February 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: March 3, 2006

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

Business Activity at 60.1%

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 February 2006


New Orders Index at 56.2%
Employment Index at 58.2%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in February 2006, 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 35th consecutive month in February," Kauffman said. He added, "Business Activity and New Orders increased at faster rates in February than in January. Backlog of Orders, Employment and New Export Orders also increased at faster rates, while Prices increased at a slower rate than in January. Ten of 17 non-manufacturing industry sectors report increased activity in February, compared to eight that reported increased activity in January. After indicating slower rates of growth in January, most indexes indicated increased rates of growth in February. Members' comments in February are mostly positive concerning current business conditions. Price increases are still a topic of concern for a number of members. The Prices Index declined this month, but remains in a historically high range for the ISM Non-Manufacturing Business Survey. The overall indication in February is continued economic growth in the non-manufacturing sector."

TOP PERFORMING INDUSTRIES

The 10 industries reporting growth in February — listed in order — are: Mining; Insurance; Communication; Business Services; Health Services; Public Administration; Utilities; Construction; Other Services*; and Retail Trade. The four industries reporting activity the same as last month are: Transportation; Finance & Banking; Real Estate; and Legal Services. The three industries reporting decreased activity from January to February are: Agriculture; Wholesale Trade; and Entertainment.

WHAT RESPONDENTS ARE SAYING ...
  • ". . . business seems to be picking up and some prices have gone higher recently and some have decreased. We have not seen a significant swing to either side. There is still tremendous pressure to lower our third-party supplier costs to ensure [our] competitiveness." (Business Services)
  • "Increased proposal work. Additional work scope on existing projects." (Construction)
  • "Higher activity — more normal schedule after holidays. Continued increases in emergency room patients, leading to increased admissions." (Health Services)
  • "Material and equipment prices continue to rise and deliveries lengthen for anything associated with oil and gas drilling, production or construction." (Mining)
  • "Labor supply is still tight and prices on construction items high and in short supply — all effects of [Hurricane] Katrina." (Other Services*)
  • "Leadtimes on large equipment moving out." (Utilities)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
FEBRUARY 2006
  Non-Manufacturing Manufacturing
Index Series
Index
Feb.
Series
Index
Jan.
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
Feb.
Series
Index
Jan.
Percent
Point
Change
Business Activity/Production 60.1 56.8 +3.3 Increasing Faster 35 57.4 56.6 +0.8
New Orders 56.2 56.0 +0.2 Increasing Faster 35 61.9 58.0 +3.9
Employment 58.2 51.1 +7.1 Increasing Faster 19 55.0 51.3 +3.7
Supplier Deliveries 52.5 54.5 -2.0 Slowing Slower 54 52.2 55.3 -3.1
Inventories 53.0 55.0 -2.0 Increasing Slower 4 49.6 46.5 +3.1
Prices 64.8 67.2 -2.4 Increasing Slower 47 62.5 65.0 -2.5
Backlog of Orders 54.0 52.5 +1.5 Increasing Faster 13 54.5 53.5 +1.0
New Export Orders 60.0 58.0 +2.0 Increasing Faster 8 57.0 58.5 -1.5
Imports 55.0 49.5 +5.5 Increasing From Decreasing 1 57.5 57.0 +0.5
Inventory Sentiment 63.5 63.0 +0.5 "Too High" Greater 105 N/A N/A N/A
Customers' Inventories N/A N/A         48.5 46.0 +2.5

* 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, Imports and Customers' Inventories.
** Number of months moving in current direction


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

Commodities Up in Price

Aluminum (3); Beef* (4); Computers and Related Items; Construction Services; Consultant Services; Conveyor/Rubber Belt Products; Copper (30); Copper Products (various) (4); Copy Paper; Corrugated (4); #2 Diesel Fuel (14); Fuel* (27); Furniture; Gasoline* (27); Heating Fuel; Office Equipment/Furniture; Office Supplies (2); Oil; Packaging Materials; Paper* (25); Paper Products; Paper and Plastic; Petroleum/Petroleum Based Products (2); Plastic Pipe; Roofing Materials (2); Sheetrock/Wallboard; and Steel/Steel Products (3).

Commodities Down in Price

Beef* (2); Chicken; Fuel*; Gasoline* (2); Natural Gas; Paper*; Pork/Pork Products; and PVC/Conduit and Fittings.

Commodities in Short Supply

Construction Services; Roofing Shingles (2); Sheetrock/Wallboard; and Steel/Steel Products.

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



FEBRUARY 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in February increased to 60.1 percent from January's seasonally adjusted 56.8 percent, indicating a faster rate of growth of activity in February. The index thus returns to the vicinity of its December value of 61 percent and of its 59.8 percent average over the past 12 months. The faster rate of growth indicated by this index is also reflected in other indexes this month: a 7.1 percentage point rise in the Employment Index, a 1.5 percentage point rise in the Backlog of Orders Index, a 2 percentage point rise in the New Export Orders Index, a 5.5 percentage point rise in the Imports Index, and a 0.2 percentage point rise in the New Orders Index. This month, 10 sectors report increased business activity, three are reporting decreased activity, and four indicate unchanged activity compared to January.

The industries reporting the highest rates of growth of business activity in February are: Mining; Insurance; Communication; Business Services; and Health Services. The industries reporting contraction of business activity in February are: Agriculture; Wholesale Trade; and Entertainment.


Business Activity
%
Higher
%
Same
%
Lower

Index
February 2006 31 57 12 60.1
January 2006 27 51 22 56.8
December 2005 31 52 17 61.0
November 2005 31 56 13 59.3


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Feb '06 60.1   Aug '05 64.8
Jan '06 56.8   July '05 60.4
Dec '05 61.0   June '05 61.1
Nov '05 59.3   May '05 59.2
Oct '05 59.2   Apr '05 60.4
Sep '05 53.7   Mar '05 61.8
Average for 12 months – 59.8
High – 64.8
Low – 53.7

New Orders

ISM's Non-Manufacturing New Orders Index increased to 56.2 percent in February from the seasonally adjusted 56 percent registered in January. This indicates continued expansion of new orders at a slightly faster rate of growth than in January. Comments from members include: "More new job orders"; "Large increases in capital spending"; and "New contracts/business."

Industries reporting the highest rates of growth of new orders in February are: Mining; Insurance; Utilities; Communication; Construction; Business Services; and Health Services. The industries reporting contraction of new orders in February are: Agriculture; Entertainment; Transportation; and Retail Trade.


New Orders
%
Higher
%
Same
%
Lower

Index
February 2006 27 59 14 56.2
January 2006 27 54 19 56.0
December 2005 32 55 13 62.2
November 2005 31 57 12 60.0

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in February compared to January. This was the 19th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for February is 58.2 percent, a rise of 7.1 percentage points from January's seasonally adjusted 51.1 percent. Ten industries are reporting increased employment, three report decreases, and four indicate employment is unchanged from January. Comments from respondents include: "New hires to compensate for growth"; "Filling vacancies"; "Staffing to meet higher volume"; and "Increase needs for project personnel."

The industries reporting the highest rates of growth in employment in February are: Mining; Insurance; Entertainment; Business Services; Other Services*; and Health Services. Industries reporting reduction in employment in February are: Legal Services; Retail Trade; and Wholesale Trade.


Employment
%
Higher
%
Same
%
Lower

Index
February 2006 21 69 10 58.2
January 2006 16 67 17 51.1
December 2005 21 70 9 56.9
November 2005 21 72 7 56.7

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 54th consecutive month in February. The index registered 52.5 percent, 2 percentage points lower than in January and indicating that deliveries are slowing at a slower rate than in January. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in February include: "Truck availability"; "No supplier inventory"; "More constraints in energy-related products and equipment"; and "Leadtimes on some stretch film are coming down."

The industries reporting the highest rates of slowing in supplier deliveries in February are: Mining; Utilities; Real Estate; Finance & Banking; and Health Services. The industries reporting faster supplier deliveries in February are: Transportation and Insurance.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
February 2006 8 89 3 52.5
January 2006 14 81 5 54.5
December 2005 16 81 3 56.5
November 2005 22 77 1 60.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 53 percent in February, indicating an increase in inventories (although at a slower rate of increase) compared to January. This is the fourth consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in February, 33 percent indicate they do not have inventories or do not measure them. Comments from members include: "Needed to support higher activity levels"; "Supplier leadtimes increase"; and "Anticipate difficult labor negotiations this year. Adjusting to compensate by pre-ordering more inventory."

The industries reporting the highest rates of increase in inventories in February are: Mining; Communication; Insurance; Utilities; and Public Administration. The industries reporting inventory decreases in February are: Entertainment; Finance & Banking; and Transportation.


Inventories
%
Higher
%
Same
%
Lower

Index
February 2006 24 58 18 53.0
January 2006 25 60 15 55.0
December 2005 28 56 16 56.0
November 2005 24 60 16 54.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in February for the 47th consecutive month. ISM's Non-Manufacturing Prices Index for February is 64.8 percent, 2.4 percentage points lower than January's 67.2 percent. In February, the percentage of respondents reporting higher prices increased from 37 percent in January to 39 percent, the proportion indicating no change decreased from 59 percent in January to 57 percent, and the number of respondents noting lower prices remained constant at 4 percent.

The industries reporting the highest rates of increase in prices paid in February are: Legal Services; Mining; Entertainment; Construction; and Public Administration. No industry is reporting price decreases in February.


Prices
%
Higher
%
Same
%
Lower

Index
February 2006 39 57 4 64.8
January 2006 37 59 4 67.2
December 2005 33 60 7 67.2
November 2005 44 48 8 70.8

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 54 percent in February, 1.5 percentage points greater than the 52.5 percent reported in January. This indicates that order backlogs are increasing at a faster rate in February than in January. February's report of increasing order backlogs marks 33 of the last 34 months that an increase has been reported in order backlogs. Of the total respondents in February, 47 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Successful bidding large projects"; "Vendors have supplies in stock"; and "New contracts (or high-potential proposals) extend backlog."

The industries reporting the highest rates of increase in order backlogs in February are: Mining; Utilities; Construction; Other Services*; and Insurance. Industries reporting decreases in backlog of orders in February are: Entertainment; Health Services; Wholesale Trade; and Retail Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
February 2006 18 72 10 54.0
January 2006 19 67 14 52.5
December 2005 21 66 13 54.0
November 2005 22 64 14 54.0

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 eighth consecutive month in February. The February index marks 30 of the past 31 months that the index has exhibited growth. The New Export Orders Index for February is 60 percent, compared to January's 58 percent. Of the total respondents in February, 79 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 February are: Utilities; Finance & Banking; Insurance; Other Services*; and Entertainment. The one industry reporting a decrease in new export orders in February is Construction.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
February 2006 28 64 8 60.0
January 2006 22 72 6 58.0
December 2005 34 55 11 61.5
November 2005 23 68 9 57.0

Imports

In February, the ISM Non-Manufacturing Imports Index registered 55 percent, 5.5 percentage points higher than January's 49.5 percent, and indicating that use of imports increased in February after a very slow rate of decrease in January. January's decrease followed 32 consecutive months of increases in use of imports. In February, 68 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 February are: Business Services; Utilities; and Wholesale Trade. No industry reported a decrease in the use of imports in February.


Imports
%
Higher
%
Same
%
Lower

Index
February 2006 15 80 5 55.0
January 2006 14 71 15 49.5
December 2005 21 71 8 56.5
November 2005 22 69 9 56.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in February registered 63.5 percent, 0.5 percentage point higher than the 63 percent reported in January. This indicates that non-manufacturing purchasing and supply executives feel a slightly greater degree of discomfort with current levels of inventory in February than they did during January. In February, 33 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 61 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in February are: Mining; Communication; Wholesale Trade; Construction; and Transportation. The one industry reporting that its inventories are too low in February is Business Services.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
February 2006 33 61 6 63.5
January 2006 31 64 5 63.0
December 2005 27 64 9 59.0
November 2005 26 68 6 60.0

*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 approximately 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 March 2006 data will be released at 10:00 a.m. (ET) on April 5, 2006.


Back to Top