June 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: July 6, 2006

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

Business Activity at 57%

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 June 2006.

New Orders Index at 56.6%
Employment Index at 52%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in June 2006, 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 Hotels Corporation. "Non-manufacturing business activity increased for the 39th consecutive month in June," Nieves said. He added, "Business Activity, New Orders, Employment, Inventory, Prices, New Export Orders and Imports increased at slower rates in June than in May. Backlog of Orders and Inventory Sentiment increased at faster rates. Fourteen of 16 non-manufacturing industry sectors report increased activity in June. Members' comments in June are mostly positive concerning current business conditions. Prices remain an area of concern for many members due to raw material and fuel expenses. The Prices Index declined 3.6 percentage points this month to 73.9 percent. The overall indication in June is continued economic growth in the non-manufacturing sector, however, at a slower pace than in May."

TOP PERFORMING INDUSTRIES

The 14 industries reporting growth in June — listed in order — are: Transportation; Business Services; Mining; Retail Trade; Construction; Communication; Finance & Banking; Real Estate; Public Administration; Insurance; Utilities; Other Services*; Health Services; and Wholesale Trade. The one industry reporting activity the same as last month is Entertainment. The one industry reporting decreased activity from May to June is Agriculture.

WHAT RESPONDENTS ARE SAYING ...
  • "Energy and auto fuel prices are affecting my pricing to clients." (Other Services)
  • "Business is still good, but the overall pace has slowed." (Retail Trade)
  • "Concern about rapid growth in fuel cost." (Communication)
  • "The outlook appears to be good for the current timeframe. If the price of liquid asphalt continues to rise, the state DOTs might put off projects." (Construction)
  • "General business outlook stable…retail competitive, middle market strong." (Finance & Banking)
  • "Coal business continues to be strong." (Mining)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
JUNE 2006
  Non-Manufacturing Manufacturing
Index Series
Index
June
Series
Index
May
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
June
Series
Index
May
Percent
Point
Change
Business Activity/Production 57.0 60.1 -3.1 Increasing Slower 39 55.1 57.2 -2.1
New Orders 56.6 59.6 -3.0 Increasing Slower 39 57.9 53.7 +4.2
Employment 52.0 58.0 -6.0 Increasing Slower 23 48.7 52.9 -4.2
Supplier Deliveries 56.0 56.5 -0.5 Slowing Slower 58 55.0 57.6 -2.6
Inventories 51.5 59.0 -7.5 Increasing Slower 8 46.9 48.0 -1.1
Prices 73.9 77.5 -3.6 Increasing Slower 51 76.5 77.0 -0.5
Backlog of Orders 55.5 52.0 +3.5 Increasing Faster 17 54.0 53.0 +1.0
New Export Orders 54.5 64.0 -9.5 Increasing Slower 12 55.4 55.7 -0.3
Imports 55.5 58.5 -3.0 Increasing Slower 5 56.5 56.5 0.0
Inventory Sentiment 63.0 59.0 +4.0 "Too High" Faster 109 N/A N/A N/A
Customers' Inventories N/A N/A         45.5 44.0 +1.5

* 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

Aggregate Stone; Air Fares (4); Aluminum (7); Asphalt (3); Asphalt Products (3); Building Materials; Concrete (2); Construction (3); Copper (34); Copy Paper (5); Corrugated; #1 Diesel Fuel* (4); #2 Diesel Fuel* (18); Energy (4); Freight/Shipping/Transportation Costs (4); Fuel (31); Gasoline* (31); Hotel Costs; Metal Products; Office/Computer Supplies (2); Office Furniture; Oil; Paper (29); Paper Products (5); Petroleum/Petroleum Based Products (6); Plastic Bags; Roofing Materials (3); Sheet Metal Products; Steel (5); Steel Products (various) (2); Textiles; and Wire & Cable (3).

Commodities Down in Price

Beef; Diesel Fuel*; Gasoline*; and Lumber — Pine and Spruce.

Commodities in Short Supply

Copper; Stainless Steel Products; and Steel (5).

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



JUNE 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in June registered 57 percent compared to the 60.1 percent registered in May, indicating a slower rate of growth in business activity in June. The implication is that non-manufacturing business activity is continuing to increase for the 39th consecutive month, but at a slower rate. The slower rate of growth indicated by this index is also reflected in other indexes this month: a 3 percentage point decrease in the New Orders Index, a 6 percentage point decrease in the Employment Index, and a 9.5 percentage point decrease in the New Export Orders Index. This month, 14 sectors report increased business activity, one is reporting decreased activity, and one is indicating unchanged activity compared to May.

The industries reporting the highest rates of growth of business activity in June are: Transportation; Business Services; Mining; Retail Trade; Construction; Communication; and Finance & Banking. The one industry reporting contraction of business activity in June is Agriculture.


Business Activity
%
Higher
%
Same
%
Lower

Index
June 2006 36 49 15 57.0
May 2006 35 53 12 60.1
April 2006 42 49 9 63.0
March 2006 37 53 10 60.5


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
June '06 57.0   Dec '05 61.0
May '06 60.1   Nov '05 59.3
Apr '06 63.0   Oct '05 59.2
Mar '06 60.5   Sep '05 53.7
Feb '06 60.1   Aug '05 64.8
Jan '06 56.8   July '05 60.4
Average for 12 months – 59.7
High – 64.8
Low – 53.7

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 56.6 percent in June from the 59.6 percent registered in May. This indicates continued expansion of new orders, but at a slower rate of growth than in May. Comments from members include: "Prime project time of the year"; "Slightly lower due to annual business cycle"; "Higher level of construction projects"; and "Increased business with national account customers."

Industries reporting the highest rates of growth of new orders in June are: Transportation; Business Services; Mining; Retail Trade; Finance & Banking; Real Estate; Wholesale Trade; and Health Services. The one industry reporting contraction of new orders in June is Agriculture.


New Orders
%
Higher
%
Same
%
Lower

Index
June 2006 36 48 16 56.6
May 2006 32 59 9 59.6
April 2006 41 50 9 64.6
March 2006 32 57 11 59.5

Employment

Employment activity in the non-manufacturing sector increased at a slower rate in June compared to May. This was the 23rd consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for June is 52 percent, a decrease of 6 percentage points from the 58 percent reported in May. Ten industries are reporting increased employment, four are reporting a decrease, and two indicate employment is unchanged from May. Comments from respondents include: "Retirements are common in June due to fiscal year end"; Increase in job awards"; and "Hiring in anticipation of new budget year."

The industries reporting the highest rates of growth in employment in June are: Agriculture; Construction; Retail Trade; Real Estate; and Business Services. The four industries reporting a reduction in employment in June are: Entertainment; Utilities; Other Services*; and Mining.


Employment
%
Higher
%
Same
%
Lower

Index
June 2006 22 66 12 52.0
May 2006 25 68 7 58.0
April 2006 25 67 8 56.5
March 2006 18 74 8 54.6

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 58th consecutive month in June. The index registered 56 percent, 0.5 percentage point lower than in May, indicating that deliveries are slowing at a slightly slower rate than in May. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in June include: "Slow railroad deliveries"; "Increased demand without new capacity is yielding longer and longer leadtimes"; "Longer leadtimes by manufacturers"; and "Shortages and demand."

The industries reporting the highest rates of slowing in supplier deliveries in June are: Utilities; Agriculture; Wholesale Trade; Mining; Real Estate; and Health Services. The one industry reporting faster supplier deliveries in June is Other Services*.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
June 2006 17 78 5 56.0
May 2006 15 83 2 56.5
April 2006 11 87 2 54.5
March 2006 9 90 1 54.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 51.5 percent in June, a decrease of 7.5 percentage points compared to May. This is the eighth consecutive month of reported increases in non-manufacturing inventories, and it is the lowest reported index since October 2005. Of the total respondents in June, 34 percent indicate they do not have inventories or do not measure them. Comments from members include: "Effort is being made to turn inventory more frequently and turn it into cash"; "Volume is higher than anticipated"; "Lower customer demand"; and "Longer leadtimes, hurricane contingency planning."

The industries reporting increases in inventories in June are: Utilities; Communication; Real Estate; Construction; and Retail Trade. The industries reporting decreases in inventories in June are: Agriculture; Other Services*; Transportation; Business Services; Health Services; Public Administration; and Wholesale Trade.


Inventories
%
Higher
%
Same
%
Lower

Index
June 2006 22 59 19 51.5
May 2006 27 64 9 59.0
April 2006 26 66 8 59.0
March 2006 25 58 17 54.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in June for the 51st consecutive month. ISM's Non-Manufacturing Prices Index for June is 73.9 percent, 3.6 percentage points lower than May's index of 77.5 percent. In June, the percentage of respondents reporting higher prices decreased 4 percent to 50 percent compared to May at 54 percent, the proportion indicating no change increased from 43 percent in May to 46 percent in June, and the number of respondents noting lower prices increased from 3 percent in May to 4 percent in June. No industry reported a decrease in prices in June.

The industries reporting the highest rates of increase in prices paid in June are: Entertainment; Utilities; Construction; Insurance; Transportation; and Mining.


Prices
%
Higher
%
Same
%
Lower

Index
June 2006 50 46 4 73.9
May 2006 54 43 3 77.5
April 2006 54 44 2 70.5
March 2006 36 58 6 60.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 55.5 percent in June, 3.5 percentage points higher than the 52 percent reported in May. This indicates that order backlogs are increasing at a faster rate in June than in May. June's report of increasing order backlogs marks 37 of the last 38 months that an increase has been reported in order backlogs. Of the total respondents in June, 47 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Several items are running behind delivery"; "Component shortages"; and "Cannot get it done fast enough, some material shortages, mostly manpower issues."

The industries reporting the greatest increase in order backlogs in June are: Transportation; Communication; Retail Trade; Construction; and Finance & Banking. Industries reporting decreases in backlog of orders in June are: Health Services and Wholesale Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
June 2006 25 61 14 55.5
May 2006 15 74 11 52.0
April 2006 22 64 14 54.0
March 2006 11 79 10 50.5

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 increased for the 12th consecutive month in June. The June index marks 34 of the past 35 months that the index has exhibited growth. The New Export Orders Index for June is 54.5 percent, compared to May's index of 64 percent. Of the total respondents in June, 77 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The industries reporting an increase in new export orders in June are: Transportation; Finance & Banking; Entertainment; Mining; and Retail Trade. The three industries reporting a decrease in new export orders in June are: Health Services; Public Administration; and Wholesale Trade.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
June 2006 26 57 17 54.5
May 2006 30 68 2 64.0
April 2006 28 63 9 59.5
March 2006 32 63 5 63.5

Imports

In June, the ISM Non-Manufacturing Imports Index registered 55.5 percent, 3 percentage points lower than May's index of 58.5 percent, indicating that use of imports increased in June for the fifth consecutive month. In June, 65 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 June are: Finance & Banking; Transportation; Entertainment; Other Services*; Retail Trade; and Wholesale Trade. The three industries reporting a decrease in imports for the month of June are: Health Services; Public Administration; and Utilities.


Imports
%
Higher
%
Same
%
Lower

Index
June 2006 20 71 9 55.5
May 2006 19 79 2 58.5
April 2006 19 76 5 57.0
March 2006 24 73 3 60.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in June registered 63 percent, 4 percentage points higher than the 59 percent reported in May. This indicates that non-manufacturing purchasing and supply executives feel a higher degree of discomfort with current levels of inventory in June than they did during May. In June, 30 percent of respondents felt their inventories were too high, 4 percent indicated their inventories were too low, and 66 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in June are: Communication; Other Services*; Wholesale Trade; Construction; Insurance; Utilities; Business Services; Public Administration; and Retail Trade. No industry is reporting that their inventories are too low in June.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
June 2006 30 66 4 63.0
May 2006 24 70 6 59.0
April 2006 27 66 7 60.0
March 2006 28 70 2 63.0

*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 July 2006 data will be released at 10:00 a.m. (ET) on Thursday, August 3, 2006.


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