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July 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: August 3, 2006

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


Business Activity at 54.8%

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 July 2006.


New Orders Index at 55.6%
Employment Index at 54.5%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in July 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 40th consecutive month in July," Nieves said. He added, "Business Activity, Inventory Sentiment and New Orders increased at slower rates in July than in June. Backlog of Orders, Employment, New Export Orders, Imports, Inventory and Prices increased at faster rates. Eleven of 17 non-manufacturing industry sectors report increased activity in July. Members' comments in July vary by industry but are mostly positive concerning current business conditions. Increased prices, fuel expenses and delivery costs remain areas of concern. The Prices Index increased 0.9 percentage point this month to 74.8 percent. The overall indication in July is continued economic growth in the non-manufacturing sector, however, at a slower pace than in June."

TOP PERFORMING INDUSTRIES

The 11 industries reporting growth in July — listed in order — are: Other Services*; Retail Trade; Educational Services; Accommodation & Food Services; Utilities; Transportation & Warehousing; Finance & Insurance; Health Care & Social Assistance; Information; Management of Companies & Support Services; and Professional, Scientific & Technical Services. The three industries reporting activity the same as last month are: Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; and Arts, Entertainment & Recreation. The three industries reporting decreased activity from June to July are: Construction; Wholesale Trade; and Public Administration.

WHAT RESPONDENTS ARE SAYING ...
  • "Energy cost fluctuations and increasing product/service costs are directly impacting business levels and bottom line P & L." (Professional, Scientific & Technical Services)
  • "Product shortages and rising fuel costs slowing purchases." (Construction)
  • "Metrics were close to expectations, little variance from planned levels." (Finance & Insurance)
  • "Market remains firm." (Information)
  • "Our corporation continues with positive projections for 2006." (Wholesale Trade)
  • "Reduced spending due to reduced revenues. Sales tax revenue is down as well as mortgage tax revenue." (Public Administration)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
JULY 2006
  Non-Manufacturing Manufacturing
Index Series
Index
July
Series
Index
June
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
July
Series
Index
June
Percent
Point
Change
Business Activity/Production 54.8 57.0 -2.2 Increasing Slower 40 57.6 55.1 +2.5
New Orders 55.6 56.6 -1.0 Increasing Slower 40 56.1 57.9 -1.8
Employment 54.5 52.0 +2.5 Increasing Faster 24 50.7 48.7 +2.0
Supplier Deliveries 54.5 56.0 -1.5 Slowing Slower 59 55.4 55.0 +0.4
Inventories 53.0 51.5 +1.5 Increasing Faster 9 50.5 46.9 +3.6
Prices 74.8 73.9 +0.9 Increasing Faster 52 78.5 76.5 +2.0
Backlog of Orders 56.0 55.5 +0.5 Increasing Faster 18 50.5 54.0 -3.5
New Export Orders 56.0 54.5 +1.5 Increasing Faster 13 51.9 55.4 -3.5
Imports 60.5 55.5 +5.0 Increasing Faster 6 57.5 56.5 +1.0
Inventory Sentiment 60.0 63.0 -3.0 "Too High" Slower 110 N/A N/A N/A
Customers' Inventories N/A N/A N/A       44.5 45.5 -1.0

* 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 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 (5); Concrete (3); Construction Contractors; Construction Materials and Supplies; Copper (35); Copper Wire; Copy Paper (6); Delivery Costs; #1 Diesel Fuel (5); #2 Diesel Fuel (19); Electric Products; Freight/Shipping/Transportation Costs (5); Fuel (32); Furniture; Gasoline (32); Hotel Costs (2); Medical Supplies; Natural Gas; Office/Computer Supplies (3); Oil (2); Paper (30); Paper Products (6); Petroleum/ Petroleum Based Products (7); PVC; Roofing Materials (4); Services; Steel (6); Steel Products (various) (3); and Wire & Cable (4).

Commodities Down in Price

Electronic Products & Equipment and Lumber — Pine, Spruce and Treated (2).

Commodities in Short Supply

Copper Wire; Electronic Assemblies & Parts; and Transportation.

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



JULY 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in July registered 54.8 percent compared to the 57 percent registered in June, indicating a slower rate of growth in business activity in July. The implication is that non-manufacturing business activity is continuing to increase for the 40th 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 1 percentage point decrease in the New Orders Index and a 3 percentage point decrease in the Inventory Sentiment Index. This month, 11 sectors report increased business activity, three are reporting decreased activity, and three are indicating unchanged activity compared to June.

The industries reporting the highest rates of growth of business activity in July are: Other Services*; Retail Trade; Educational Services; Accommodation & Food Services; and Utilities. The three industries reporting contraction of business activity in July are: Construction; Wholesale Trade; and Public Administration.


Business Activity
%
Higher
%
Same
%
Lower

Index
July 2006 30 52 18 54.8
June 2006 36 49 15 57.0
May 2006 35 53 12 60.1
April 2006 42 49 9 63.0


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Jul 2006 54.8   Jan 2006 56.8
Jun 2006 57.0   Dec 2005 61.0
May 2006 60.1   Nov 2005 59.3
Apr 2006 63.0   Oct 2005 59.2
Mar 2006 60.5   Sep 2005 53.7
Feb 2006 60.1   Aug 2005 64.8
Average for 12 months – 59.2
High – 64.8
Low – 53.7

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 55.6 percent in July from the 56.6 percent registered in June. This indicates continued expansion of new orders, but at a slower rate of growth than in June. Comments from members include: "Good demand for new products"; "Future orders are up"; and "Ramping up for year-end store openings."

Industries reporting the highest rates of growth of new orders in July are: Educational Services; Other Services*; Retail Trade; Management of Companies & Support Services; and Accommodation & Food Services. The two industries reporting contraction of new orders in July are: Construction and Information.


New Orders
%
Higher
%
Same
%
Lower

Index
July 2006 28 58 14 55.6
June 2006 36 48 16 56.6
May 2006 32 59 9 59.6
April 2006 41 50 9 64.6

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in July compared to June. This was the 24th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for July is 54.5 percent, an increase of 2.5 percentage points from the 52 percent reported in June. Eleven industries are reporting increased employment, two are reporting a decrease, and four indicate employment is unchanged from June. Comments from respondents include: "Hiring employees with specialized skills to generate new business" and "Hiring for increased workload." The industries reporting the highest rates of growth in employment in July are: Arts, Entertainment & Recreation; Transportation & Warehousing; Finance & Insurance; Health Care & Social Assistance; and Wholesale Trade. The two industries reporting a reduction in employment in July are: Professional, Scientific & Technical Services; and Real Estate, Rental & Leasing.


Employment
%
Higher
%
Same
%
Lower

Index
July 2006 19 75 6 54.5
June 2006 22 66 12 52.0
May 2006 25 68 7 58.0
April 2006 25 67 8 56.5

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 59th consecutive month in July. The index registered 54.5 percent, 1.5 percentage points lower than in June, indicating that deliveries are slowing at a slower rate than in June. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in July include "Production delays, material shortages."

The industries reporting the highest rates of slowing in supplier deliveries in July are: Utilities; Real Estate, Rental & Leasing; Retail Trade; Accommodation & Food Services; and Public Administration. The four industries reporting faster supplier deliveries in July are: Transportation & Warehousing; Information; Finance & Insurance; and Wholesale Trade.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
July 2006 13 83 4 54.5
June 2006 17 78 5 56.0
May 2006 15 83 2 56.5
April 2006 11 87 2 54.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 53 percent in July, an increase of 1.5 percentage points compared to June. This is the ninth consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in July, 34 percent indicate they do not have inventories or do not measure them. Comments from members include: "Hedge buying for price protection"; "Working to make inventory leaner"; and "Severe weather contingency." The industries reporting increases in inventories in July are: Arts, Entertainment & Recreation; Other Services*; Construction; Utilities; Accommodation & Food Services; Information; Management of Companies & Support Services; Retail Trade; Finance & Insurance; and Wholesale Trade. The industries reporting decreases in inventories in July are: Educational Services; Real Estate, Rental & Leasing; Public Administration; Professional, Scientific & Technical Services; and Health Care & Social Assistance.


Inventories
%
Higher
%
Same
%
Lower

Index
July 2006 21 64 15 53.0
June 2006 22 59 19 51.5
May 2006 27 64 9 59.0
April 2006 26 66 8 59.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in July for the 52nd consecutive month. ISM's Non-Manufacturing Prices Index for July is 74.8 percent, 0.9 percentage point higher than June's index of 73.9 percent. In July, the percentage of respondents reporting higher prices increased 1 percent to 51 percent compared to June at 50 percent, the proportion indicating no change decreased from 46 percent in June to 45 percent in July, and the percentage of respondents noting lower prices remained the same at 4 percent in July.

The industries reporting the highest rates of increase in prices paid in July are: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Utilities; Construction; and Accommodation & Food Services. No industry reported a decrease in prices in July.


Prices
%
Higher
%
Same
%
Lower

Index
July 2006 51 45 4 74.8
June 2006 50 46 4 73.9
May 2006 54 43 3 77.5
April 2006 54 44 2 70.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 56 percent in July, 0.5 percentage point higher than the 55.5 percent reported in June. This indicates that order backlogs are increasing at a slightly faster rate in July than in June. July's report of increasing order backlogs marks 38 of the last 39 months that an increase has been reported in order backlogs. Of the total respondents in July, 48 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Business is slower"; "Product supply is low and higher product sales"; and "Fewer orders are being processed."

The industries reporting the greatest increase in order backlogs in July are: Other Services*; Educational Services; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Finance & Insurance. Industries reporting decreases in backlog of orders in July are: Information and Health Care & Social Assistance.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
July 2006 22 68 10 56.0
June 2006 25 61 14 55.5
May 2006 15 74 11 52.0
April 2006 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 13th consecutive month in July. The July index marks 35 of the past 36 months that the index has exhibited growth. The New Export Orders Index for July is 56 percent, compared to June's index of 54.5 percent. Of the total respondents in July, 75 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 July are: Educational Services; Construction; Other Services*; Finance & Insurance; and Management of Companies & Support Services. The two industries reporting a decrease in new export orders in July are: Professional, Scientific & Technical Services and Wholesale Trade.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
July 2006 22 68 10 56.0
June 2006 26 57 17 54.5
May 2006 30 68 2 64.0
April 2006 28 63 9 59.5

Imports

In July, the ISM Non-Manufacturing Imports Index registered 60.5 percent, 5 percentage points higher than June's index of 55.5 percent, indicating that use of imports increased in July for the sixth consecutive month. In July, 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 July are: Transportation & Warehousing; Educational Services; Retail Trade; Wholesale Trade; Finance & Insurance; Management of Companies & Support Services; and Accommodation & Food Services. The one industry reporting a decrease in imports for the month of July is Professional, Scientific & Technical Services.


Imports
%
Higher
%
Same
%
Lower

Index
July 2006 25 71 4 60.5
June 2006 20 71 9 55.5
May 2006 19 79 2 58.5
April 2006 19 76 5 57.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in July registered 60 percent, 3 percentage points lower than the 63 percent reported in June. This indicates that non-manufacturing purchasing and supply executives feel a lesser degree of discomfort with current levels of inventory in July than they did during June. In July, 28 percent of respondents felt their inventories were too high, 8 percent indicated their inventories were too low, and 64 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in July are: Construction; Transportation & Warehousing; Accommodation & Food Services; Real Estate, Rental & Leasing; Wholesale Trade; Finance & Insurance; Information; Management of Companies & Support Services; Utilities; and Retail Trade. The one industry reporting that their inventories are too low in July is Professional, Scientific & Technical Services.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
July 2006 28 64 8 60.0
June 2006 30 66 4 63.0
May 2006 24 70 6 59.0
April 2006 27 66 7 60.0

*Other Services include:
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.

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; Other Services*; and Public Administration.

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. 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 August 2006 data will be released at 10:00 a.m. (ET) on Wednesday, September 6, 2006.


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