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October 2008 Non-Manufacturing ISM Report On Business®

FOR RELEASE: November 5, 2008


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


NMI (Non-Manufacturing Index) at 44.4%

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 2008.


Business Activity Index at 44.2%
New Orders Index at 44%
Employment Index at 41.5%

(Tempe, Arizona) — Economic activity in the non-manufacturing sector contracted in October, 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. "The NMI (Non-Manufacturing Index) registered 44.4 percent in October, 5.8 percentage points lower than the 50.2 percent registered in September, indicating contraction in the non-manufacturing sector after two consecutive months of growth. The Non-Manufacturing Business Activity Index decreased 7.9 percentage points to 44.2 percent. The New Orders Index decreased 6.8 percentage points to 44 percent, and the Employment Index decreased 2.7 percentage points to 41.5 percent. The Prices Index decreased 16.6 percentage points to 53.4 percent in October, indicating a slower rate in price increases than in September. This is the lowest reading for the Prices Index since July 2003 when it registered 51.4 percent, and is also the largest one-month decline since the index was first reported in 1997. According to the NMI, three non-manufacturing industries reported growth in October. Respondents' comments indicate ongoing concern about the business environment and the economy."

INDUSTRY PERFORMANCE (Based on the NMI)

The three industries reporting growth in October based on the new NMI composite index — listed in order — are: Other Services*; Health Care & Social Assistance; and Utilities. The 13 industries reporting contraction in October are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Management of Companies & Support Services; Accommodation & Food Services; Construction; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Educational Services; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; Information; and Wholesale Trade.

WHAT RESPONDENTS ARE SAYING ...
  • "Financial services industry continues to be impacted by the global economic crisis — impacting all aspects and areas of the business and supply management." (Finance & Insurance)
  • "Economic slowdown starting to have an impact on customer count and check averages." (Accommodation & Food Services)
  • "Uncertainty is having the usual effect on business. Our response is traditional — stop all discretionary spending." (Management of Companies & Support Services)
  • "General pick-up in business in spite of all the bad economic global news." (Wholesale Trade)
  • "We are experiencing a slowdown in new job orders and existing job awards are lower. Clients are not extending project support professionals." (Professional, Scientific & Technical Services)
  • "Business down significantly! Discretionary spending disappearing." (Arts, Entertainment & Recreation)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
OCTOBER 2008
  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
NMI/PMI 44.4 50.2 -5.8 Contracting From Growing 1 38.9 43.5 -4.6
Business Activity/Production 44.2 52.1 -7.9 Contracting From Growing 1 34.1 40.8 -6.7
New Orders 44.0 50.8 -6.8 Contracting From Growing 1 32.2 38.8 -6.6
Employment 41.5 44.2 -2.7 Contracting Faster 6 34.6 41.8 -7.2
Supplier Deliveries 48.0 53.5 -5.5 Faster From Slowing 1 49.2 52.5 -3.3
Inventories 48.0 45.5 +2.5 Contracting Slower 2 44.3 43.4 +0.9
Prices 53.4 70.0 -16.6 Increasing Slower 65 37.0 53.5 -16.5
Backlog of Orders 44.0 46.5 -2.5 Contracting Faster 3 29.5 35.0 -5.5
New Export Orders 50.0 50.5 -0.5 Unchanged From Growing 1 41.0 52.0 -11.0
Imports 52.0 47.5 +4.5 Growing From Contracting 1 41.0 44.0 -3.0
Inventory Sentiment 67.5 62.5 +5.0 Too High Faster 137 N/A N/A N/A
Customers' Inventories N/A N/A N/A N/A N/A N/A 55.0 53.5 +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 for New Orders, Production, Employment, Supplier Deliveries and Inventories.

** Number of months moving in current direction


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

Commodities Up in Price

Cable Wire; Copier Paper (9); #1 Diesel Fuel* (6); Electrical Supplies; Energy; Food and Beverage (6); Fuel*; Gasoline* (14); Janitorial Supplies; Medical Services; Medical and Surgical Supplies (3); Office Supplies; Paper; Plastic Bags; and Steel Products* (2).

Commodities Down in Price

Beef (2); Cardboard; Cheese; Copper Pipe (3); Copper Pipe Fittings (3); Copper Tubing (2); Diesel Fuel (2); #1 Diesel Fuel*; #2 Diesel Fuel (3); Fuel* (3); Gasoline* (4); Milk; Natural Gas; Poly Resins; and Steel Products*.

Commodities in Short Supply

No commodities are reported in short supply.

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

*Indicates reported both up and down in price.

SPECIAL QUESTIONS

A special set of questions was asked of the non-manufacturing respondents in October to determine possible effects from the recent turmoil in the financial markets. Of those who responded to this set of questions, 68.3 percent indicated that they (or their suppliers) have been affected by the recent financial market turmoil. Of those who have been affected, 43 percent indicated that they have seen a decrease in the availability of credit; 45 percent have seen an increase in the cost of credit; 22.5 percent have experienced difficulty in initiating or renewing a bank credit line; and 82.8 percent have reduced spending and/or hiring.



OCTOBER 2008 NON-MANUFACTURING INDEX SUMMARIES


NMI (Non-Manufacturing Index)

Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is now calculated as an indicator of the overall economic condition for the non-manufacturing sector. The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. In October, the NMI at 44.4 percent indicates contraction in the non-manufacturing sector. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

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

NMI HISTORY
Month NMI Month NMI
Oct 2008 44.4 May 2008 51.7
Sep 2008 50.2 Apr 2008 52.0
Aug 2008 50.6 Mar 2008 49.6
Jul 2008 49.5 Feb 2008 49.3
Jun 2008 48.2 Jan 2008 44.6

Business Activity

ISM's Non-Manufacturing Business Activity Index in October registered 44.2 percent, a decrease of 7.9 percentage points when compared to the 52.1 percent registered in September. Four industries reported increased business activity, and 12 industries reported decreased activity for the month of October. Two industries reported no change from September. Comments from respondents include: "Finished existing orders without new orders to fill capacity"; "Reduced flight schedule"; and "Decline in overall business and replacement of items."

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


Business Activity
%
Higher
%
Same
%
Lower

Index
Oct 2008 20 47 33 44.2
Sep 2008 23 53 24 52.1
Aug 2008 23 53 24 51.6
Jul 2008 24 51 25 49.6


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Oct 2008 44.2   Apr 2008 50.9
Sep 2008 52.1   Mar 2008 52.2
Aug 2008 51.6   Feb 2008 50.8
Jul 2008 49.6   Jan 2008 41.9
Jun 2008 49.9   Dec 2007 54.4
May 2008 53.6   Nov 2007 54.6
Average for 12 months — 50.5
High — 54.6
Low — 41.9

New Orders

ISM's Non-Manufacturing New Orders Index contracted in October after one month of growth. The index decreased 6.8 percentage points to 44 percent from the 50.8 percent registered in September. Comments from respondents include: "Lower levels of business activity"; "Cancellations due to perceived lower business volume"; and "Reduced prospecting activity."

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


New Orders
%
Higher
%
Same
%
Lower

Index
Oct 2008 18 50 32 44.0
Sep 2008 20 57 23 50.8
Aug 2008 24 51 25 49.7
Jul 2008 20 56 24 47.9

Employment

Employment activity in the non-manufacturing sector contracted in October for the ninth time in the last 10 months. ISM's Non-Manufacturing Employment Index for October registered 41.5 percent. This reflects a decrease of 2.7 percentage points when compared to the 44.2 percent registered in September. Three industries reported increased employment, 12 industries reported a decrease, and three industries indicated employment is unchanged from September. Comments from respondents include: "Hiring freeze continues"; "Reducing staff"; and "Potential layoffs in the near future if things don't pick up."

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


Employment
%
Higher
%
Same
%
Lower

Index
Oct 2008 9 61 30 41.5
Sep 2008 13 60 27 44.2
Aug 2008 13 62 25 45.4
Jul 2008 19 60 21 47.1

Supplier Deliveries

Supplier deliveries were faster in October, with the index registering 48 percent. This is the third reading below 50 percent in the last 10 months. A reading above 50 percent indicates slower deliveries.

The industries reporting slowing in supplier deliveries in October are: Construction; Transportation & Warehousing; Health Care & Social Assistance; and Retail Trade. The industries reporting faster supplier deliveries in October are: Agriculture, Forestry, Fishing & Hunting; Educational Services; Wholesale Trade; Information; Finance & Insurance; and Public Administration.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
Oct 2008 6 84 10 48.0
Sep 2008 11 85 4 53.5
Aug 2008 16 79 5 55.5
Jul 2008 15 77 8 53.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 48 percent in October, indicating that inventory levels contracted in October for the second consecutive month. Of the total respondents in October, 27 percent indicated they do not have inventories or do not measure them. Comments from members include: "Reducing overstock and slow moving inventory"; "Drawing down existing inventory — have stopped building inventory"; and "Keeping it very tight and as needed."

The industries reporting increases in inventories in October are: Mining; Other Services*; Utilities; Professional, Scientific & Technical Services; Retail Trade; Accommodation & Food Services; and Health Care & Social Assistance. The industries reporting decreases in inventories in October are: Real Estate, Rental & Leasing; Construction; Wholesale Trade; Transportation & Warehousing; Public Administration; Management of Companies & Support Services; Information; and Finance & Insurance.


Inventories
%
Higher
%
Same
%
Lower

Index
Oct 2008 21 54 25 48.0
Sep 2008 20 51 29 45.5
Aug 2008 20 67 13 53.5
Jul 2008 22 65 13 54.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in October for the 65th consecutive month. ISM's Non-Manufacturing Prices Index for October registered 53.4 percent, 16.6 percentage points lower than September's index of 70 percent. This is the lowest reading for the index since July 2003 when it registered 51.4 percent, and is also the largest one-month decline since the index was first reported in 1997. In October, the percentage of respondents reporting higher prices is 25 percent, the percentage indicating no change in prices paid is 52 percent, and 23 percent of the respondents reported lower prices.

In October, 10 industries reported an increase in prices paid in the following order: Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Management of Companies & Support Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Transportation & Warehousing; Accommodation & Food Services; Professional, Scientific & Technical Services; Utilities; and Information. The seven industries reporting prices as decreasing for the month of October are: Mining; Retail Trade; Wholesale Trade; Educational Services; Construction; Public Administration; and Finance & Insurance.


Prices
%
Higher
%
Same
%
Lower

Index
Oct 2008 25 52 23 53.4
Sep 2008 46 46 8 70.0
Aug 2008 50 38 12 72.9
Jul 2008 66 30 4 80.8

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index contracted in October. The index registered 44 percent, 2.5 percentage points lower than the 46.5 percent reported in September. Of the total respondents in October, 43 percent indicated they do not measure backlog of orders.

The industries reporting an increase in order backlogs in October are: Other Services*; Information; and Health Care & Social Assistance. The industries reporting lower backlog of orders in October are: Mining; Management of Companies & Support Services; Retail Trade; Construction; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; and Utilities.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
Oct 2008 12 64 24 44.0
Sep 2008 13 67 20 46.5
Aug 2008 14 70 16 49.0
Jul 2008 20 64 16 52.0

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 remain unchanged in October. The New Export Orders Index for October registered 50 percent, compared to September's index of 50.5 percent. Of the total respondents in October, 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 October are: Other Services*; Agriculture, Forestry, Fishing & Hunting; and Professional, Scientific & Technical Services. The industries reporting a decrease in export orders in October are: Accommodation & Food Services; Transportation & Warehousing; Retail Trade; and Wholesale Trade.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
Oct 2008 21 58 21 50.0
Sep 2008 18 65 17 50.5
Aug 2008 9 71 20 44.5
Jul 2008 22 51 27 47.5

Imports

The ISM Non-Manufacturing Imports Index registered 52 percent in October. The index is 4.5 percentage points higher than September's index of 47.5 percent. In October, 62 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: Agriculture, Forestry, Fishing & Hunting; Other Services*; Utilities; and Wholesale Trade. The industries reporting a decrease in imports for the month of October are: Finance & Insurance; Transportation & Warehousing; and Retail Trade.


Imports
%
Higher
%
Same
%
Lower

Index
Oct 2008 20 64 16 52.0
Sep 2008 14 67 19 47.5
Aug 2008 5 82 13 46.0
Jul 2008 11 76 13 49.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index increased 5 percentage points to 67.5 percent in October, indicating that respondents still believe their inventories are too high at this time. In October, 42 percent of respondents said their inventories were too high, 7 percent said their inventories were too low, and 51 percent said their inventories were about right.

The industries reporting a feeling that their inventories are too high in October are: Professional, Scientific & Technical Services; Other Services*; Retail Trade; Wholesale Trade; Management of Companies & Support Services; Accommodation & Food Services; Finance & Insurance; Arts, Entertainment & Recreation; Construction; Information; Public Administration; Health Care & Social Assistance; and Utilities. The two industries reporting that their inventories are too low are: Mining; and Agriculture, Forestry, Fishing & Hunting.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
Oct 2008 42 51 7 67.5
Sep 2008 33 59 8 62.5
Aug 2008 34 64 2 66.0
Jul 2008 29 67 4 62.5

*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, and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. 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 2008 data will be released at 10:00 a.m. (ET) on Wednesday, December 3, 2008.


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