FOR RELEASE: February 5, 2003
|ISM, Media Relations|
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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 2003.
(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in January 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. "In January, non-manufacturing business activity increased for the 12th consecutive month. The reported growth indicates a slightly faster rate of expansion than reported in December," Kauffman said. He added, "Also in January, New Orders grew at a faster rate than in December and, after four consecutive months of increases, the Backlog of Orders Index indicated reduced order backlogs in January."
Reports from purchasing and supply executives indicate six industry groups grew in January, 10 groups contracted, and one industry group reported no change from December. Increased business activity in January was reported by 24 percent of members, compared to December's 27 percent. Reduced activity was reported by 25 percent of members compared to 24 percent in December. In January, the remaining 51 percent of members indicated no change in business activity, compared to 49 percent in December. The Backlog of Orders Index in January decreased by 3.5 percentage points to 48 percent, casting some doubt on the strength of business activity in future months. However, the reduction in backlogs contrasted with an increase of 1.6 percentage points in the New Orders Index, raising it to 56.2 percent from December's 54.6 percent. Members' general comments on business in January continue to be mixed. These included: "Continued strong performance. Volumes higher than same period last year, due to increased capacity and increased demand"; "Clients are continuing to delay capital spending decisions on major projects"; "General business continues to get better slowly"; and "Volumes up and down; decreased return on invested funds will decrease capital expenditures."
In addition, Inventories decreased for the sixth month but at a slower rate of decrease than in December. Prices increased for the 11th consecutive month, and at a faster rate of increase than in December. New Export Orders and Imports both increased, while Employment grew slightly for the first time in 24 months. Supplier Deliveries indicated slower performance for the 17th consecutive month.
Significant reports of commodities in short supply or up or down in price in January indicate that contract/temporary labor is in short supply. Price increases are reported for beef; concrete; #2 diesel fuel; fuel; gasoline; ground beef; #2 heating fuel; lumber; natural gas; orthopedic implants; paper; petroleum products; PVC pipe; roofing materials; and soy oil. Price decreases are reported for computers, accessories, peripherals; computer hardware; corrugated; and database personnel.
Rate of Change
|Business Activity / Production||54.5||54.2||+0.3||Increasing faster||56.3||56.6||-0.3|
|New Orders||56.2||54.6||+1.6||Increasing faster||59.7||62.9||-3.2|
|Employment||50.3||46.9||+3.4||Increasing from decreasing||47.6||48.2||-0.6|
|Supplier Deliveries||52.0||52.5||-0.5||Decreasing slower||52.6||52.6||0|
|Backlog of Orders||48.0||51.5||-3.5||Decreasing from increasing||45.0||46.5||-1.5|
|New Export Orders||53.0||54.0||-1.0||Increasing slower||55.6||52.5||+3.1|
|Inventory Sentiment||64.5||63.0||+1.5||Greater feeling of "too high"||N/A|
* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders and Customer Inventories.
ISM's Non-Manufacturing Business Activity Index in January increased 0.3 percentage points on a seasonally adjusted basis to 54.5 percent from December's 54.2 percent. January's index indicates a small rise in the rate of growth and extends to 12 the consecutive months of growth that began in February 2002. In January, six sectors reported increased business activity, 10 sectors reported decreased activity, and one reported no change in activity compared to December.
The industries reporting the highest rates of growth of business activity in January are: Business Services; Finance & Banking; Entertainment; Public Administration; and Health Services. The industries reporting the highest rates of contraction of business activity in January are: Agriculture; Utilities; Mining; Retail Trade; Transportation; and Insurance.
|% Higher||% Same||% Lower||Index|
ISM's Non-Manufacturing New Orders Index rose to 56.2 percent in January from 54.6 percent in December. Comments from members include: "More exhibitors and attendees at trade shows/conventions/group events"; "More proposal activity; awarded work on some small projects"; "Budget cut impacts;" and "Weather; continued slow economy."
The industries reporting the highest rates of growth of new orders in January are: Public Administration; Entertainment; Construction; Finance & Banking; and Health Services. The industries reporting the highest rates of contraction of new orders in January are: Agriculture; Mining; Utilities; Retail Trade; and Transportation.
|New Orders||% Higher||% Same||% Lower||Index|
Employment in the non-manufacturing sector increased at a very slow rate in January after contracting for 23 consecutive months. ISM's Non-Manufacturing Employment Index for January is 50.3 percent compared to 46.9 percent in December. Comments from respondents include: "Growing demand and available applicants"; "Company is expanding"; and "Hiring freeze and retirements."
The industries reporting growth in employment in January are: Wholesale Trade; Communication; Other Services*; and Finance & Banking. Industries reporting reduction in employment in January are: Construction; Utilities; Public Administration; Transportation; and Retail Trade.
|Employment||% Higher||% Same||% Lower||Index|
The delivery performance of suppliers to non-manufacturing organizations was slower for the 17th consecutive month in January. The index registered 52 percent, a decrease of 0.5 percentage point from the 52.5 percent reported in December. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in January include: "Backlog of the holidays"; "End of dock strike backlog"; "Port problems and weather"; and "Post holiday season."
The industries that reported the highest rates of slowing in supplier deliveries in January are: Entertainment; Wholesale Trade; Communication; Health Services; Public Administration; and Other Services*. The only industry reporting faster supplier deliveries in January is Finance & Banking.
|% Slower||% Same||% Faster||Index|
ISM's Non-Manufacturing Inventories Index registered 46.5 percent in January, 1 percentage point higher than the 45.5 percent reported in December. January's index means that material inventories maintained by non-manufacturing organizations decreased for the sixth consecutive month but at a slower rate of decrease than in December. Of the total respondents in January, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: "Getting rid of inventory"; "Increased focus on turn rates"; "Waiting to see what capital dollars and projects are approved prior to building inventories"; "We are still attempting to reduce inventory"; and "Changing methods of inventory management."
The industries reporting inventory increases in January are: Agriculture; Entertainment; and Health Services. Industries reporting the highest rates of inventory decrease in January are: Business Services; Wholesale Trade; Construction; Retail Trade; and Finance & Banking.
|% Higher||% Same||% Lower||Index|
Prices paid by non-manufacturing organizations for purchased materials and services increased for the 11th consecutive month in January. ISM's Non-Manufacturing Prices Index for January is 57 percent, an increase of 1.7 percentage points from the 55.3 percent registered for December. In January, the percentage of members reporting higher prices rose 11 percentage points to 25 percent from 14 percent in December, the proportion indicating no change dropped 10 percentage points to 65 percent, and the number who noted lower prices decreased 1 percentage point in January to 10 percent.
The industries reporting the highest rates of increase in prices paid in January are: Legal Services; Agriculture; Mining; Insurance; and Transportation. The only industry reporting price decreases in January is Finance & Banking.
|Prices||% Higher||% Same||% Lower||Index|
ISM's Non-Manufacturing Backlog of Orders Index registered 48 percent in January. This is the first decrease after four consecutive months of increase in order backlogs. The January index is a decrease of 3.5 percentage points from December's 51.5 percent. Of the total respondents in January, 48 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Just getting caught up"; "Casino work in Niagara Falls is almost complete"; "Shipped everything we could last month"; and "Slowly catching up on all back orders."
The industries reporting growth of backlog of orders in January are: Real Estate; Communication; Business Services; Other Services*; and Health Services. The industries reporting the highest rates of decline of order backlogs in January are: Mining; Transportation; Construction; Finance & Banking; Retail Trade; and Public Administration.
|% Higher||% Same||% Lower||Index|
Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically-based personnel grew in January for the third consecutive month. The New Export Orders Index for January is 53 percent compared to December's 54 percent, indicating a slower rate of growth than in December. Of the total respondents in January, 83 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 are: Communication; Mining; Other Services*; and Business Services. The only industry reporting a decrease in new export orders in January is Retail Trade.
|% Higher||% Same||% Lower||Index|
In January, the ISM index indicating use of imported materials by non-manufacturing industries increased from December's value, registering growth for the fourth consecutive month. ISM's Non-Manufacturing Imports Index for January is 56.5 percent, an increase of 4.7 percentage points from the 51.8 percent reported in December. In January, 74 percent of respondents reported that they do not use or do not track use of imported materials.
The industries reporting increases in use of imports in January are: Business Services; Communication; Health Services; and Wholesale Trade. The industries reporting decreased use of imports in January are: Other Services*; Retail Trade; and Transportation.
|Imports||% Higher||% Same||% Lower||Index|
The ISM Non-Manufacturing Inventory Sentiment Index in January registered 64.5 percent, 1.5 percentage points higher than the 63 percent reported for December. This indicates that non-manufacturing purchasing and supply executives felt a greater degree of discomfort with current levels of inventory in January than they did during December. In January, 32 percent of respondents felt their inventories were too high, 3 percent indicated their inventories were too low, and 65 percent said that their inventories were about right.
The industries that reported the highest rates of feeling that their inventories were too high in January are: Legal Services; Construction; Wholesale Trade; Communication; and Mining. No industry reported its inventories were too low in January.
|% Too High||% About Right||% Too Low||Index|
*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.
Contract/temporary labor is the only commodity reported in short supply in January.
Beef; Concrete; #2 Diesel Fuel — 4th month; Fuel; Gasoline — 4th month; Ground Beef; #2 Heating Fuel — 3rd month; Lumber; Natural Gas — 2nd month; Orthopedic Implants; Paper; Petroleum Products; PVC Pipe; Roofing Materials; Soy Oil — 2nd month.
Computer Hardware/PCs — 2nd month; Computer Related Products — 2nd month; Corrugated; Database Personnel.
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 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 February 2003 data will be released at 10:00 a.m. (ET) on March 5, 2003.