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December 2003 Non-Manufacturing ISM Report On Business®

FOR RELEASE: January 6, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 58.6%.

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing and supply reports released across the country or the Manufacturing ISM 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 2003.

New Orders, Order Backlogs, Employment, Inventories, Imports, Prices, Exports Increase

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in December 2003, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown. "Non-manufacturing Business Activity increased for the ninth consecutive month in December," Kauffman said. He added, "Also in December, New Orders, Order Backlogs, Employment, Inventories, Prices, Imports, and Exports increased."

Purchasing and supply executives report that business activity continued to increase in December in the non-manufacturing sector, but at a slower rate of increase than in November. The Business Activity Index for December is 58.6 percent. December's index thus indicates continued relatively strong growth across non-manufacturing industries. In the non-manufacturing sector, 12 industry groups grew in December, while four contracted and one reported no change from November. Increased business activity in December was reported by 36 percent of members, compared to 34 percent in November. Reduced activity was reported by 24 percent of members, compared to 12 percent in November. In December, the remaining 40 percent of members indicated no change in business activity compared to 54 percent in November.

The Backlog of Orders Index increased by 3 percentage points to 55.5 percent, indicating growth in order backlogs for the eighth consecutive month and at a faster rate of increase than in November. The December New Orders Index increased from 60.1 percent in November to 61.2 percent in December. This reflects a faster rate of increase of new orders in December compared to November. Members reported that the prices they pay increased in December for the seventh consecutive month. December's Prices Index is 60 percent, up from 58 percent in November. This month, 10 industry groups reported paying higher prices compared to November, five reported paying the same, and two reported paying lower prices. Most of members' comments concerning business in December continue to indicate optimism concerning economic activity. Specific comments include: "Continue to be steady with no apparent loss of workload since last month despite the holidays"; "Business activity has slowed from the November time period. We expect a slight slowdown in business during the December time period"; "Growth still stagnant in my rural town"; and "Economy generally improving in restaurant segment."

In addition, Inventories increased for the second consecutive month after five months of decreases. With regard to Inventory Sentiment for December, members reported the same level of concern as in November that inventories are too high. New Export Orders increased for the fifth consecutive month, Imports increased for the eighth consecutive month, and Employment increased for the third consecutive month. Supplier Deliveries indicated slower performance for the 28th consecutive month.

Significant reports of commodities in short supply or up or down in price in December indicate that PC memory, textile products (including woven), and vaccines are in short supply. Price increases are reported for beef; chicken and chicken wings; copper; copper cable; drywall; fuel; furniture; gasoline; medical and surgical supplies; natural gas; pork; produce; PVC and PVC pipe; software maintenance and support; soy oil; and steel. #2 Diesel fuel; fuel; and unleaded gasoline are reported down in price.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index December
Index %
November
Index %
Index Change
from November
Direction &
Rate of Change
December
Index %
November
Index %
Index Change
from November
Business Activity / Production 58.6 60.1 -1.5 Increasing slower 73.0 68.3 +4.7
New Orders 61.2 60.1 +1.1 Increasing faster 77.6 73.7 +3.9
Employment 54.0 54.9 -0.9 Increasing slower 55.5 51.0 +4.5
Supplier Deliveries 52.0 53.0 -1.0 Slowing slower 58.8 56.0 +2.8
Inventories 51.5 51.0 +0.5 Increasing faster 47.3 50.0 -2.7
Prices 60.0 58.0 +2.0 Increasing faster 66.0 64.0 +2.0
Backlog of Orders 55.5 52.5 +3.0 Increasing faster 61.0 59.0 +2.0
New Export Orders 57.5 54.5 +3.0 Increasing faster 60.4 57.9 +2.5
Imports 57.0 57.5 -0.5 Increasing slower 57.8 62.4 -4.6
Inventory Sentiment 62.0 62.0 0.0 Same feeling of "too high" N/A N/A  
Customers' Inventories N/A N/A     39.0 39.5 -0.5

* 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 except for Backlog of Orders, Prices, and Customers' Inventories.

Business Activity

ISM's Non-Manufacturing Business Activity Index in December decreased to 58.6 percent from November's 60.1 percent, indicating a somewhat slower rate of growth of activity in December. December's index continues the period of growth in non-manufacturing business activity reflected over the past nine months. With the exception of March 2003, growth in business activity has been reported by ISM members every month beginning with February 2002. This month 12 sectors reported increased business activity, four sectors reported decreased activity, and one reported unchanged activity compared to November.

The industries reporting the highest rates of growth of business activity in December are: Legal Services; Entertainment; Mining; Agriculture; and Utilities. The industries reporting contraction of business activity in December are: Construction; Wholesale Trade; Health Services; and Transportation.

Business
Activity
% Higher % Same % Lower Index
December 2003 36 40 24 58.6
November 2003 34 54 12 60.1
October 2003 38 50 12 64.7
September 2003 38 53 9 63.3

New Orders

ISM's Non-Manufacturing New Orders Index increased to 61.2 percent in December from 60.1 percent in November. This indicates continued expansion of new orders at a faster rate of growth than in November. Comments from members include: "Targeted offerings reactivating lapsed customers"; "Increased demand"; "Successful proposals submitted"; and "Increased new store openings."

The industries reporting the highest rates of growth of new orders in December are: Mining; Legal Services; Agriculture; Entertainment; and Business Services. The industries reporting contraction of new orders in December are: Health Services; Wholesale Trade; Public Administration; and Transportation.

New Orders % Higher % Same % Lower Index
December 2003 36 44 20 61.2
November 2003 33 57 10 60.1
October 2003 37 50 13 64.4
September 2003 33 54 13 59.9

Employment

Employment in the non-manufacturing sector in December expanded for the third consecutive month after decreasing slightly in September. ISM's Non-Manufacturing Employment Index for December is 54 percent compared to 54.9 percent in November. December's Employment Index indicates that non-manufacturing employment expanded at a slightly slower rate in December than in November. Comments from respondents include: "Hiring for increased demand"; "About 500 positions were created by the new stores"; "Higher backlog, anticipated increase in volume"; "Land development projects"; and "Restructuring of departments."

The industries reporting the highest rates of growth in employment in December are: Entertainment; Retail Trade; Other Services*; Communication; and Finance & Banking. Industries reporting reduction in employment in December are: Real Estate; Health Services; and Construction.

Employment % Higher % Same % Lower Index
December 2003 19 68 13 54.0
November 2003 20 69 11 54.9
October 2003 19 65 16 52.9
September 2003 15 67 18 49.1

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 28th consecutive month in December. The index registered 52 percent, one percentage point lower than in November. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in December include: "Manufacturers are backordered"; "Backorders and seasonal freight slowdown"; "Some large end-of-year orders slowing process"; and "Delays due to scarcity of carriers."

The industries reporting the highest rates of slowing in supplier deliveries in December are: Wholesale Trade; Real Estate; Communication; Construction; Finance & Banking; and Retail Trade. The industries reporting faster supplier deliveries in December are: Utilities and Public Administration.

Supplier
Deliveries
% Slower % Same % Faster Index
December 2003 10 84 6 52.0
November 2003 9 88 3 53.0
October 2003 12 82 6 53.0
September 2003 11 88 1 55.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 51.5 percent in December, 0.5 percentage point higher than the 51 percent reported in November. December's index reflects the second increase in material inventories maintained by non-manufacturing organizations (index value greater than 50) after five consecutive monthly decreases. Of the total respondents in December, 28 percent indicate they do not have inventories or do not measure them. Comments from members include: "Continued inventory reduction toward long-term goals"; "Increased production"; "We have reached new highs in inventory level. This was necessary to meet the demands of additional stores"; and "Purchase of inventory before first of year price increases and also purchases to meet yearly rebate quotas."

The industries reporting the highest rates of inventory increases in December are: Insurance; Real Estate; Wholesale Trade; Business Services; and Retail Trade. The industries reporting inventory decreases in December are: Mining; Finance & Banking; Public Administration; Other Services*; and Entertainment.

Inventory Change % Higher % Same % Lower Index
December 2003 22 59 19 51.5
November 2003 22 58 20 51.0
October 2003 20 58 22 49.0
September 2003 20 55 25 47.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in December for the seventh consecutive month and at a faster rate of increase than in November. ISM's Non-Manufacturing Prices Index for December is 60 percent, an increase of 2 percentage points from the 58 percent registered for November. In December, the percentage of members reporting higher prices increased 1 percentage point to 19 percent from 18 percent in November, the proportion indicating no change also rose 1 percentage point to 74 percent, and the number who noted lower prices decreased 2 percentage points to 7 percent.

The industries reporting the highest rates of increase in prices paid in December are: Entertainment; Agriculture; Wholesale Trade; Mining; Construction; Real Estate; and Retail Trade. Industries reporting price decreases in December are: Public Administration and Other Services*.

Prices % Higher % Same % Lower Index
December 2003 19 74 7 60.0
November 2003 18 73 9 58.0
October 2003 19 74 7 58.7
September 2003 23 70 7 60.1

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 55.5 percent in December. This is an increase of 3 percentage points from November's 52.5 percent and represents the eighth consecutive month of growth in order backlogs. Of the total respondents in December, 35 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Ramping up for 2004"; "Increased demand"; "Higher sales volume, about the same backorder rate"; and "Small increase mainly due to backorders created from heavy year-end purchases."

The industries reporting the highest rates of growth in backlog of orders in December are: Insurance; Retail Trade; Mining; Communication; and Business Services. The industries reporting a decline of order backlogs in December are: Finance & Banking; Other Services*; and Real Estate.

Backlog
of Orders
% Higher % Same % Lower Index
December 2003 22 67 11 55.5
November 2003 17 71 12 52.5
October 2003 20 68 12 54.0
September 2003 22 70 8 57.0

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 fifth consecutive month in December. The New Export Orders Index for December is 57.5 percent compared to November's 54.5 percent, indicating a faster rate of growth in December compared to November. Of the total respondents in December, 79 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting increases in new export orders in December are: Health Services; Wholesale Trade; Other Services*; Communication; and Retail Trade. There are no industries reporting decreases in new export orders in December.

New Export
Orders
% Higher % Same % Lower Index
December 2003 24 67 9 57.5
November 2003 25 59 16 54.5
October 2003 18 80 2 58.0
September 2003 23 66 11 56.0

Imports

In December, the ISM Imports Index registered 57 percent, down slightly from 57.5 percent in November. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in December than in November. December's index marks the eighth consecutive month of import growth after April's index value of 50 percent indicated no change in imports compared to March. In December, 66 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting the highest rates of increase in use of imports in December are: Finance & Banking; Communication; Business Services; Wholesale Trade; and Retail Trade. The only industry reporting decreased use of imports in December is Entertainment.

Imports % Higher % Same % Lower Index
December 2003 22 70 8 57.0
November 2003 23 69 8 57.5
October 2003 21 70 9 56.0
September 2003 20 70 10 55.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in December registered 62 percent, the same value as reported for November. This indicates that non-manufacturing purchasing and supply executives feel the same degree of discomfort with current levels of inventory in December that they did during November. In December, 31 percent of respondents felt their inventories were too high, 7 percent indicated their inventories were too low, and 62 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in December are: Insurance; Entertainment; Wholesale Trade; Communication; and Real Estate. The only industry reporting that its inventories are too low in December is Mining.

Inventory
Sentiment
% Too High % About Right % Too Low Index
December 2003 31 62 7 62.0
November 2003 30 64 6 62.0
October 2003 27 66 7 60.0
September 2003 26 69 5 60.5

*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

PC Memory; Textile Products (including woven); Vaccines.

Commodities Reported Up in Price

Beef — 12th month; Chicken/Chicken Wings; Copper — 4th month; Copper Cable; Drywall; Fuel*; Furniture; Gasoline; Medical/Surgical Supplies; Natural Gas; Pork — 2nd month; Produce — 3rd month; PVC/PVC Pipe; Software Maintenance/Support; Soy Oil — 3rd month; Steel — 2nd month.

Commodities Reported Down in Price

#2 Diesel Fuel — 3rd month; Fuel* — 3rd month; Unleaded Gasoline.

*Reported as both up and down in price.

Data and Method of Presentation

The Non-Manufacturing ISM Report On Business® is based on data compiled from monthly replies to questions asked of more than 370 purchasing and supply 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. 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. 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 data presented herein is obtained from a survey of 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.

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 world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies, and government.

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 January 2004 data will be released at 10:00 a.m. (ET) on February 4, 2004.



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