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October 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: November 3, 2006

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


Business Activity at 57.1%

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 October 2006.

New Orders Index at 56.5%
Employment Index at 51%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased at a faster rate in October 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 43rd consecutive month in October," Nieves said. He added, "Business Activity increased at a faster rate in October than in September. Inventories, New Export Orders, Imports and Inventory Sentiment also increased at a faster rate. Nine of 18 non-manufacturing industry sectors reported increased activity in October. Members' comments in October continue to be mixed concerning current business conditions; however, the majority of the comments are positive. The Prices Index decreased 4.8 percentage points this month to 51.9 percent. The overall indication in October is continued economic growth in the non-manufacturing sector at a faster pace than in September."

TOP PERFORMING INDUSTRIES

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

WHAT RESPONDENTS ARE SAYING ...
  • "Improved outlook and confidence in the economy." (Educational Services)
  • "Business continues to be strong." (Management of Companies & Support Services)
  • "General market conditions are still trending down. Order cancellation rates are higher month over month. New orders are stronger, but are still lower than expected." (Construction)
  • "Total lending and lending income increased, savings decreased." (Finance & Insurance)
  • "Things are improving from the standpoint of activity. There remains a constraint of resources such as labor and transportation." (Retail Trade)
  • "Slowing demand." (Wholesale Trade)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
OCTOBER 2006
  Non-Manufacturing Manufacturing
Index Series
Index
Oct
Series
Index
Sept
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
Oct
Series
Index
Sept
Percent
Point
Change
Business Activity/Production 57.1 52.9 +4.2 Increasing Faster 43 51.9 56.1 -4.2
New Orders 56.5 57.2 -0.7 Increasing Slower 43 52.1 54.2 -2.1
Employment 51.0 53.6 -2.6 Increasing Slower 27 50.8 49.4 +1.4
Supplier Deliveries 54.5 54.0 +0.5 Slowing Faster 62 50.2 54.1 -3.9
Inventories 53.0 50.5 +2.5 Increasing Faster 12 49.4 46.4 +3.0
Prices 51.9 56.7 -4.8 Increasing Slower 55 47.0 61.0 -14.0
Backlog of Orders 51.5 53.0 -1.5 Growing Slower 2 44.5 46.5 -2.0
New Export Orders 63.5 59.0 +4.5 Increasing Faster 16 57.8 55.3 +2.5
Imports 57.5 55.0 +2.5 Increasing Faster 9 57.0 56.0 +1.0
Inventory Sentiment 64.5 63.5 +1.0 "Too High" Faster 113 N/A N/A N/A
Customers' Inventories N/A N/A N/A       52.0 49.0 +3.0

* 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

Alloy Materials/Valves; Cheese; Construction; Corn; # 1 Diesel Fuel; Fuel*; Healthcare; Hotel Costs (5); Office Products & Supplies (2); Paper (33); Paper Products (9); Plastics; Rental Vehicles; Roofing Shingles; Salmon; Soy Hulls; Soy Oil; Soybean Meal; Stainless Steel (2); Steel Products; and Truck Chassis.

Commodities Down in Price

Computers & Computer Supplies; Diesel Fuel (2); # 2 Diesel Fuel (2); Fuel* (2); Gasoline (2); Lumber — Pine, Spruce and Treated (5); Natural Gas (2); Oil; Oil-Based Products; and Petroleum.

Commodities in Short Supply

Cement/Concrete (2); Medical Supplies; Nickel Alloys; Stainless Products; Steel; Tires; Transformers (3); and Vaccines (2).

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

* Reported as both up and down in price.



OCTOBER 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in October registered 57.1 percent compared to the 52.9 percent registered in September, indicating a faster rate of growth in business activity in October. The implication is that non-manufacturing business activity is continuing to increase for the 43rd consecutive month, at a faster rate. This month, nine sectors reported increased business activity, six reported decreased activity, and three indicated unchanged activity compared to September.

The industries reporting growth of business activity in October are: Utilities; Information; Retail Trade; Finance & Insurance; Public Administration; Health Care & Social Assistance; Management of Companies & Support Services; Educational Services; and Wholesale Trade. The six industries reporting contraction of business activity in October are: Other Services*; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Construction; Accommodation & Food Services; and Professional, Scientific & Technical Services.


Business Activity
%
Higher
%
Same
%
Lower

Index
October 2006 31 50 19 57.1
September 2006 25 56 19 52.9
August 2006 27 56 17 57.0
July 2006 30 52 18 54.8


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Oct 2006 57.1   Apr 2006 63.0
Sep 2006 52.9   Mar 2006 60.5
Aug 2006 57.0   Feb 2006 60.1
Jul 2006 54.8   Jan 2006 56.8
Jun 2006 57.0   Dec 2005 61.0
May 2006 60.1   Nov 2005 59.3
Average for 12 months – 58.3
High – 63.0
Low – 52.9

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 56.5 percent in October from the 57.2 percent registered in September. This indicates continued expansion of new orders, but at a slower rate than in September. Comments from members include: "Moving towards a slower quarter in the business cycle" and "Slowing demand."

Industries reporting growth of new orders in October are: Information; Retail Trade; Utilities; Finance & Insurance; Transportation & Warehousing; Public Administration; Educational Services; and Management of Companies & Support Services. The industries reporting contraction of new orders in October are: Mining; Other Services*; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Construction; Accommodation & Food Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Wholesale Trade.


New Orders
%
Higher
%
Same
%
Lower

Index
October 2006 26 56 18 56.5
September 2006 27 57 16 57.2
August 2006 22 60 18 52.1
July 2006 28 58 14 55.6

Employment

Employment activity in the non-manufacturing sector increased at a slower rate in October compared to September. This was the 27th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for October is 51 percent, a decrease of 2.6 percentage points from the 53.6 percent reported in September. Eight industries reported increased employment, eight reported a decrease, and two indicated employment is unchanged from September. Comments from respondents include: "Hiring freeze and some layoffs" and "Recent downsizing of 5 percent of the workforce."

The industries reporting growth in employment in October are: Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Management of Companies & Support Services; Public Administration; Health Care & Social Assistance; Information; Wholesale Trade; and Educational Services. The eight industries reporting a reduction in employment in October are: Mining; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Accommodation & Food Services; Professional, Scientific & Technical Services; Construction; Retail Trade; and Finance & Insurance.


Employment
%
Higher
%
Same
%
Lower

Index
October 2006 14 72 14 51.0
September 2006 17 69 14 53.6
August 2006 15 72 13 51.4
July 2006 19 75 6 54.5

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 62nd consecutive month in October. The index registered 54.5 percent, 0.5 percentage point higher than in September, indicating that deliveries are slowing at a faster rate than in September. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in October include: "Slower rail delivery" and "Fabricator leadtimes increasing."

The industries reporting slowing in supplier deliveries in October are: Other Services*; Management of Companies & Support Services; Wholesale Trade; Educational Services; Utilities; Accommodation & Food Services; Professional, Scientific & Technical Services; Information; and Retail Trade. The one industry reporting faster supplier deliveries in October is Public Administration.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
October 2006 13 83 4 54.5
September 2006 12 84 4 54.0
August 2006 13 81 6 53.5
July 2006 13 83 4 54.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 53 percent in October, an increase of 2.5 percentage points compared to September. This is the 12th consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in October, 34 percent indicated they do not have inventories or do not measure them. Comments from members include: "Decreasing demand" and "Increased stock levels for open enrollment period."

The industries reporting increases in inventories in October are: Information; Construction; Other Services*; Wholesale Trade; Utilities; and Finance & Insurance. The industries reporting decreases in inventories in October are: Management of Companies & Support Services; Accommodation & Food Services; Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; Retail Trade; and Health Care & Social Assistance.


Inventories
%
Higher
%
Same
%
Lower

Index
October 2006 24 58 18 53.0
September 2006 22 57 21 50.5
August 2006 20 63 17 51.5
July 2006 21 64 15 53.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in October for the 55th consecutive month. ISM's Non-Manufacturing Prices Index for October is 51.9 percent, 4.8 percentage points lower than September's index of 56.7 percent. In October, the percentage of respondents reporting higher prices decreased 5 percent to 21 percent compared to September at 26 percent. The proportion indicating no change increased from 61 percent in September to 63 percent in October. The percentage of respondents noting lower prices increased from 13 percent in September to 16 percent in October.

The industries reporting an increase in prices paid in October are: Accommodation & Food Services; Other Services*; Professional, Scientific & Technical Services; Wholesale Trade; Utilities; Information; Health Care & Social Assistance; Retail Trade; and Educational Services. The seven industries reporting a decrease in prices in October are: Transportation & Warehousing; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Construction; Finance & Insurance; Public Administration; and Management of Companies & Support Services.


Prices
%
Higher
%
Same
%
Lower

Index
October 2006 21 63 16 51.9
September 2006 26 61 13 56.7
August 2006 43 54 3 72.4
July 2006 51 45 4 74.8

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 51.5 percent in October, 1.5 percentage points lower than the 53 percent reported in September. This indicates that order backlogs are once again increasing for the second consecutive month after contracting in August. Of the total respondents in October, 49 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Unexpected higher sales on several new items created back order" and "As the roofing season slows, backlogs diminish."

The industries reporting an increase in order backlogs in October are: Utilities; Management of Companies & Support Services; Information; Accommodation & Food Services; Wholesale Trade; Retail Trade; and Finance & Insurance. The two industries reporting no change are: Agriculture, Forestry, Fishing & Hunting; and Transportation & Warehousing. The eight industries reporting a decrease in order backlogs in October are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Public Administration; Other Services*; Health Care & Social Assistance; Professional, Scientific & Technical Services; Educational Services; and Construction.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
October 2006 22 59 19 51.5
September 2006 22 62 16 53.0
August 2006 17 65 18 49.5
July 2006 22 68 10 56.0

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 16th consecutive month in October. The October index marks 38 of the past 39 months that the index has exhibited growth. The New Export Orders Index for October is 63.5 percent, compared to September's index of 59 percent. Of the total respondents in October, 71 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 October are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Finance & Insurance; Information; Transportation & Warehousing; Professional, Scientific & Technical Services; and Wholesale Trade. The one industry reporting a decrease in new export orders in October is Public Administration.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
October 2006 35 57 8 63.5
September 2006 26 66 8 59.0
August 2006 20 66 14 53.0
July 2006 22 68 10 56.0

Imports

In October, the ISM Non-Manufacturing Imports Index registered 57.5 percent, 2.5 percentage points higher than September's index of 55 percent, indicating that use of imports increased in October for the ninth consecutive month, at a faster rate than in September. In October, 66 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 October are: Transportation & Warehousing; Information; Management of Companies & Support Services; Wholesale Trade; and Retail Trade. The two industries reporting a decrease in imports for the month of October are: Arts, Entertainment & Recreation; and Public Administration.


Imports
%
Higher
%
Same
%
Lower

Index
October 2006 25 65 10 57.5
September 2006 21 68 11 55.0
August 2006 22 76 2 60.0
July 2006 25 71 4 60.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in October registered 64.5 percent, 1 percentage point higher than the 63.5 percent reported in September. This indicates that non-manufacturing purchasing and supply executives feel a greater degree of discomfort with current levels of inventory in October than they did during September. In October, 33 percent of respondents felt their inventories were too high, 4 percent indicated their inventories were too low, and 63 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in October are: Mining; Construction; Transportation & Warehousing; Wholesale Trade; Real Estate, Rental & Leasing; Other Services*; Information; Retail Trade; Professional, Scientific & Technical Services; Accommodation & Food Services; Public Administration; and Finance & Insurance. The one industry reporting that its inventory is too low is Utilities.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
October 2006 33 63 4 64.5
September 2006 32 63 5 63.5
August 2006 28 62 10 59.0
July 2006 28 64 8 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.

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 November 2006 data will be released at 10:00 a.m. (ET) on Tuesday, December 5, 2006.



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