December 2000 Non-Manufacturing Report On Business®

FOR RELEASE: January 4, 2001

CONTACT: Kristen Kioa
  NAPM Media Relations
  480/752-6276 ext. 3015
   
NON-MANUFACTURING BUSINESS ACTIVITY GROWS AT A SLOWER 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 NAPMReport 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 2000.

New Orders, Imports, and Employment Increase at Slower Rates
Slowness of Deliveries Eases and Inventories Decrease

(Tempe, Arizona) — Business in the non-manufacturing sector grew more slowly in December 2000 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 but at a much slower rate of growth than in November," Kauffman said. "Although New Export Orders and Prices increased at faster rates, New Orders, Imports, and Employment increased at slower rates in December than in November. Order Backlogs increased slightly, and Inventories declined in December. Supplier Deliveries continued its trend of slowness in December at a much decreased rate of slowing. The Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a lesser degree of discomfort with the level of inventories in December than they did in November," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 53 percent in December, 5.5 percentage points lower than in November, indicating significantly slower growth in non-manufacturing economic activity. Many of the comments from purchasing executives are indicative of the generally slower growth of business activity in December. Increased business activity in December was reported by 29 percent of purchasers, a decrease of 2 percentage points from the 31 percent reporting more activity in November. Of the industry groups reporting in the December NAPM non-manufacturing survey, 10 indicated increased activity, 5 indicated decreased activity, and 2 reported no change in activity compared to November. In November, 12 industry groups reported increased activity, 3 reported decreased activity, and 2 reported no change in activity level," said Kauffman.

This month our members reported decreased inventories for the second consecutive month after five months of reports of increases, and also indicated a slightly faster rate of increase in the prices they pay for their purchases. Some members indicate they are reducing inventories to keep them in line with actual sales and operational activity. The Prices Index increased in December from 57 percent to 58 percent, indicating a faster rate of increase but still appearing to maintain the overall downtrend that began in April 2000. The percentage of members reporting higher prices increased to 22 percent in December from 21 percent in November, the proportion indicating no change remained constant at 72 percent, and the number who noted lower prices decreased to 6 percent from 7 percent in November.

"Overall in December, non-manufacturing industries continued their long-term growth trend at a decreased rate of growth compared to November. This month both the Business Activity and New Orders Indexes decreased sharply, and the Backlog of Orders Index indicated a slight increase in backlogs from November levels. Non-manufacturing inventories decreased compared to November. Employment rose at a slower rate of increase, and Prices increased at a slightly faster rate in December," 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 53.0 58.5 -5.5 Increasing Slower
New Orders 51.0 56.5 -5.5 Increasing Slower
Backlog of Orders 50.5 49.5 +1.0 Increasing from Decreasing
New Export Orders 56.5 55.0 +1.5 Increasing Faster
Inventory Change 48.5 49.5 -1.0 Decreasing Faster
Inventory Sentiment 65.0 66.0 -1.0 Decreased Feeling of "Too High"
Imports 51.5 53.5 -2.0 Increasing Slower
Prices 58.0 57.0 +1.0 Increasing Faster
Employment 51.0 54.5 -3.5 Increasing Slower
Supplier Deliveries 51.0 54.0 -3.0 Slowing at a Slower Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity increased in non-manufacturing industries and production decreased in manufacturing industries in December. New orders increased for the non-manufacturing sector but decreased for manufacturing. Backlog of orders increased slightly for the non-manufacturing sector, but decreased in manufacturing. Prices increased in December for both areas but rose faster for manufacturing. Employment in December rose for non-manufacturing but dropped in the manufacturing sector. Inventories decreased for both manufacturing and non-manufacturing with a faster rate of decrease in manufacturing. New export orders increased in non-manufacturing but were slightly reduced in manufacturing. Supplier delivery performance in December was reported to be slower in both non-manufacturing and manufacturing industries. Use of Imports was up in both manufacturing and non-manufacturing but increased at a slightly faster rate in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 53.0 Production 42.4
New Orders 51.0 New Orders 42.0
Backlog of Orders 50.5 Backlog of Orders 36.0
New Export Orders 56.5 New Export Orders 49.9
Inventory Change 48.5 Inventories 39.8
Inventory Sentiment 65.0    
Imports 51.5 Imports 51.2
Prices 58.0 Prices 61.0
Employment 51.0 Employment 42.8
Supplier Deliveries 51.0 Supplier Deliveries 52.7

*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 dropped 5.5 percentage points to 53 percent, indicating decreased business activity compared to November (58.5 percent). Purchasing executives' comments in December reflected slower growth in economic activity. December's Index was the lowest since 52.5 percent was reported in January 2000. The percent of members reporting increased activity dropped to 29 percent in December from 31 percent in November. Members reporting decreased activity increased to 23 percent in December from 14 percent in November. Those reporting no change in activity in December totaled 48 percent, a decrease of 7 percentage points from November's 55 percent.

The industries reporting the highest rates of growth of business activity in December were: Business Services; Agriculture; Health Services; Mining; and Utilities.

Business
Activity
% Higher % Same % Lower Index
December 2000 29 48 23 53.0
November 2000 31 55 14 58.5
October 2000 32 52 16 58.0
September 2000 37 50 13 62.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index decreased to 51 percent in December from 56.5 percent in November. This was the lowest New Orders Index since December 1998 when it was 48.5 percent. Comments from members included: "Slower seasonal activity" (numerous similar comments), "Increased business development activities," "Generally lower levels in all areas," and "Year-end 'scramble' to use budget dollars."

The industries reporting the highest rates of growth of new orders in December were: Business Services; Agriculture; Insurance; Mining; and Utilities.

New Orders % Higher % Same % Lower Index
December 2000 26 50 24 51.0
November 2000 29 55 16 56.5
October 2000 30 55 15 57.5
September 2000 35 52 13 61.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 50.5 percent in December. This slight increase in order backlogs follows November's slight decrease which was the first drop in order backlogs in 10 months. The December index is an increase of 1 percentage point from November's 49.5 percent. Purchasing executives' comments on backlogs of orders included: "Installation times have improved," "Activity and requests are lower," "No problem keeping up with orders," and "Overall increased activity." Of the total respondents in December, 29 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in December were: Legal Services; Agriculture; Construction; Public Administration; and Utilities.

Backlog
of Orders
% Higher % Same % Lower Index
December 2000 20 61 19 50.5
November 2000 16 67 17 49.5
October 2000 21 65 14 53.5
September 2000 22 69 9 56.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a much slower rate in December than in November. NAPM's Non-Manufacturing Supplier Deliveries Index for December was 51 percent compared to 54 percent in November. December's Index was the lowest since November 1998 when the Index was 50 percent. Comments from purchasing executives included: "Rail deliveries are slow," "(Slow) due to weather in mid-west," "Weather and truck shortage," and "(Slow) due to Christmas season."

The industries that reported the highest rates of slowness of supplier deliveries in December were: Legal Services; Agriculture; Entertainment; Finance and Banking; Insurance; and Public Administration.

Supplier
Deliveries
% Higher % Same % Lower Index
December 2000 7 84 9 51.0
November 2000 4 84 12 54.0
October 2000 2 87 11 54.5
September 2000 6 82 12 53.0

Non-Manufacturing 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 in December for the 10th consecutive month. December's index was 56.5 percent, indicating an increased rate of new export orders compared to November's index of 55 percent. Of the total respondents in December, 74 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting the highest rates of increase for new export orders in December were: Public Administration; Business Services; Mining; *Other Services; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
December 2000 24 65 11 56.5
November 2000 25 60 15 55.0
October 2000 23 64 13 55.0
September 2000 16 71 13 51.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries continued to grow, but at a slower rate of growth in December. NAPM's Non-Manufacturing Imports Index for December was 51.5 percent, a drop of 2 percentage points from the 53.5 percent reported in November. In December, 67 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting increased use of imports in December were: Public Administration; Business Services; *Other Services; and Retail Trade.

Imports % Higher % Same % Lower Index
December 2000 14 75 11 51.5
November 2000 17 73 10 53.5
October 2000 18 79 3 57.5
September 2000 6 86 8 49.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in December for the second consecutive month and the third time in 10 months. NAPM's Non-Manufacturing Inventories Index registered 48.5 percent in December, a decrease of 1 percentage point from the 49.5 percent reported in November. The December Index was the lowest index of inventory change since October 1999 when the index was 47.5 percent. Of the total respondents in December, 25 percent indicated they do not have inventories. Comments from member purchasers included: "Lower than forecast sales," "Reducing inventory to match activity," "New contracts where vendors hold inventory," and "Orders dropped."

The industries reporting the highest rates of inventory increase in December were: Legal Services; Agriculture; Transportation; Insurance; Public Administration; and *Other Services. The industries reporting the highest rates of inventory decrease in December were: Real Estate; Communication; Wholesale Trade; Construction; and Finance and Banking.

Inventory
Change
% Higher % Same % Lower Index
December 2000 24 49 27 48.5
November 2000 21 57 22 49.5
October 2000 25 60 15 55.0
September 2000 24 59 17 53.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in December registered 65 percent compared to 66 percent for November. This drop in the index level indicates that non-manufacturing purchasing executives felt a lesser degree of discomfort with current levels of inventory in December than they did during November, and coincides with the second consecutive month of reported decreases in inventories. In December, 35 percent of members felt their inventories were too high (37 percent in November). Also in December, 5 percent indicated their inventories were too low (same as in November) and 60 percent said that their inventories were about right (58 percent in November).

The industries that reported the highest rates of feeling that their inventories were "too high" in December were: Legal Services; Utilities; Communication; Entertainment; and Insurance.

Inventory
Sentiment
% Higher % Same % Lower Index
December 2000 35 60 5 65.0
November 2000 37 58 5 66.0
October 2000 38 59 3 67.5
September 2000 40 50 10 65.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in December for the 22nd consecutive month and at a higher rate of increase than in November. NAPM's Non-Manufacturing Price Index for December moved up to 58 percent from 57 percent in November.

The industries that reported the highest rate of increase in prices paid in December were: Legal Services; Agriculture; Mining; Communication; and Entertainment.

Prices % Higher % Same % Lower Index
December 2000 22 72 6 58.0
November 2000 21 72 7 57.0
October 2000 26 70 4 61.0
September 2000 27 67 6 60.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at a slower rate in December than in November. NAPM's Non-Manufacturing Employment Index for December was 51 percent compared to 54.5 percent in November. The December Index was the lowest since February 2000 (50 percent). Comments from purchasers included: "Hiring freeze from sale of division," "Layoffs to reduce staff in non-production departments," "Not replacing resignations," and "Still hiring for open positions."

The industries reporting the highest rates of growth of employment in December were: Transportation; Entertainment; Agriculture; Mining; and *Other Services.

Employment % Higher % Same % Lower Index
December 2000 16 70 14 51.0
November 2000 19 71 10 54.5
October 2000 20 67 13 53.5
September 2000 20 64 16 52.0

*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:

Flu Vaccine; Labor; Laptops — 10th month; Temporary Help — 4th month.

Commodities Reported Up in Price:

Butter; Diesel Fuel — 7th month; Energy; Fuel — 11th month; Natural Gas; Oil; Paper — 21st month; Produce.

Commodities Reported Down in Price:

Computers (PCs) — 10th month; Gasoline; Lumber; Personal Computers.

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 181 affiliates with more than 45,000 members in the United States.

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 2001 data will be released at 10:00 a.m. (ET) on February 5, 2001.



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