December 1999 Non-Manufacturing Report on Business®

FOR RELEASE: January 5, 2000

CONTACT: Zenobia Daruwalla
  NAPM Media Relations
  480/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS AT SAME RATE IN DECEMBER SAY PURCHASING EXECUTIVES IN LATEST NON-MANUFACTURING NAPM REPORT ON BUSINESS®

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing reports released across the country or the Manufacturing NAPM Report On Business®. The national non-manufacturing report's information reflects the entire United States, while the regional reports cover only their local vicinity. 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 December 1999.

Business Activity Index Holds at 55.5%
New Orders, Export Orders, Prices, and Employment Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in December 1999 say the nation's purchasing executives in the latest Non-Manufacturing NAPM Report On Business®.

The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the National Association of Purchasing Management's Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown. "In December, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend and indicated the same rate of increase as in November," Kauffman said. "New Orders, Export Orders, and Employment increased at faster rates in December, while Imports and Backlog of Orders decreased. Supplier Deliveries were slower but with a decreased rate of slowing than in November, and Inventory levels were unchanged. Prices paid by non-manufacturing organizations for materials and services increased at a slower rate than in November, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling a lesser degree of discomfort with the current level of inventories in December than they did in November," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 55.5 percent in December, the same as in November, reflecting continued steady growth in non-manufacturing economic activity. Comments from purchasing executives continue to be positive on business activity in December. Increased business activity in December was reported by 28 percent of purchasers, an increase of 4 percentage points from the 24 percent reporting more activity in November. Of the industry groups reporting in the December NAPM non-manufacturing survey, 9 indicated increased activity, 5 indicated decreased activity, and 2 reported no change in activity level. In November, 9 industry groups reported increased activity, 3 indicated decreased activity, and 5 advised no change," said Kauffman.

This month our members reported no change in their inventories compared to November, perhaps indicating that the Y2K inventory increases have been completed. However, the numerous comments about Y2K inventories imply that without Y2K, inventories in December may have dropped instead of holding steady. Prices paid by members' firms for purchased materials and services continue to be a concern, but in December the Price Index dropped to 56 percent, signaling a slower rate of price increase. Members reporting higher prices in December numbered 17 percent, a drop of 4 percentage points from the 21 percent reported in November.

"Overall in December, non-manufacturing industries continued their long-term growth trend. However, order backlogs decreased this month and the rate of increase in new orders rose only slightly, indicating some possible moderation in the future strength of business growth. Non-manufacturing employment continued to increase and purchase prices in December increased at a slower rate than in November," Kauffman commented.

NAPM Non-Manufacturing Survey Results at a Glance
Series December
Indexes
November
Indexes
December vs. November
Index Change
Direction and
Rate of Change
Business Activity 55.5 55.5 0.0 Increasing at Same Rate
New Orders 56.0 55.5 +0.5 Increasing Faster
Backlog of Orders 49.0 49.0 0.0 Decreasing at Same Rate
New Export Orders 58.0 56.0 +2.0 Increasing Faster
Inventory Change 50.0 52.5 -2.5 Unchanged from Increasing
Inventory Sentiment 61.5 62.5 -1.0 Decreased Feeling of "too high"
Imports 49.0 52.5 -3.5 Decreasing from Increasing
Prices 56.0 57.5 -1.5 Increasing Slower
Employment 51.5 50.5 +1.0 Increasing Faster
Supplier Deliveries 53.0 56.5 -3.5 Slowing at a Slower Rate

Comparison of NAPM Non-Manufacturing and NAPM Manufacturing Surveys*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in December with a faster rate of growth in manufacturing production. New orders also increased for both the non-manufacturing and manufacturing sectors with a greater rate of increase for non-manufacturing. Backlog of orders was unchanged for manufacturing but decreased for non-manufacturing. Prices increased in December for both areas but increased faster for manufacturing. Employment in December increased for manufacturing and non-manufacturing but increased more rapidly in manufacturing. Inventories were unchanged in non-manufacturing but decreased in manufacturing. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in December was reported to be slow by both sectors with manufacturing reporting a greater rate of slowness. Use of Imports was up in manufacturing but down in non-manufacturing in December.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 55.5 Production 58.7
New Orders 56.0 New Orders 55.5
Backlog of Orders 49.0 Backlog of Orders 50.0
New Export Orders 58.0 New Export Orders 53.4
Inventory Change 50.0 Inventories 47.2
Inventory Sentiment 61.5    
Imports 49.0 Imports 51.4
Prices 56.0 Prices 65.7
Employment 51.5 Employment 54.3
Supplier Deliveries 53.0 Supplier Deliveries 56.9

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing NAPM Report On Business® data is not seasonally adjusted.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in December held steady at 55.5 percent, indicating increased business activity at the same rate of increase as in November. The Business Activity Index for both months was the lowest since January 1999 (54 percent). Purchasing executives' comments in December continued to be positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in December numbered 28 percent, an increase from the 24 percent reporting more activity in November. Members who indicated lower business activity in December numbered 17 percent, up 4 points from 13 percent in November. The industries reporting the highest rates of growth of business activity in December were: Communication; Entertainment; Insurance; Agriculture; and Mining.

Business
Activity
% Higher % Same % Lower Index
December 1999 28 55 17 55.5
November 1999 24 63 13 55.5
October 1999 32 56 12 60.0
September 1999 33 56 11 61.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 56 percent in December from 55.5 percent in November, indicating a slightly faster rate of increase for new orders to non-manufacturers. December's New Orders Index indicates continued high levels of activity with an increased rate of growth. Comments from members included: "New business added," "Y2K" (several comments), and "Year end activity" (several comments).

The industries reporting the highest rates of growth of new orders in December were: Agriculture; Communication; Entertainment; Health Services; and Insurance.

New Orders % Higher % Same % Lower Index
December 1999 28 56 16 56.0
November 1999 24 63 13 55.5
October 1999 33 55 12 60.5
September 1999 31 60 9 61.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index remained at 49 percent in December, indicating a continued decrease in order backlogs. The Backlog of Orders Index for December and November was the lowest, and the first indicating decreased order backlogs, since January 1999 (49 percent). Purchasing executives' comments on backlogs of orders included: "Improved supply chain processes," "some delays due to holiday buying rush," and "Focus on reducing backlog." Of the total respondents in December, 29.2 percent indicated they do not measure backlog of orders.

The 4 industries reporting growth of backlog of orders in December were: Communication, Wholesale Trade, Utilities, and Health Services.

The industries reporting the highest rates of decrease of backlog of orders in December were: Business Services; Transportation; Construction; Retail Trade; and *Other Services.

Backlog
of Orders
% Higher % Same % Lower Index
December 1999 12 74 14 49.0
November 1999 13 72 15 49.0
October 1999 19 66 15 52.0
September 1999 16 73 11 52.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed less in December than in November. December was the first month of decreased slowness after four consecutive months of increase in the rate of delivery slowness. NAPM's Non-Manufacturing Supplier Deliveries Index for December was 53 percent compared to 56.5 percent in November. Comments from purchasing executives included: "Seasonal slowdown in manufacturing means less lead times," "Continue to improve expediting," "Supplier shortages still ongoing — computer memory chips in Taiwan," and "Disruptions caused by plant consolidations and software upgrades."

The industries that reported slower rates of supplier deliveries in December were: Agriculture; Utilities; Wholesale Trade; Retail Trade; *Other Services; and Health Services.

Supplier
Deliveries
% Higher % Same % Lower Index
December 1999 5 84 11 53.0
November 1999 3 81 16 56.5
October 1999 3 82 15 56.0
September 1999 2 88 10 54.0

Non-Manufacturing New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by U.S.-based personnel increased for the tenth consecutive month in December, and at a faster rate of increase than in November. NAPM's Non-Manufacturing New Export Orders Index was 58 percent in December compared to 56 percent in November. Of the total respondents in December, 77.7 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The industries reporting growth of new export orders in December were: Insurance; Communication; Business Services; Mining; Wholesale Trade; and Construction.

New Export
Orders
% Higher % Same % Lower Index
December 1999 24 68 8 58.0
November 1999 22 68 10 56.0
October 1999 14 80 6 54.0
September 1999 29 67 4 62.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased in December after increasing for ten consecutive months. NAPM's Non-Manufacturing Imports Index for December was 49 percent compared to 52.5 percent in November. The December Imports Index was the lowest since January 1999 (48 percent). In December, 72.1 percent of respondents reported that they do not use or do not track use of imported materials.

The only industry reporting a higher rate of growth in use of imports in December was: Retail Trade.

The industries reporting decreased use of imports in December were: Agriculture; Wholesale Trade; Transportation; *Other Services; and Communication.

Imports % Higher % Same % Lower Index
December 1999 11 76 13 49.0
November 1999 9 87 4 52.5
October 1999 17 75 8 54.5
September 1999 21 75 4 58.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations were unchanged in December after increasing in November. NAPM's Non-Manufacturing Inventories Index registered 50 percent in December, compared to 52.5 in November. Of the total respondents in December, 25.2 percent indicated they do not have inventories. Comments from member purchasers included: "Corporate requirements to reduce money in inventory," "Improved forecasting and JIT model," "Intense focus on inventory reduction," and "Hold little inventory with JIT system."

The industries reporting the highest rates of increase of inventories in December were: Retail Trade; Real Estate; Entertainment; Mining; and Health Services.

Industries reporting the highest rates of decrease in inventories in December were: Construction; Transportation; Utilities; Wholesale Trade; Finance and Banking; and Agriculture.

Inventory
Change
% Higher % Same % Lower Index
December 1999 20 60 20 50.0
November 1999 21 63 16 52.5
October 1999 20 55 25 47.5
September 1999 20 64 16 52.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in December registered 61.5 percent compared to 62.5 percent for November. This index level indicates that non-manufacturing purchasing executives felt a slightly lower degree of discomfort with current levels of inventory in December than they did during November. In December, 31 percent of members felt their inventories were too high (34 percent in November). Also in December, 8 percent indicated their inventories were too low (9 percent in November), and 61 percent said that their inventories were about right (57 percent in November).

The industries that reported the highest rates of feeling that their inventories were "too high" in December were: Utilities; Mining; Business Services; Real Estate; and Wholesale Trade.

Inventory
Sentiment
% Higher % Same % Lower Index
December 1999 31 61 8 61.5
November 1999 34 57 9 62.5
October 1999 28 60 12 58.0
September 1999 29 65 6 61.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in December for the tenth consecutive month but at a lower rate of increase than in November. NAPM's Non-Manufacturing Price Index for December was 56 percent, compared to 57.5 percent in November. This decrease in the rate of increase may be an indication that the strength of price increases over the past 10 months is continuing to moderate.

The industries that reported increases in prices paid in December were: Mining; Retail Trade; Health Services; *Other Services; Public Administration; Wholesale Trade; and Finance and Banking.

Prices % Higher % Same % Lower Index
December 1999 17 78 5 56.0
November 1999 21 73 6 57.5
October 1999 22 70 8 57.0
September 1999 28 68 4 62.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector increased at a faster rate in December than in November. NAPM's Non-Manufacturing Employment Index for December was 51.5 percent compared to 50.5 percent for November. Comments from purchasers included: "Preparing for growth in 2000," "New customers have increased workload," and "Meet increase in business."

The industries reporting growth of employment in December were: Communication; Entertainment; Wholesale Trade; *Other Services; and Public Administration.

Employment % Higher % Same % Lower Index
December 1999 15 73 12 51.5
November 1999 15 71 14 50.5
October 1999 16 70 14 51.0
September 1999 14 72 14 50.0

*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.

Commodities Reported in Short Supply

Computer memory — 3rd month; Fiber Optic Cable — 2nd month; Labor; Laptops; Programmers.

Commodities Reported Up in Price

Beef — 4th month; Coffee; Computer memory — 3rd month; Diesel Fuel — 2nd month; Fuel — 10th month; Gasoline — 10th month; Paper — 9th month; Paper Products — 4th month; Pork.

Commodities Reported Down in Price

Cheese; Corn; Soybean Meal.

Data and Method of Presentation

The Non-Manufacturing NAPM Report on Business® is based on data compiled from monthly replies to questions asked of more than 370 purchasing 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. The resulting single index number is not seasonally adjusted.

A weighted composite index similar to the Purchasing Managers Index (PMI) that is so popular in the Manufacturing NAPM 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, 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 NAPM Report on Business® is published monthly by the National Association of Purchasing Management, the largest purchasing and supply management research and education organization in the United States. NAPM is comprised of 182 affiliates with more than 45,000 members in the United States and Puerto Rico.

The full text version of the Non-Manufacturing NAPM Report on Business® is posted on NAPM'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 NAPM Report on Business® featuring the January 2000 data will be released at 10:00 a.m. (ET) on February 3, 2000.


Back to Top