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January 2000 Non-Manufacturing Report On Business®

FOR RELEASE: February 3, 2000

Contact: Zenobia Daruwalla
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS MORE SLOWLY IN JANUARY 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 January 2000.

Business Activity Index Eases to 52.5%

New Orders, Export Orders, Prices, and Employment Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in January 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 January, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend but indicated a slower rate of increase than in December," Kauffman said. "New Orders and Prices increased at faster rates in January, while Inventories and Backlog of Orders decreased. Supplier Deliveries were slower, with an increased rate of slowing, than in December and Imports were unchanged. New Export Orders and Employment increased at slower rates than in December, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling a greater degree of discomfort with the current level of inventories in January than they did in December," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 52.5 percent in January, 3 percentage points lower than in December, indicating slower growth in non-manufacturing economic activity. Comments from purchasing executives continue to be positive on business activity in January. Increased business activity in January was reported by 30 percent of purchasers, an increase of 2 percentage points from the 28 percent reporting more activity in December. Of the industry groups reporting in the January NAPM non-manufacturing survey, 9 indicated increased activity, 7 indicated decreased activity, and none reported no change in activity level. In December, 9 industry groups reported increased activity, 5 indicated decreased activity, and 2 advised no change," said Kauffman.

This month our members reported a decrease in their inventories compared to December, perhaps indicating that any Y2K inventory increases are being depleted. In fact, a number of members commented that they are using up extra inventory purchased for Y2K. Prices paid by members' firms for purchased materials and services continue to be a concern, and in January the Price Index jumped from 56 to 61.5 percent, indicating a resurgence in the rate of price increase. Members reporting higher prices in January numbered 28 percent, a rise of 11 percentage points from the 17 percent reported in December.

"Overall in January, non-manufacturing industries continued their long-term growth trend. However, order backlogs decreased for the third consecutive month and the rate of increase in new orders rose only slightly for the second month, indicating some possible moderation in the future strength of business growth. Non-manufacturing employment continued to moderately increase and purchase prices in January increased at the fastest rate since September 1999," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series January
Indexes
December
Indexes
Jan vs. Dec
Index Change
Direction and
Rate of Change
Business Activity 52.5 55.5 -3.0 Increasing Slower
New Orders 56.5 56.0 +0.5 Increasing Faster
Backlog of Orders 48.5 49.0 -0.5 Decreasing Faster
New Export Orders 57.5 58.0 -0.5 Increasing Slower
Inventory Change 49.5 50.0 -0.5 Decreasing from Unchanged
Inventory Sentiment 67.0 61.5 +5.5 Increased Feeling of "too high"
Imports 50.0 49.0 +1.0 Unchanged from Decreasing
Prices 61.5 56.0 +5.5 Increasing Faster
Employment 50.5 51.5 -1.0 Increasing Slower
Supplier Deliveries 55.5 53.0 +2.5 Slowing at a Faster Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

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

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 52.5 Production 55.9
New Orders 56.5 New Orders 60.4
Backlog of Orders 48.5 Backlog of Orders 52.0
New Export Orders 57.5 New Export Orders 52.6
Inventory Change 49.5 Inventories 53.4
Inventory Sentiment 67.0    
Imports 50.0 Imports 51.9
Prices 61.5 Prices 72.6
Employment 50.5 Employment 52.7
Supplier Deliveries 55.5 Supplier Deliveries 55.2

* 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 January declined to 52.5 percent, indicating increased business activity at a slower rate of increase than in December. The Business Activity Index for January was the lowest since December 1998 (49.5 percent). Purchasing executives' comments in January continued to be positive, although the percentage reporting decreased activity rose to 25 percent from 17 percent in December. Purchasing executives reporting better business in January numbered 30 percent, an increase from the 28 percent reporting more activity in December. Those reporting no change in activity in January totaled 45 percent, a drop of 10 percentage points from December.

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

Business
Activity
% Higher % Same % Lower Index
January 2000 30 45 25 52.5
December 1999 28 55 17 55.5
November 1999 24 63 13 55.5
October 1999 32 56 12 60.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 56.5 percent in January from 56 percent in December, indicating a slightly faster rate of increase for new orders to non-manufacturers. January's New Orders Index indicates continued high levels of activity with an increased rate of growth. Comments from members included: "Slightly higher customer order influx," "Increase in business activity" and "Busy shipping season."

The industries reporting the highest rates of growth of new orders in January were: Health Services; Business Services; Construction; Utilities; and Mining.

New Orders % Higher % Same % Lower Index
January 2000 32 49 19 56.5
December 1999 28 56 16 56.0
November 1999 24 63 13 55.5
October 1999 33 55 12 60.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index slipped to 48.5 percent in January, indicating a slightly faster rate of decrease in order backlogs. The Backlog of Orders Index for January hit its lowest point since December 1998 (47 percent). Purchasing executives' comments on backlogs of orders included: "Shipped backlog at end of 1999," "Catching up as business slows," "Orders down due to Y2K stockup," and "New work slowing down, we can get caught up on backlog." Of the total respondents in January, 29.1 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in January were: Insurance; Entertainment; Real Estate; and Public Administration.

The industries reporting the highest rates of decrease of backlog of orders in January were: Business Services; Retail Trade; Agriculture; Health Services; and Communication.

Backlog
of Orders
% Higher % Same % Lower Index
January 2000 15 67 18 48.5
December 1999 12 74 14 49.0
November 1999 13 72 15 49.0
October 1999 19 66 15 52.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a faster rate in January than in December. NAPM's Non-Manufacturing Supplier Deliveries Index for January was 55.5 percent compared to 53 percent in December. Comments from purchasing executives included: "Slightly improved rail delivery," "New telecommunications equipment lead times increasing," "Longer lead times," and "Supplier backlogs are building."

The industries that reported the highest rates of slowness of supplier deliveries in January were: Mining; Wholesale Trade; Communication; Public Administration; and Retail Trade.

Supplier
Deliveries
% Higher % Same % Lower Index
January 2000 4 81 15 55.5
December 1999 5 84 11 53.0
November 1999 3 81 16 56.5
October 1999 3 82 15 56.0

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 eleventh consecutive month in January, but at a slightly slower rate of increase than in December. NAPM's Non-Manufacturing New Export Orders Index was 57.5 percent in January compared to 58 percent in December. Of the total respondents in January, 75 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The industries reporting the highest rates of growth of new export orders in January were: Health Services; Mining; Construction; Business Services; and Communication.

New Export
Orders
% Higher % Same % Lower Index
January 2000 24 67 9 57.5
December 1999 24 68 8 58.0
November 1999 22 68 10 56.0
October 1999 14 80 6 54.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries was unchanged in January after decreasing in December. NAPM's Non-Manufacturing Imports Index for January was 50 percent compared to 49 percent in December. In January, 71.8 percent of respondents reported that they do not use or do not track use of imported materials.

The two industries reporting a higher rate of growth in use of imports in January were: Mining; and Retail Trade.

Imports % Higher % Same % Lower Index
January 2000 10 80 10 50.0
December 1999 11 76 13 49.0
November 1999 9 87 4 52.5
October 1999 17 75 8 54.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased slightly in January after remaining unchanged in December. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in January, compared to 50 percent in December. Of the total respondents in January, 23.1 percent indicated they do not have inventories. Comments from member purchasers included: "Slow season, not buying as much," "Depleting Y2K inventory," "Seasonal shift plus directed effort to reduce (inventory)," and "Built up inventories for Y2K."

Industries reporting increased inventories in January were: Business Services; Health Services; *Other Services; Construction; and Public Administration.

Industries reporting the highest rates of decrease in inventories in January were: Entertainment; Insurance; Retail Trade; Communication; and Real Estate.

Inventory
Change
% Higher % Same % Lower Index
January 2000 20 59 21 49.5
December 1999 20 60 20 50.0
November 1999 21 63 16 52.5
October 1999 20 55 25 47.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in January registered 67 percent compared to 61.5 percent for December. This increased index level indicates that non-manufacturing purchasing executives felt a higher degree of discomfort with current levels of inventory in January than they did during December. It is likely that unneeded extra Y2K inventories contributed to this situation. In January, 40 percent of members felt their inventories were too high (31 percent in December). Also in January, 6 percent indicated their inventories were too low (8 percent in December), and 54 percent said that their inventories were about right (61 percent in December).

The industries that reported the highest rates of feeling that their inventories were "too high" in January were: Transportation; Business Services; Construction; Communication; and Wholesale Trade.

Inventory
Sentiment
% Higher % Same % Lower Index
January 2000 40 54 6 67.0
December 1999 31 61 8 61.5
November 1999 34 57 9 62.5
October 1999 28 60 12 58.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in January for the eleventh consecutive month and at a higher rate of increase than in December. NAPM's Non-Manufacturing Price Index for January was 61.5 percent, compared to 56 percent in December. The January Price Index was the highest since September 1999 (62 percent).

The industries that reported the highest rate of increase in prices paid in January were: Agriculture; Wholesale Trade; Transportation; Construction; and Retail Trade.

Prices % Higher % Same % Lower Index
January 2000 28 67 5 61.5
December 1999 17 78 5 56.0
November 1999 21 73 6 57.5
October 1999 22 70 8 57.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector increased at a slower rate in January than in December. NAPM's Non-Manufacturing Employment Index for January was 50.5 percent compared to 51.5 percent for December. Comments from purchasers included: "Network expansion requirements," "Backlog of positions not yet filled," "Staffing increased (numbers of) new accounts," and "Tight labor market."

The industries reporting the highest rates of growth of employment in January were: Insurance; Communication; Finance and Banking; Health Services; Public Administration; and Retail Trade.

Employment % Higher % Same % Lower Index
January 2000 13 75 12 50.5
December 1999 15 73 12 51.5
November 1999 15 71 14 50.5
October 1999 16 70 14 51.0

*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:

Labor — 2nd month; Laptops — 2nd month; Telecommunications equipment.

Commodities Reported Up in Price:

Beef — 5th month; Coffee — 2nd month; Computer Memory — 4th month; Drywall; Fine Papers; Gasoline — 11th month; Paper — 10th month; Paper Products — 5th month; Petroleum-based Products; Resins — equal reports of price decreases; Stainless Steel Products.

Commodities Reported Down in Price:

Cheese — 2nd month; Chicken; PCs; Resins — equal reports of price increases.

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 46,000 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 February 2000 data will be released at 10:00 a.m. (ET) on March 3, 2000.



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