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February 2000 Non-Manufacturing Report On Business®

FOR RELEASE: March 3, 2000

CONTACT: Zenobia Daruwalla
  NAPM Media Relations
  480/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS STRONGLY IN FEBRUARY 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 February 2000.

Business Activity Index Up to 58%

New Orders, Order Backlogs, and Prices Increase

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

"NAPM's Non-Manufacturing Business Activity Index registered 58 percent in February, 5.5 percentage points higher than in January, indicating faster growth in non-manufacturing economic activity. Comments from purchasing executives continue to be positive on business activity in February. Increased business activity in February was reported by 28 percent of purchasers, a decrease of 2 percentage points from the 30 percent reporting more activity in January. Of the industry groups reporting in the February NAPM non-manufacturing survey, 13 indicated increased activity, 2 indicated decreased activity, and 2 reported no change in activity level. In January, 9 industry groups reported increased activity, 7 reported decreased activity, and none advised no change," said Kauffman.

This month our members reported a continued decrease in their inventories compared to January. As in January, several 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 the Price Index jumped from 61.5 percent in January to 68.5 percent in February, indicating a continued resurgence in the rate of price increase. Members reporting higher prices in February numbered 39 percent, a rise of 11 percentage points from the 28 percent who reported higher prices in January.

"Overall in February, non-manufacturing industries continued their long-term growth trend. This month a three-month decrease in order backlogs was reversed and the rate of increase in new orders rose more strongly than in the preceding three months. Non-manufacturing employment was unchanged in February, and purchase prices increased at the fastest rate since inception of NAPM's non-manufacturing business survey in July 1997," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series February
Indexes
January
Indexes
February vs. January
Index Change
Direction and
Rate of Change
Business Activity 58.0 52.5 +5.5 Increasing Faster
New Orders 59.0 56.5 +2.5 Increasing Faster
Backlog of Orders 52.0 48.5 +3.5 Increasing from Decreasing
New Export Orders 47.5 57.5 -10.0 Decreasing from Increasing
Inventory Change 49.5 49.5 0.0 Decreasing at Same Rate
Inventory Sentiment 66.5 67.0 -0.5 Decreased Feeling of "too high"
Imports 50.0 50.0 0.0 Unchanged
Prices 68.5 61.5 +7.0 Increasing Faster
Employment 50.0 50.5 -0.5 Unchanged from Increasing
Supplier Deliveries 55.0 55.5 -0.5 Slowing at a Slower Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in February 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 both sectors and at a faster rate for manufacturing. Prices increased in February for both areas and also faster for manufacturing. Employment in February increased for manufacturing but was unchanged for non-manufacturing. Inventories decreased for non-manufacturing and manufacturing, and decreased more rapidly for manufacturing. New export orders increased for manufacturing but decreased for non-manufacturing. Supplier delivery performance in February was reported to be slower and at the same rate of slowness by both sectors. Use of Imports was up in manufacturing and unchanged in non-manufacturing in February.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 58.0 Production 61.3
New Orders 59.0 New Orders 60.5
Backlog of Orders 52.0 Backlog of Orders 54.0
New Export Orders 47.5 New Export Orders 55.6
Inventory Change 49.5 Inventories 45.2
Inventory Sentiment 66.5    
Imports 50.0 Imports 50.6
Prices 68.5 Prices 74.1
Employment 50.0 Employment 53.2
Supplier Deliveries 55.0 Supplier Deliveries 55.0

* 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 February rose to 58 percent, indicating increased business activity at a faster rate of increase than in January. The Business Activity Index for February was the highest since October 1999 (60 percent). Purchasing executives' comments in February were very positive. The rise in the February Index resulted from a drop (from 25 to 12 percent) of members who reported decreased activity. The percent of members reporting increased activity also decreased, but by a much smaller amount, from 30 to 28 percent. Those reporting no change in activity in February totaled 60 percent, an increase of 15 percentage points from January's 45 percent.

The industries reporting the highest rates of growth of business activity in February were: Insurance; Transportation; Health Services; *Other Services; and Utilities.

Business
Activity
% Higher % Same % Lower Index
February 2000 28 60 12 58.0
January 2000 30 45 25 52.5
December 1999 28 55 17 55.5
November 1999 24 63 13 55.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 59 percent in February from 56.5 percent in January, indicating a faster rate of increase for new orders to non-manufacturers. February's New Orders Index indicates continued high levels of activity with an increased rate of growth. Comments from members included: "Larger jobs have begun," "New business," and "Strong economy, more people working."

The industries reporting the highest rates of growth of new orders in February were: Legal Services; Agriculture; Transportation; Real Estate; and Finance and Banking.

New Orders % Higher % Same % Lower Index
February 2000 29 60 11 59.0
January 2000 32 49 19 56.5
December 1999 28 56 16 56.0
November 1999 24 63 13 55.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index reversed a three-month decline and rose to 52 percent in February, indicating an increase in order backlogs. Purchasing executives' comments on backlogs of orders included: "Longer lead times due to product demand," "Holding inventory low, longer lead times," "New business being booked due to new budgets," and "Some shortages due to vendor production." Of the total respondents in February, 30.7 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in February were: Real Estate; Utilities; Finance and Banking; Health Services; and Public Administration.

Backlog
of Orders
% Higher % Same % Lower Index
February 2000 17 70 13 52.0
January 2000 15 67 18 48.5
December 1999 12 74 14 49.0
November 1999 13 72 15 49.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slightly slower rate in February than in January. NAPM's Non-Manufacturing Supplier Deliveries Index for February was 55 percent compared to 55.5 percent in January. Comments from purchasing executives included: "Third party carriers getting slower, especially LTL," "Raw materials in short supply," "All stainless (steel) mills are overbooked, causing lead times to slip," and "Resin increase has increased lead times."

The industries that reported the highest rates of slowness of supplier deliveries in February were: Legal Services; Communication; Construction; Agriculture; Business Services; Real Estate; Public Administration; and Entertainment.

Supplier
Deliveries
% Higher % Same % Lower Index
February 2000 3 84 13 55.0
January 2000 4 81 15 55.5
December 1999 5 84 11 53.0
November 1999 3 81 16 56.5

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 decreased in February after 11 consecutive months of increases. NAPM's Non-Manufacturing New Export Orders Index was 47.5 percent in February compared to 57.5 percent in January. Of the total respondents in February, 74.3 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The industries reporting growth of new export orders in February were: Communication; Business Services; and Construction.

The industries reporting decreases in new export orders in February were: Entertainment; Agriculture; *Other Services; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
February 2000 11 73 16 47.5
January 2000 24 67 9 57.5
December 1999 24 68 8 58.0
November 1999 22 68 10 56.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries was unchanged in February for the second month after decreasing in December. NAPM's Non-Manufacturing Imports Index for February was 50 percent, the same as in January. In February, 71.4 percent of respondents reported that they do not use or do not track use of imported materials.

The only industry reporting a higher rate of growth in use of imports in February was: Wholesale Trade.

Imports % Higher % Same % Lower Index
February 2000 14 72 14 50.0
January 2000 10 80 10 50.0
December 1999 11 76 13 49.0
November 1999 9 87 4 52.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased slightly at the same rate in February as in January, after remaining unchanged in December. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in February, the same as in January. Of the total respondents in February, 24.3 percent indicated they do not have inventories. Comments from member purchasers included: "Better procedures, tighter controls," "Ongoing inventory reduction efforts," "MRO inventory plan," and "Still eliminating excess inventory from Y2K buildup."

Industries reporting the highest rates of inventory increase in February were: Transportation; Utilities; Business Services; Wholesale Trade; and Communication.

Industries reporting the highest rates of inventory decrease in February were: Mining; Agriculture; Finance and Banking; Public Administration; and Health Services.

Inventory
Change
% Higher % Same % Lower Index
February 2000 19 61 20 49.5
January 2000 20 59 21 49.5
December 1999 20 60 20 50.0
November 1999 21 63 16 52.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in February registered 66.5 percent compared to 67 percent for January. This decreased index level indicates that non-manufacturing purchasing executives felt a slightly lesser degree of discomfort with current levels of inventory in February than they did during January. It is likely that unneeded extra Y2K inventories contributed to this situation in January and may still be a factor in February's relatively high index. In February, 39 percent of members felt their inventories were too high (40 percent in January). Also in February, 6 percent indicated their inventories were too low (6 percent in January) and 55 percent said that their inventories were about right (54 percent in January).

The industries that reported the highest rates of feeling that their inventories were "too high" in February were: Legal Services; Mining; Utilities; Finance and Banking; Transportation; Entertainment; and Business Services.

Inventory
Sentiment
% Higher % Same % Lower Index
February 2000 39 55 6 66.5
January 2000 40 54 6 67.0
December 1999 31 61 8 61.5
November 1999 34 57 9 62.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in February for the twelfth consecutive month and at a higher rate of increase than in January. NAPM's Non-Manufacturing Price Index for February rose to 68.5 percent, compared to 61.5 percent in January. The February Price Index was the highest since inception of NAPM's non-manufacturing business survey in July 1997.

The industries that reported the highest rate of increase in prices paid in February were: Mining; Agriculture; Wholesale Trade; Retail Trade; Finance and Banking; and Construction.

Prices % Higher % Same % Lower Index
February 2000 39 59 2 68.5
January 2000 28 67 5 61.5
December 1999 17 78 5 56.0
November 1999 21 73 6 57.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector was unchanged in February. NAPM's Non-Manufacturing Employment Index for February was 50 percent compared to 50.5 percent for January. Comments from purchasers included: "Labor shortage," "Total employment is same; 80 percent of new hires are full-time temporary," "Hiring freeze until April," and "Growth, new business."

The industries reporting growth of employment in February were: Legal Services; Communication; *Other Services; Entertainment; and Health Services.

Employment % Higher % Same % Lower Index
February 2000 14 72 14 50.0
January 2000 13 75 12 50.5
December 1999 15 73 12 51.5
November 1999 15 71 14 50.5

*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:

Computer Programmers; Diesel Fuel; Lumber; PVC Pipe; Certain Steel Products; Welding Wire.

Commodities Reported Up in Price:

Asphalt; Beef — 6th month; Coffee — 3rd month; Copy Paper; Corrugated; Diesel Fuel; Fuel; Fuel Oil; Gasoline — 12th month; Heating Oil; Oil; Paper — 11th month; Paper Products — 6th month; Petroleum-based Products — 2nd month; Pipe Fittings; PVC Pipe; Stainless Steel; Stainless Steel Products — 2nd month; Steel; Certain Steel Products; Welding Wire.

Commodities Reported Down in Price:

Dairy; Drywall; PCs — 2nd month.

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 48,000 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 March 2000 data will be released at 10:00 a.m. (ET) on April 5, 2000.



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