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February 2001 Non-Manufacturing Report On Business®

FOR RELEASE: March 5, 2001

CONTACT: Kristen Kioa
  NAPM Media Relations
  480/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS AT A FASTER RATE 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 2001.

In this month's report, the indexes for Business Activity, New Orders, Imports, and Employment are seasonally adjusted. The remaining indexes do not currently exhibit identifiable seasonality.


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

(Tempe, Arizona) — Business in the non-manufacturing sector grew faster in February 2001 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 indicated more life in the economy than it did in January," Kauffman said. "New Orders also rose but Order Backlogs decreased. Exports and Employment increased more slowly, and Imports were reduced after being unchanged in January. Inventories declined more slowly and Supplier Deliveries continued to be slower in February. Prices increased at a slower rate and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a 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 51.7 percent in February, 1.6 percentage points higher than in January, indicating somewhat faster growth in non-manufacturing economic activity. Many of the comments from purchasing executives are indicative of the slow rate of growth of business activity in February. Increased business activity in February was reported by 26 percent of purchasers, an increase of 3 percentage points from the 23 percent reporting more activity in January. Of the industry groups reporting in the February NAPM non-manufacturing survey, 7 indicated increased activity, 8 indicated decreased activity, and 2 reported no change in activity compared to January. In January, 7 industry groups reported increased activity, 9 reported decreased activity, and 1 reported no change in activity level," said Kauffman.

This month our members reported decreased inventories for the fourth consecutive month and also indicated a slower rate of increase in the prices they pay for their purchases. The Prices Index decreased in February from 62 percent to 60.5 percent. The Prices Index is thus maintaining its general decline since March 2000, but the overall rate of decline has slowed in the past few months. The percentage of members reporting higher prices increased to 29 percent in February from 28 percent in January, the proportion indicating no change dropped to 63 percent from 68 percent, and the number who noted lower prices increased to 8 percent from 4 percent in January.

"Overall in February, non-manufacturing industries continued their long-term growth trend at a much decreased rate of growth compared to the year 2000. This month the Business Activity and New Orders Indexes recorded increases in those measurements, while the Backlog of Orders Index indicated continued contraction of the number of orders not yet filled. Non-manufacturing inventories decreased more slowly than in January, employment rose at a slower rate of increase, and Prices increased at a slower rate in February," 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 51.7 50.1 +1.6 Increasing Faster
New Orders 51.3 49.9 +1.4 Increasing from Decreasing
Backlog of Orders 45.5 42.5 +3.0 Decreasing Slower
New Export Orders 53.5 55.0 -1.5 Increasing Slower
Inventory Change 47.0 45.5 +1.5 Decreasing Slower
Inventory Sentiment 65.0 67.5 -2.5 Decreased Feeling of "too high"
Imports 46.8 50.0 -3.2 Decreasing from Unchanged
Prices 60.5 62.0 -1.5 Increasing Slower
Employment 50.3 52.3 -2.0 Increasing Slower
Supplier Deliveries 51.5 51.5 0 Unchanged

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity increased in non-manufacturing industries and production decreased in manufacturing industries in February. New orders also increased for non-manufacturing and decreased for the manufacturing sector. Backlog of orders decreased for both sectors. Prices increased in February for both areas but rose faster for non-manufacturing. Employment in February rose at a very slow rate for non-manufacturing but dropped in the manufacturing sector. Inventories decreased for both manufacturing and non-manufacturing with a faster rate of decrease in manufacturing. New export orders increased in non-manufacturing but were reduced in manufacturing. Supplier delivery performance in February was reported to be slower in both non-manufacturing and manufacturing industries. Use of Imports was down in both non-manufacturing and manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 51.7 Production 39.7
New Orders 51.3 New Orders 40.8
Backlog of Orders 45.5 Backlog of Orders 37.0
New Export Orders 53.5 New Export Orders 47.6
Inventory Change 47.0 Inventories 45.7
Inventory Sentiment 65.0    
Imports 46.8 Imports 46.5
Prices 60.5 Prices 58.1
Employment 50.3 Employment 37.2
Supplier Deliveries 51.5 Supplier Deliveries 51.3

*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 except for the Business Activity, New Orders, Imports, and Employment Indexes.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in February increased 1.6 percentage points to 51.7 percent, indicating a somewhat stronger increase in business activity compared to January (50.1 percent). Purchasing executives' comments in February reflected slower growth in economic activity but are a mix of positive and negative indications. The percent of members reporting increased activity rose to 26 percent in February from 23 percent in January. Members reporting decreased activity dropped to 23 percent in February from 28 percent in January. Those reporting no change in activity in February totaled 51 percent, an increase of 2 percentage points from January's 49 percent.

The industries reporting the highest rates of growth of business activity in February were: Mining; Real Estate; Finance and Banking; *Other Services; and Public Administration.

Business
Activity
% Higher % Same % Lower Index*
February 2001 26 51 23 51.7
January 2001 23 49 28 50.1
December 2000 29 48 23 61.1
November 2000 31 55 14 61.2

*Index values are seasonally adjusted.

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 51.3 percent in February from 49.9 percent in January. Comments from members included: "Budget cuts and slow period," "Promotional response," "More nursing home admissions," and "Aggressive renovation projects for Spring and Summer."

The industries reporting the highest rates of growth of new orders in February were: Mining; Real Estate; Public Administration; Transportation; and *Other Services.

New Orders % Higher % Same % Lower Index*
February 2001 25 53 22 51.3
January 2001 23 49 28 49.9
December 2000 26 50 24 57.0
November 2000 29 55 16 58.7

*Index values are seasonally adjusted.

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 45.5 percent in February. This is the second consecutive monthly decline in order backlogs and the third decrease in four months. The February index is an increase of 3 percentage points from January's 42.5 percent. Purchasing executives' comments on backlogs of orders included: "Lower than normal backlog," "Catching up due to slow business activity," "Working down jobs and not getting new ones," and "Fewer orders." Of the total respondents in February, 26 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in February were: Public Administration; Real Estate; Retail Trade; Business Services; and Finance and Banking. The industries reporting the highest rates of decline of order backlogs in February were: Entertainment; Wholesale Trade; Insurance; Mining; and Utilities.

The industries reporting growth of backlog of orders in February were: Public Administration; Real Estate; Retail Trade; Business Services; and Finance and Banking. The industries reporting the highest rates of decline of order backlogs in February were: Entertainment; Wholesale Trade; Insurance; Mining; and Utilities.

Backlog of Orders % Higher % Same % Lower Index
February 2001 12 67 21 45.5
January 2001 12 61 27 42.5
December 2000 20 61 19 50.5
November 2000 16 67 17 49.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at the same rate in February as in January. NAPM's Non-Manufacturing Supplier Deliveries Index for both February and January is 51.5 percent. Comments from purchasing executives included: "Less inventory," "Product becoming available as supply increases and backlog lessens," "Supplier deliveries continue to be slow; lower inventory levels," and "Service sector issues, response is poor."

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

Supplier
Deliveries
% Higher % Same % Lower Index
February 2001 5 87 8 51.5
January 2001 6 85 9 51.5
December 2000 7 84 9 51.0
November 2000 4 84 12 54.0

Non-Manufacturing 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 continue to be a bright spot in economic activity and increased in February for the 12th consecutive month. February's Index was 53.5 percent, indicating a decreased rate of new export orders compared to January's index of 55 percent. Of the total respondents in February, 72 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting increased use of imports in February were: Health Services and Business Services. Industries reporting decreased use of imports in February were: Entertainment; Transportation; *Other Services; Wholesale Trade; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
February 2001 15 77 8 53.5
January 2001 19 72 9 55.0
December 2000 24 65 11 56.5
November 2000 25 60 15 55.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries in February decreased for the first time in five months. NAPM's Non-Manufacturing Imports Index for February was 46.8 percent, a drop of 3.2 percentage points from the 50 percent reported in January. February's Index was also the lowest Imports Index reported since the inception of NAPM's non-manufacturing business survey in July 1997. In February, 69 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting increased use of imports in February were: Health Services and Business Services. Industries reporting decreased use of imports in February were: Entertainment; Transportation; *Other Services; Wholesale Trade; and Retail Trade.

Imports % Higher % Same % Lower Index*
February 2001 7 79 14 46.8
January 2001 6 79 15 50.0
December 2000 14 75 11 55.2
November 2000 17 73 10 55.5

*Index values are seasonally adjusted.

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in February for the fourth consecutive month and the fifth time in 10 months. NAPM's Non-Manufacturing Inventories Index registered 47 percent in February, an increase of 1.5 percentage points from the 45.5 percent reported in January. Of the total respondents in February, 24 percent indicated they do not have inventories. Comments from member purchasers included: "Inventory reduction program," "More JIT from vendors," "Gearing up for increased business," and "We are taking a 'pause' in replenishment."

The industries reporting inventory increases in February were: Legal Services; Real Estate; Retail Trade; and Transportation. Industries reporting the highest rates of inventory decrease in February were: Finance and Banking; Communication; Insurance; Mining; and Entertainment.

Inventory
Change
% Higher % Same % Lower Index
February 2001 17 60 23 47.0
January 2001 21 49 30 45.5
December 2000 24 49 27 48.5
November 2000 21 57 22 49.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in February registered 65 percent compared to 67.5 percent for January. This decline in the index level indicates that non-manufacturing purchasing executives felt a lesser degree of discomfort with current levels of inventory in February than they did during January. In February, 37 percent of members felt their inventories were too high (36 percent in January). Also in February, 7 percent indicated their inventories were too low (1 percent in January) and 56 percent said that their inventories were about right (63 percent in January).

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

Inventory
Sentiment
% Higher % Same % Lower Index
February 2001 37 56 7 65.0
January 2001 36 63 1 67.5
December 2000 35 60 5 65.0
November 2000 37 58 5 66.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in February for the 24th consecutive month, and at a lower rate of increase than in January. NAPM's Non-Manufacturing Prices Index for February moved down to 60.5 percent from 62 percent in January.

The industries that reported the highest rate of increase in prices paid in February were: Legal Services; Health Services; Retail Trade; Utilities; and Real Estate.

Prices % Higher % Same % Lower Index
February 2001 29 63 8 60.5
January 2001 28 68 4 62.0
December 2000 22 72 6 58.0
November 2000 21 72 7 57.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at a very slow rate in February and slower than in January. NAPM's Non-Manufacturing Employment Index for February was 50.3 percent compared to 52.3 percent in January. The February Index was the lowest since November 1999 (50.3 percent). Comments from purchasers included: "Assignments ended - fewer new job orders," "Downsizing," "Hiring freeze," and "High recruitment - 196 positions filled in last 30 days."

The industries reporting the highest rates of growth of employment in February were: Legal Services; Insurance; Real Estate; *Other Services; and Utilities.

Employment % Higher % Same % Lower Index*
February 2001 14 68 18 50.3
January 2001 13 74 13 52.3
December 2000 16 70 14 52.8
November 2000 19 71 10 54.3

*Index values are seasonally adjusted.

*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

Caustic Soda — 2nd month; Fiber and Fiber Optic Cable — 2nd month; Natural Gas — 2nd month; Personnel; Plastic

Commodities Reported Up in Price

Caustic Soda — 2nd month; Diesel Fuel; Electricity — 2nd month; Energy — 3rd month; Energy Surcharges; Fuel — 13th month (a few reports of price decreases); Furniture; Gasoline; Natural Gas — 3rd month (some reports of price decreases); Office Supplies; Paper — 23rd month; Petroleum-Based Products; Plastics; Postal Rates — 2nd month; Utilities.

Commodities Reported Down in Price

Computers (PCs) — 12th 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 181 affiliates with more than 45,000 members in the United States.

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 2001 data will be released at 10:00 a.m. (ET) on April 4, 2001.



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