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March 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: April 5, 2006

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

Business Activity at 60.5%

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 March 2006.

New Orders Index at 59.5
Employment Index at 54.6%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in March 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 36th consecutive month in March," Kauffman said. He added, "Business Activity and New Orders increased at faster rates in March than in February. Inventories, New Export Orders and Imports also increased at faster rates. Backlog of Orders, Employment and Prices increased at slower rates than in February. Thirteen of 17 non-manufacturing industry sectors report increased activity in March, compared to 10 that reported increased activity in February. Members' comments in March are mostly positive concerning current business conditions. While price increases are still a topic of concern for a number of members, they are not mentioned as often as in past months. The Prices Index declined again this month, but remains in a historically high range for the ISM Non-Manufacturing Business Survey. The overall indication in March is continued economic growth in the non-manufacturing sector."

TOP PERFORMING INDUSTRIES

The 13 industries reporting growth in March — listed in order — are: Entertainment; Utilities; Mining; Insurance; Legal Services; Business Services; Retail Trade; Wholesale Trade; Public Administration; Other Services*; Finance & Banking; Communication; and Construction. The two industries reporting activity the same as last month are: Agriculture and Transportation. The two industries reporting decreased activity from February to March are: Real Estate and Health Services.

WHAT RESPONDENTS ARE SAYING ...
  • "Overall slight economic improvement." (Agriculture)
  • "Still high prices and shortages in major building products." (Construction)
  • "Slightly higher activity overall with some price stabilization. Still extremely competitive on business (retail/consumer) side. Skills shortage for higher-level professionals beginning to occur." (Finance & Banking)
  • "Sales, orders higher than last year, same period." (Insurance)
  • "Business build looking towards the summer is looking very good and much stronger than anticipated and much better than 2005." (Other Services*)
  • "The shortage of labor is affecting all aspects of supply management." (Other Services*)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
MARCH 2006
  Non-Manufacturing Manufacturing
Index Series
Index
Mar.
Series
Index
Feb.
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
Mar.
Series
Index
Feb.
Percent
Point
Change
Business Activity/Production 60.5 60.1 +0.4 Increasing Faster 36 57.5 57.4 +0.1
New Orders 59.5 56.2 +3.3 Increasing Faster 36 58.4 61.9 -3.5
Employment 54.6 58.2 -3.6 Increasing Slower 20 52.5 55.0 -2.5
Supplier Deliveries 54.0 52.5 +1.5 Slowing Faster 55 53.1 52.2 +0.9
Inventories 54.0 53.0 +1.0 Increasing Faster 5 48.7 49.6 -0.9
Prices 60.5 64.8 -4.3 Increasing Slower 48 66.5 62.5 +4.0
Backlog of Orders 50.5 54.0 -3.5 Increasing Slower 14 59.5 54.5 +5.0
New Export Orders 63.5 60.0 +3.5 Increasing Faster 9 57.3 57.0 +0.3
Imports 60.5 55.0 +5.5 Increasing Faster 2 57.0 57.5 -0.5
Inventory Sentiment 63.0 63.5 -0.5 "Too High" Lesser 106 N/A N/A N/A
Customers' Inventories N/A N/A         48.0 48.5 -0.5

* 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

Air Fares; Aluminum (4); Aluminum Products/Wire; Beef (fresh and premium) (5); Concrete/Ready Mix; Copper (31); Copper Products (various) (5); Copy Paper (2); Corrugated (5); #1 Diesel Fuel; #2 Diesel Fuel (15); Energy; Freight/Shipping Costs; Fuel (28); Fuel Transportation; Gasoline* (28); Lumber (pine and treated); Packaging Materials (2); Paper (26); Paper (cut size); Paper Products (2); Petroleum/Petroleum Related Products (3); Plastic; Rubber Products; Seafood/Salmon; Steel (2); Steel Products (4); and Unleaded Gasoline.

Commodities Down in Price

Cheese; Chicken (2); Dairy; Gasoline* (3); Office Paper/Office Supplies (2); Plastic Bags; Polyethylene Products (various); Pork/Pork Trim (2); and Stretch Film.

Commodities in Short Supply

Aluminum; Construction Labor/Trades; Construction Services (2); Insulation; Roofing Shingles/Products (3); Skilled Labor/Qualified Personnel; Steel/Steel Products (2); and Wallboard (2).

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


MARCH 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in March increased to 60.5 percent from February's seasonally adjusted 60.1 percent, indicating a slightly faster rate of growth of activity in March. The index thus maintains and slightly increases the level it returned to in February after a dip to 56.8 percent in January. The average of the Business Activity Index for the past 12 months remains at a relatively strong value — 59.7 percent. The faster rate of growth indicated by this index is reflected in other indexes this month: a 5.5 percentage point rise in the Imports Index, a 3.5 percentage point rise in the New Export Orders Index, and a 3.3 percentage point rise in the New Orders Index. Increased inventories to support the current level of business activity were also indicated this month by a 1 percentage point rise in the Inventories Index. This month, 13 sectors report increased business activity, two are reporting decreased activity, and two indicate unchanged activity compared to February.

The industries reporting the highest rates of growth of business activity in March are: Entertainment; Utilities; Mining; Insurance; and Legal Services. The industries reporting contraction of business activity in March are: Real Estate and Health Services.


Business Activity
%
Higher
%
Same
%
Lower

Index
March 2006 37 53 10 60.5
February 2006 31 57 12 60.1
January 2006 27 51 22 56.8
December 2005 31 52 17 61.0


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Mar '06 60.5   Sep '05 53.7
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
Average for 12 months – 59.7
High – 64.8
Low – 53.7

New Orders

ISM's Non-Manufacturing New Orders Index increased to 59.5 percent in March from the seasonally adjusted 56.2 percent registered in February. This indicates continued expansion of new orders at a faster rate of growth than in February. Comments from members include: "More new job orders — an increase in employee hiring opportunities for direct hire and project support"; "More first-time hotel and restaurant guests"; "Greater demand on rental cars"; and "Increase in shop orders."

Industries reporting the highest rates of growth of new orders in March are: Entertainment; Utilities; Legal Services; Retail Trade; and Wholesale Trade. No industry reported contraction of new orders in March.


New Orders
%
Higher
%
Same
%
Lower

Index
March 2006 32 57 11 59.5
February 2006 27 59 14 56.2
January 2006 27 54 19 56.0
December 2005 32 55 13 62.2

Employment

Employment activity in the non-manufacturing sector increased, but at a slower rate in March compared to February. This was the 20th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for March is 54.6 percent, a drop of 3.6 percentage points from February's seasonally adjusted 58.2 percent. Fourteen industries are reporting increased employment, one reports a decrease, and two indicate employment is unchanged from February. Comments from respondents include: "Building up levels for anticipated workload"; "Recruiting additional RNs and specialty physicians"; "Over 100 jobs open and available right now"; and "Leveling off after hiring spree."

The industries reporting the highest rates of growth in employment in March are: Business Services; Mining; Legal Services; Entertainment; Utilities; and Real Estate. The one industry reporting a reduction in employment in March is Wholesale Trade.


Employment
%
Higher
%
Same
%
Lower

Index
March 2006 18 74 8 54.6
February 2006 21 69 10 58.2
January 2006 16 67 17 51.1
December 2005 21 70 9 56.9

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 55th consecutive month in March. The index registered 54 percent, 1.5 percentage points higher than in February and indicating that deliveries are slowing at a faster rate than in February. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in March include: "Slower rail service"; "Increased shortages and longer leadtime"; "Leadtimes are stretching out by some vendors"; and "National demand high and pre- [price] increase buying kept allocations tight."

The industries reporting the highest rates of slowing in supplier deliveries in March are: Legal Services; Agriculture; Transportation; Construction; Utilities; and Other Services*. No industry reported faster supplier deliveries in March.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
March 2006 9 90 1 54.0
February 2006 8 89 3 52.5
January 2006 14 81 5 54.5
December 2005 16 81 3 56.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 54 percent in March, indicating an increase in inventories at a faster rate of increase compared to February. This is the fifth consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in March, 31 percent indicate they do not have inventories or do not measure them. Comments from members include: "Increase inventories in support of new hospital openings"; "Preparing for spring increase in business"; "Price increase/avoidance purchases"; and "Record sales Nov/Dec 2005 pushing forecasts and inventories up."

The industries reporting the highest rates of increase in inventories in March are: Insurance; Communication; Utilities; Agriculture; and Other Services*. The industries reporting inventory decreases in March are: Entertainment; Construction; Business Services; and Public Administration.


Inventories
%
Higher
%
Same
%
Lower

Index
March 2006 25 58 17 54.0
February 2006 24 58 18 53.0
January 2006 25 60 15 55.0
December 2005 28 56 16 56.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March for the 48th consecutive month. ISM's Non-Manufacturing Prices Index for March is 60.5 percent, 4.3 percentage points lower than February's 64.8 percent. In March, the percentage of respondents reporting higher prices decreased from 39 percent in February to 36 percent, the proportion indicating no change increased from 57 percent in February to 58 percent, and the number of respondents noting lower prices increased from 4 percent in February to 6 percent in March.

The industries reporting the highest rates of increase in prices paid in March are: Entertainment; Business Services; Mining; Construction; Utilities; and Legal Services. The one industry reporting price decreases in March is Real Estate.


Prices
%
Higher
%
Same
%
Lower

Index
March 2006 36 58 6 60.5
February 2006 39 57 4 64.8
January 2006 37 59 4 67.2
December 2005 33 60 7 67.2

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 50.5 percent in March, 3.5 percentage points lower than the 54 percent reported in February. This indicates that order backlogs are increasing at a slower rate in March than in February. March's report of increasing order backlogs marks 34 of the last 35 months that an increase has been reported in order backlogs. Of the total respondents in March, 42 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Winning more jobs add to backlog"; "Distributor catching up"; and "Gradual progress in reducing backlog due to additional hours worked and stable level of incoming requests."

The industries reporting increases in order backlogs in March are: Legal Services; Construction; Business Services; and Wholesale Trade. Industries reporting decreases in backlog of orders in March are: Other Services*; Health Services; and Retail Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
March 2006 11 79 10 50.5
February 2006 18 72 10 54.0
January 2006 19 67 14 52.5
December 2005 21 66 13 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 ninth consecutive month in March. The March index marks 31 of the past 32 months that the index has exhibited growth. The New Export Orders Index for March is 63.5 percent, compared to February's 60 percent. Of the total respondents in March, 75 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 March are: Insurance; Entertainment; Finance & Banking; Utilities; and Business Services. No industry reported a decrease in new export orders in March.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
March 2006 32 63 5 63.5
February 2006 28 64 8 60.0
January 2006 22 72 6 58.0
December 2005 34 55 11 61.5

Imports

In March, the ISM Non-Manufacturing Imports Index registered 60.5 percent, 5.5 percentage points higher than February's 55 percent, and indicating that use of imports increased in March for the second consecutive month. In March, 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 March are: Construction; Business Services; Wholesale Trade; Utilities; and Retail Trade. No industry reported a decrease in the use of imports in March.


Imports
%
Higher
%
Same
%
Lower

Index
March 2006 24 73 3 60.5
February 2006 15 80 5 55.0
January 2006 14 71 15 49.5
December 2005 21 71 8 56.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in March registered 63 percent, 0.5 percentage point lower than the 63.5 percent reported in February. This indicates that non-manufacturing purchasing and supply executives feel a slightly lesser degree of discomfort with current levels of inventory in March than they did during February. In March, 28 percent of respondents felt their inventories were too high, 2 percent indicated their inventories were too low, and 70 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in March are: Communication; Transportation; Wholesale Trade; Insurance; Business Services; and Legal Services. No industry reported that its inventories are too low in March.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
March 2006 28 70 2 63.0
February 2006 33 61 6 63.5
January 2006 31 64 5 63.0
December 2005 27 64 9 59.0

*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 April 2006 data will be released at 10:00 a.m. (ET) on May 3, 2006.


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