried to hold the line on price increases earlier this year." (Public Administration)
  • "Sales continue to trend above last year and above forecast." (Retail Trade)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
DECEMBER 2005
  Non-Manufacturing Manufacturing


Index
Series
Index
Dec.
Series
Index
Nov.
Percent
Point
Change


Direction
Rate
of
Change

Trend**
(Months)
Series
Index
Dec.
Series
Index
Nov.
Percent
Point
Change
Business Activity/Production 59.8 58.5 +1.3 Increasing Faster 33 57.0 60.6 -3.6
New Orders 61.9 59.5 +2.4 Increasing Faster 33 55.5 59.8 -4.3
Employment 57.1 57.0 +0.1 Increasing Faster 27 52.7 56.6 -3.9
Supplier Deliveries 56.5 60.5 -4.0 Slowing Slower 52 53.5 58.3 -4.8
Inventories 56.0 54.0 +2.0 Increasing Faster 2 47.2 49.3 -2.1
Prices 69.5 74.2 -4.7 Increasing Slower 31 63.0 74.0 -11.0
Backlog of Orders 54.0 54.0 0.0 Increasing At same rate 11 49.5 53.0 -3.5
New Export Orders 61.5 57.0 +4.5 Increasing Faster 6 54.3 59.2 -4.9
Imports 56.5 56.5 0.0 Increasing At same rate 32 52.8 54.1 -1.3
Inventory Sentiment 59.0 60.0 -1.0 "Too High" Lesser 103 N/A N/A  
Customers' Inventories N/A N/A         48.0 43.5 +4.5

* 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 except for Backlog of Orders, Prices and Customers' Inventories.
** Number of months moving in current direction

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

Commodities Up in Price

Airfares (9); Aluminum; Asphalt/Asphalt Products (2); Beef/Beef Tenderloin (2); Chemicals/Chemical Reagents (3); Concrete; Construction Materials; Construction Services; Copper (28); Copper Products (various) (2); Corn; Corrugated (2); #1 Diesel Fuel (10); #2 Diesel Fuel* (12); Electricity; Freight Charges/Shipping Costs (6); Fuel* (25); Fuel-Related Surcharges (6); Gasoline* (25); #2 Heating Oil (4); Hotel Rates/Costs (13); Natural Gas (7); Paper/Paper Products (23); Plastics/Plastic Products (6); Plastic Bags; Poly Bags; Printing/Printed Materials; PVC (4); Sheetrock (Drywall, Gypsum Board) (2); Soybean Meal; Steel; Strapping; Telecom Products/Services (2); and Tomatoes.

Commodities Down in Price

Cheese; #2 Diesel Fuel; Fuel* (2); Gasoline* (3); Lumber — Pine, and Treated (2); and Unleaded Gasoline (3).

Commodities in Short Supply

Airline Tickets; Castings; Cement/Cement Products; Construction Labor (2); Copper/Copper Wire; Gasoline; Gypsum Products/Wallboard; Insulation; Reagents; Steel; Stretch Film; and Tomatoes.

*Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.


DECEMBER 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in December moved up to 59.8 percent from November's 58.5 percent, indicating a faster rate of growth of activity in December. This month, 11 sectors report increased business activity, three are reporting decreased activity, and three indicate unchanged activity compared to November.

The industries reporting the highest rates of growth of business activity in December are: Entertainment; Business Services; Retail Trade; Finance & Banking; and Insurance. The industries reporting contraction of business activity in December are: Agriculture; Real Estate; and Construction.

Business
Activity
%
Higher
%
Same
%
Lower

Index
December 2005 31 52 17 59.8
November 2005 31 56 13 58.5
October 2005 31 54 15 60.0
September 2005 27 54 19 53.3


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Dec '05 59.8   June '05 62.2
Nov '05 58.5   May '05 58.5
Oct '05 60.0   Apr '05 61.7
Sep '05 53.3   Mar '05 63.1
Aug '05 65.0   Feb '05 59.8
July '05 60.5   Jan '05 59.2
Average for 12 months – 60.1
High – 65.0
Low – 53.3

New Orders

ISM's Non-Manufacturing New Orders Index increased to 61.9 percent in December from 59.5 percent in November. This indicates continued expansion of new orders at a faster rate of growth than in November. Comments from members include: "Higher patient demand"; "Increased sales, proposal and prospect activity"; "Orders for the coming year are very strong. The first half of the year is traditionally the strongest in our annual cycle. This is coupled with increased market share as a result of successful marketing and sales"; and "Business is increasing due to time of year."

Industries reporting the highest rates of growth of new orders in December are: Entertainment; Retail Trade; Communication; Business Services; and Insurance. The one industry reporting contraction of new orders in December is Agriculture.

New
Orders
%
Higher
%
Same
%
Lower

Index
December 2005 32 55 13 61.9
November 2005 31 57 12 59.5
October 2005 27 58 15 58.2
September 2005 26 59 15 56.6

Employment

Employment activity in the non-manufacturing sector increased at a slightly faster rate in December compared to November. This was the 27th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for December is 57.1 percent, a rise of 0.1 percentage point from November's 57 percent. Eleven industries are reporting increased employment, three report decreases, and three indicate employment is unchanged from November. Comments from respondents include: "We are hiring to meet increased production requirements"; "Filling new positions"; "Expansion needs require additional staff"; and "Adding staff for capital projects."

The industries reporting the highest rates of growth in employment in December are: Mining; Utilities; Insurance; Retail Trade; Wholesale Trade; and Health Services. Industries reporting a reduction in employment in December are: Legal Services; Construction; and Agriculture.


Employment
%
Higher
%
Same
%
Lower

Index
December 2005 21 70 9 57.1
November 2005 21 72 7 57.0
October 2005 16 72 12 52.9
September 2005 20 68 12 54.9

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 52nd consecutive month in December. The index registered 56.5 percent, 4 percentage points lower than in November and indicating that deliveries are slowing at a slower rate than in November. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in December include: "Slow rail delivery"; "Increased backlog in fabricator facilities"; "Allocation availability"; "Labor supply very tight"; and "Holdings and depleted inventories."

The industries reporting the highest rates of slowing in supplier deliveries in December are: Mining; Utilities; Agriculture; Construction; and Wholesale Trade. The one industry reporting faster supplier deliveries in December is Finance & Banking.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Index
December 2005 16 81 3 56.5
November 2005 22 77 1 60.5
October 2005 21 75 4 58.5
September 2005 17 78 5 56.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 56 percent in December, indicating an increase in inventories compared to November. This is the second consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in December, 31 percent indicate they do not have inventories or do not measure them. Comments from members include: "Elevated to meet holiday peak demand"; "Trying to maintain higher inventories to meet company needs"; and "Still replenishing supplies used for hurricanes Katrina and Rita."

The industries reporting the highest rates of increase in inventories in December are: Utilities; Transportation; Communication; Wholesale Trade; and Retail Trade. The industries reporting inventory decreases in December are: Agriculture; Finance & Banking; Construction; and Other Services*.


Inventories
%
Higher
%
Same
%
Lower

Index
December 2005 28 56 16 56.0
November 2005 24 60 16 54.0
October 2005 26 48 26 50.0
September 2005 22 56 22 50.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in December for the 31st consecutive month, but at a slower rate of increase than in November. ISM's Non-Manufacturing Prices Index for December is 69.5 percent, 4.7 percentage points below the 74.2 percent reported for November. In December, the percentage of respondents reporting higher prices declined from 44 percent to 33 percent, the proportion indicating no change rose from 48 percent to 60 percent, and the number of respondents noting lower prices decreased from 8 percent to 7 percent.

The industries reporting the highest rates of increase in prices paid in December are: Entertainment; Wholesale Trade; Agriculture; Retail Trade; and Utilities. Industries reporting price decreases in December are: Real Estate and Communication.


Prices
%
Higher
%
Same
%
Lower

Index
December 2005 33 60 7 69.5
November 2005 44 48 8 74.2
October 2005 54 41 5 78.0
September 2005 58 40 2 81.4

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 54 percent in December, the same as in November, indicating order backlogs are increasing at the same rate in both months. December's report of increasing order backlogs marks 31 out of the last 32 months that an increase has been reported in order backlogs. Of the total respondents in December, 45 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Manufacturers reduced backlogs"; "Shortage of chemicals for reagent manufacturing"; and "New contracts extend backlog."

The industries reporting the highest rates of increase in order backlogs in December are: Construction; Business Services; Insurance; Finance & Banking; and Other Services*. Industries reporting decreases in backlog of orders in December are: Agriculture; Communication; and Wholesale Trade.

Backlog
of Orders
%
Higher
%
Same
%
Lower

Index
December 2005 21 66 13 54.0
November 2005 22 64 14 54.0
October 2005 23 64 13 55.0
September 2005 19 66 15 52.0

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 increased for the sixth consecutive month in December. The December index marks 28 out of the past 29 months that the index has exhibited growth. The New Export Orders Index for December is 61.5 percent, compared to November's 57 percent. Of the total respondents in December, 78 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The industries reporting the highest rates of increase in new export orders in December are: Utilities; Finance & Banking; Insurance; Wholesale Trade; and Retail Trade. Industries reporting decreases in new export orders in December are: Communication and Other Services*.

New Export
Orders
%
Higher
%
Same
%
Lower

Index
December 2005 34 55 11 61.5
November 2005 23 68 9 57.0
October 2005 23 63 14 54.5
September 2005 27 56 17 55.0

Imports

In December, the ISM Non-Manufacturing Imports Index registered 56.5 percent, the same as in November, indicating that use of imports increased at the same rate in both months. December's index marks the 32nd consecutive month of import growth. In December, 67 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting an increase in the use of imports in December are: Finance & Banking; Transportation; Utilities; Retail Trade; and Wholesale Trade. Industries reporting decreases in the use of imports in December are: Public Administration and Business Services.


Imports
%
Higher
%
Same
%
Lower

Index
December 2005 21 71 8 56.5
November 2005 22 69 9 56.5
October 2005 19 69 12 53.5
September 2005 24 69 7 58.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in December registered 59 percent, 1 percentage point lower than the 60 percent reported in November. This indicates that non-manufacturing purchasing and supply executives feel a lesser degree of discomfort with current levels of inventory in December than they did during November. In December, 27 percent of respondents felt their inventories were too high, 9 percent indicated their inventories were too low, and 64 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in December are: Communication; Agriculture; Wholesale Trade; Transportation; and Other Services*. The one industry reporting that its inventories are too low in December is Utilities.

Inventory
Sentiment
%Too
High
%About
Right
%Too
Low

Index
December 2005 27 64 9 59.0
November 2005 26 68 6 60.0
October 2005 22 66 12 55.0
September 2005 33 62 5 64.0

*Other Services include:
Hotels, Rooming Houses, Camps, and Other Lodging Places; Personal Services; Automotive Repair, Services, and Parking; Miscellaneous Repair Services; Educational Services; Social Services; Museums, Art Galleries, and Botanical and Zoological Gardens; Membership Organizations; Engineering, Accounting, Research, Management and Related Services; and Miscellaneous Services.

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 monthly replies to questions asked of more than 370 purchasing and supply executives in over 62 different industries representing nine divisions from the Standard Industrial Classification (SIC) categories. Membership of the Business Survey Committee is diversified by SIC category and is based on each industry's contribution to gross domestic product (GDP).

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, the net difference between the number of responses in the positive economic direction (higher and slower for Supplier Deliveries) and the negative economic direction (lower and faster for Supplier Deliveries). Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. The remaining indexes have not indicated significant seasonality.

A weighted composite index similar to the PMI that is so popular in the Manufacturing ISM Report On Business® is not available. Several years of data will need to be developed before that type of non-manufacturing indicator can be developed. 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 January 2006 data will be released at 10:00 a.m. (ET) on February 3, 2006.



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