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January 2002 Non-Manufacturing ISM Report On Business®

FOR RELEASE: February 5, 2002

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 49.6%

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 January 2002.

New Orders Decrease
Employment and Prices Decrease More Slowly
Exports and Imports Increase

(Tempe, Arizona) — Business activity in the non-manufacturing sector decreased slightly in January 2002 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™'s Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown. "In January, ISM's Non-Manufacturing Business Activity Index indicated a slight contraction in activity after registering slight growth in December," Kauffman said. He also added, "This month's Index at 49.6 percent is just 0.4 percentage point into contraction territory. Consideration of December's and November's Indexes of 50.1 and 49.8 percent respectively, indicates that the non-manufacturing economy has been see-sawing over the expansion/contraction mark for the past three months. Successively slower rates of decrease of employment for the past three months and growth in exports and imports provide some reasons for optimism that the economy will ultimately move in a positive rather than negative direction as we proceed farther into 2002. Also this month, increases were recorded by four of the Report's indexes. Of the Report's 10 indexes, six are primarily activity-oriented: Business Activity, New Orders, Backlog of Orders, Export Orders, Imports, and Employment. Of these, in January only Export Orders and Imports registered increases. The Inventory Sentiment Index, which had risen to a near record high in October, eased for the third month in January indicating less discomfort with current inventory levels. Supplier Deliveries indicated slower performance for the fifth month, with some apparent supply bottlenecks indicated. After three months (September through November) of recording the highest rate of decline in New Orders, the Transportation sector was in the top four industries for rate of increase in New Orders in December and January."

"ISM's Non-Manufacturing Business Activity Index registered 49.6 percent in January, 0.5 percentage point lower than in December, indicating a continued struggle for growth in non-manufacturing economic activity. Reports from purchasing and supply executives indicate 14 industry groups contracted or had no change from December, while three indicated growth in January. Increased business activity in January was reported by 21 percent of members, the same proportion as in December. Reduced activity was reported by 31 percent of members compared to 27 percent in December. In January, the remaining 48 percent of members indicated no change in business activity compared to 52 percent in December," said Kauffman.

"Overall in January, non-manufacturing industries experienced a slight reversal of the low rate of growth in business activity reported for December. Only two activity-oriented indexes recorded growth in January, with four indicating contraction. The Prices Index jumped dramatically but remained in reduced-price territory, indicating continued low inflationary pressure on non-manufacturing industries at the present time," Kauffman commented.

Significant reports of commodities in short supply, or up or down in price in January included only one commodity in short supply, Pharmaceuticals/Pharmacy Drugs. Also, only three commodities: Beef; Paper; and Produce were reported increasing in price (there were also equal reports of price decreases for Beef). Price reductions were reported for eight commodities, with the highest number of reports for Computers (PCs); Diesel Fuel; and Fuel.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index January
Index %
December
Index %
Index
Change
from
January
Direction
& Rate of
Change
January
Index %
December
Index %
Index
Change
from
January
Business Activity / Production 49.6 50.1 -0.5 Decreasing from Increasing 52.0 50.3 +1.7
New Orders 49.4 51.5 -2.1 Decreasing from Increasing 55.3 55.5 -0.2
Employment 44.5 44.4 +0.1 Decreasing Slower 42.6 39.2 +3.4
Inventories 47.5 48.5 -1.0 Decreasing Faster 40.5 38.2 +2.3
Supplier Deliveries 53.0 53.5 -0.5 Slowing Slower 51.7 48.0 +3.7
Prices 49.0 38.5 +10.5 Decreasing Slower 43.9 33.2 +10.7
Backlog of Orders 45.5 46.5 -1.0 Decreasing Faster 44.5 39.5 +5.0
New Export Orders 56.5 55.0 +1.5 Increasing Faster 50.8 47.6 +3.2
Imports 55.3 55.9 -0.6 Increasing Slower 52.1 50.3 +1.8
Inventory Sentiment 64.5 66.5 -2.0 Decreased Feeling
of "too high"
N/A    

* Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders and Customer Inventories. Non-Manufacturing ISM Report On Business®data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment.

Business Activity

ISM's Non-Manufacturing Business Activity Index in January eased 0.5 percentage point on a seasonally adjusted basis to 49.6 percent from December's 50.1 percent. (Note that seasonal adjustment factors were recalculated in January, incorporating 2001 data in the calculation. This also applies to New Orders, Employment, and Imports). In January, three sectors reported increased business activity, 12 sectors reported decreased activity, and two sectors indicated no change in activity since December. The percent of members reporting increased activity in January was 21 percent, the same as in December. Decreased activity was reported by 31 percent of members in January, compared to 27 percent in December. Those reporting no change in activity in January totaled 48 percent, compared to 52 percent in December.

The industries reporting growth of business activity in January were: Legal Services; Business Services; and Real Estate. The industries reporting the highest rates of contraction of business activity in January were: Utilities; Agriculture; Communication; Insurance; and Construction.

Business
Activity
% Higher % Same % Lower Index
January 2002 21 48 31 49.6
December 2001 21 52 27 50.1
November 2001 23 52 25 49.8
October 2001 17 46 37 40.4

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 49.4 percent in January from 51.5 percent in December. Except for the December Index, the January New Orders Index was the highest since June 2001 (52.7 percent). Comments from members included: "Waiting for new projects to be approved"; "Hold on capital expenditures"; "Some construction projects winding down"; and "More products, more orders."

The industries reporting growth of new orders in January were: Legal Services; Business Services; Real Estate; and Transportation. The industries reporting the highest rates of contraction of new orders in January were: Utilities; Insurance; Construction; Agriculture; and Communication.

New Orders % Higher % Same % Lower Index
January 2002 20 51 29 49.4
December 2001 21 52 27 51.5
November 2001 20 53 27 47.7
October 2001 17 46 37 40.3

Employment

Employment in the non-manufacturing sector contracted in January for the 11th consecutive month. ISM's Non-Manufacturing Employment Index for January was 44.5 percent compared to 44.4 percent in December. Viewed positively, January's index marks the third consecutive month of slower rates of decrease. Comments from members included: "Lower (employment) through attrition and hiring freeze"; "Reduction in force"; "More layoffs have kicked in"; and "Early retirement program."

The industries reporting growth in employment in January were Mining and Retail Trade. Industries reporting the highest rates of reduction in employment in January were: Agriculture; Communication; Construction; Transportation; and Utilities.

Employment % Higher % Same % Lower Index
January 2002 7 72 21 44.5
December 2001 11 65 24 44.4
November 2001 11 67 22 44.3
October 2001 9 68 23 43.7

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the fifth consecutive month in January, registering an index value of 53 percent, one-half percentage point below December's 53.5 percent. Comments from purchasing and supply executives concerning supplier deliveries in January included: "Computer distributor inventory levels low;" "Medical/surgical distributors seem to have trouble getting supplies"; "Lower inventory on hand;" and "Unknown why slower, best guess holidays."

The industries that reported the highest rates of slowness of supplier deliveries in January were: Utilities; Health Services; Real Estate; Insurance; Communication; and Business Services. The only industry that reported faster supplier deliveries in January was Finance and Banking.

Supplier
Deliveries
% Slower % Same % Faster Index
January 2002 9 88 3 53.0
December 2001 10 87 3 53.5
November 2001 12 81 7 52.5
October 2001 12 83 5 53.5

Inventories

Material inventories maintained by non-manufacturing organizations decreased in January for the 15th consecutive month at a slightly faster rate than in December. ISM's Non-Manufacturing Inventories Index registered 47.5 percent in January, a decrease of one percentage point from the 48.5 percent reported in December. Of the total respondents in January, 26 percent indicated they do not have inventories. Comments from members included: "Higher excess materials from postponed jobs"; "Better inventory management"; "Inventories are still too high. We need to get things used and insured"; and "Continuing to order less, keeping in line with demand and eliminating aged inventory."

The industries reporting inventory increases in January were: Legal Services; Health Services; Insurance; Real Estate; and Transportation. Industries reporting the highest rates of inventory decrease in January were: Finance and Banking; Mining; Business Services; Communication; and Utilities.

Inventory
Change
% Higher % Same % Lower Index
January 2002 22 51 27 47.5
December 2001 20 57 23 48.5
November 2001 22 55 23 49.5
October 2001 23 50 27 48.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services dropped in January for the seventh consecutive month, but the rate of decline lessened dramatically. ISM's Non-Manufacturing Prices Index for January is 49 percent, an increase of 10.5 percentage points from December's 38.5 percent. The percentage of members reporting higher prices increased 8 percentage points to 12 percent in January, the proportion indicating no change rose 5 percentage points to 74 percent, and the number who noted lower prices decreased 13 percentage points to 14 percent.

The industries reporting increases in prices paid in January were: Health Services; Public Administration; and Wholesale Trade. The industries that reported the highest rates of price decreases in January were: Communication; Mining; Utilities; Finance and Banking; Business Services; and Real Estate.

Prices % Higher % Same % Lower Index
January 2002 12 74 14 49.0
December 2001 4 69 27 38.5
November 2001 6 65 29 38.5
October 2001 7 69 24 41.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 45.5 percent in January. This is the 13th consecutive monthly decline in order backlogs. The January index is a decrease of one percentage point from December's 46.5 percent. Purchasing and supply executives' comments on backlogs of orders included: "Higher inventory levels"; "Fewer requests"; "Catching up"; and "Slowdown relative to end of year." Of the total respondents in January, 29 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in January were: Legal Services; Retail Trade; and Business Services. The industries reporting the highest rates of decline of order backlogs in January were: Entertainment; Wholesale Trade; Utilities; Finance and Banking; and Transportation.

Backlog
of Orders
% Higher % Same % Lower Index
January 2002 11 69 20 45.5
December 2001 12 69 19 46.5
November 2001 11 62 27 42.0
October 2001 7 67 26 40.5

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 January for the second consecutive month after two months of decreases. The New Export Orders Index for January was 56.5 percent compared to December's 55 percent. Of the total respondents in January, 75 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 January were: Agriculture; *Other Services; Wholesale Trade; and Business Services. The only industry reporting a decrease in new export orders in January was Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
January 2002 20 73 7 56.5
December 2001 21 68 11 55.0
November 2001 12 73 15 48.5
October 2001 13 63 24 44.5

Imports

Use of imported materials by non-manufacturing industries increased at a slower rate in January. ISM's Non-Manufacturing Imports Index for January was 55.3 percent, a decrease of 0.6 percentage points from the 55.9 percent reported in December. In January, 69 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting an increase in use of imports in January were Business Services and Communication. Industries reporting decreased use of imports in January were Retail Trade and Wholesale Trade.

Imports % Higher % Same % Lower Index
January 2002 11 79 10 55.3
December 2001 17 74 9 55.9
November 2001 13 75 12 51.6
October 2001 11 77 12 50.7

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in January registered 64.5 percent compared to 66.5 percent for December. This decrease in the index level indicates that non-manufacturing purchasing and supply executives felt a lesser degree of discomfort with current levels of inventory in January than they did during December. January's lower Index marks the third month of decline in this index. In January, 36 percent of members felt their inventories were too high (37 percent in December). Also in January, 7 percent indicated their inventories were too low (4 percent in December), and 57 percent said that their inventories were about right (59 percent in December).

The industries that reported the highest rates of feeling that their inventories were "too high" in January were: Communication; Construction; Entertainment; Finance and Banking; and Health Services. No industry reported its inventories were too low.

Inventory
Sentiment
% Too High % About Right % Too Low Index
January 2002 36 57 7 64.5
December 2001 37 59 4 66.5
November 2001 38 58 4 67.0
October 2001 40 57 3 68.5

*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

Pharmaceuticals/Pharmacy Drugs — 3rd month.

Commodities Reported Up in Price

Paper; Produce

Commodities Reported Down in Price

Beef — 3rd month (equal reports of price increases); Caustic Soda — 2nd month; Dairy Products; Diesel Fuel — 4th month; Fuel — 4th month (some reports of price increases); Fuel Oil; Gasoline — 4th month (equal reports of price increases); Personal Computers.

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, Imports, 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 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. In May 2001 the membership of NAPM voted to change the association's name from the National Association of Purchasing Management to the Institute for Supply Management™ to reflect the increasing strategic and global significance of supply management. For further information, see the ISM Web site at www.ism.ws.

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 February 2002 data will be released at 10:00 a.m. (ET) on March 5, 2002.



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