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February 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: March 3, 2005

Contact: Terri Tracey
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3071
  e-mail: ttracey@ism.ws
Business Activity at 59.8%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national 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 2005.


Employment Index Up 7.4 Points to 59.6%
Imports Index Up 4.5 Points to 57.5%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in February 2005, 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 Supply Chain Management Program, University of Houston-Downtown. "Non-manufacturing business activity increased for the 23rd consecutive month in February," Kauffman said. He added, "Business activity increased at a faster rate in February, as did new orders. February's increases in these two indexes and in the indexes for employment, backlog of orders and new export orders indicate a reversal of the decline in these measures noted in January's report."

TOP PERFORMING INDUSTRIES

The 12 industries reporting growth in February — listed in order — are: Mining; Communication; Health Services; Transportation; Finance & Banking; Insurance; Public Administration; Retail Trade; Utilities; Construction; Other Services*; and Business Services. The three industries reporting activity the same as last month are: Agriculture; Wholesale Trade; and Legal Services. The two industries reporting decreased activity from the prior month are: Real Estate and Entertainment.

WHAT RESPONDENTS ARE SAYING …
  • "Political and economic uncertainties in numerous countries globally are increasing business-related costs."
  • "Higher material prices are a major concern, especially for plastics, steel and energy."
  • "Some vendors are having difficulties holding their pricing on blanket orders past a year, due to fuels and rubber goods."
  • "Overall business has improved this period over last year same period — both U.S. and globally."
  • "Railroad transportation inefficiencies, fuel surcharges and rate increases are concerns."
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
FEBRUARY 2005
  Non-Manufacturing Manufacturing
Index Series Index Feb Series Index Jan Percent Point Change Direction Rate of Change Trend** (Months) Series Index Feb Series Index Jan Percent Point Change
Business Activity / Production 59.8 59.2 +0.6 Increasing Faster 23 56.7 57.8 -1.1
New Orders 61.6 60.5 +1.1 Increasing Faster 23 55.8 56.5 -0.7
Employment 59.6 52.2 +7.4 Increasing Faster 17 57.4 58.1 -0.7
Supplier Deliveries 52.5 52.5 0.0 Slowing No Change 42 53.9 53.7 +0.2
Inventories 52.0 49.5 +2.5 Increasing From Decreasing 1 48.6 52.8 -4.2
Prices 66.4 66.6 -0.2 Increasing Slower 21 65.5 69.0 -3.5
Backlog of Orders 51.5 48.0 +3.5 Increasing From Decreasing 1 50.5 50.5 0
New Export Orders 56.0 52.5 +3.5 Increasing Faster 19 57.4 56.9 +0.5
Imports 57.5 53.0 +4.5 Increasing Faster 22 60.7 61.1 -0.4
Inventory Sentiment 64.5 64.5 0.0 "Too High" No Change 81 N/A N/A  
Customers' Inventories N/A N/A         42.5 44.5 -2.0

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Prices, and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders, Prices, and Customers' Inventories.
** Number of months moving in current direction

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (14); Beef (3); Building Materials (2); Conveyor Belt/Products; Copper (18); Dairy Products*; #2 Diesel Fuel (2); Fuel (15); Gasoline* (15); Hotel Prices (3); Lumber including Pine, Spruce and Treated (2); Medical/Surgical Supplies/Equipment; Metals; Natural Gas (6); Office Supplies; Oil; Paper/Paper Products (13); Petroleum/Petroleum-Based Products; Plastic Bags (3); Plastic Items (2); Plastic Resin (3); Plastics (14); Polyethylene Products; Polypropylene; Pork/Pork Baby Back Ribs/Pork Trimmings (3); Poultry (2); PVC (2); Roofing Materials; Roofing Shingles (4); Stainless Steel (2); Stainless Steel Products; Steel (16); Steel Products (12); Tires; Transportation/Freight Charges (10); and Unleaded Gasoline.

Commodities Down in Price

Computer Hardware (5); Dairy*; and Gasoline* (3).

Commodities in Short Supply

Cement/Concrete/Cement Products; Roofing Materials; Roofing Shingles; Stainless Steel; and Steel (13).

*Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.


FEBRUARY 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in February increased to 59.8 percent from January's seasonally adjusted 59.2 percent, indicating a faster rate of growth of activity in February. This month, 12 sectors reported increased business activity, two reported decreased activity, and three reported unchanged activity compared to January.

The industries reporting the highest rates of growth of business activity in February are: Mining; Communication; Health Services; Transportation; and Finance & Banking. The industries reporting contraction of business activity in February are: Real Estate and Entertainment.

Business
Activity
%Higher %Same %Lower Index
Feb 2005 31 58 11 59.8
Jan 2005 29 53 18 59.2
Dec 2004 36 50 14 63.9
Nov 2004 34 57 9 61.9

THE LAST 12 MONTHS
Month Business
Activity
Index
  Month Business
Activity
Index
Feb'05 59.8   Aug'04 59.3
Jan'05 59.2   Jul'04 63.4
Dec'04 63.9   Jun'04 61.1
Nov'04 61.9   May'04 63.3
Oct'04 61.5   Apr'04 66.9
Sep'04 58.7   Mar'04 64.0
Average for 12 months – 61.9
High – 66.9
Low – 58.7

New Orders

ISM's Non-Manufacturing New Orders Index increased to 61.6 percent in February from 60.5 percent in January. This indicates continued expansion of new orders but at a faster rate of growth than in January. Comments from members include: "Awards received on road contracts"; "Deposit and loan growth continues"; "Higher trade show attendance. More corporate meetings and new product launches. Increased market share"; and "Slightly higher due to the new stores that we added last year."

Industries reporting the highest rates of growth of new orders in February are: Mining; Finance & Banking; Transportation; Public Administration; and Health Services. Industries reporting contraction of new orders in February are: Real Estate; Agriculture; and Entertainment.

New
Orders
%Higher %Same %Lower Index
Feb 2005 31 62 7 61.6
Jan 2005 31 55 14 60.5
Dec 2004 36 46 18 61.3
Nov 2004 32 57 11 60.4

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in February compared to January. This was the 17th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for February is 59.6 percent, a rise of 7.4 percentage points from January's 52.2 percent. Eleven industries reported increased employment, one reported a decrease, and five indicated employment was unchanged from January. Comments from respondents include: "Continued rightsizing"; "Additional personnel hired due to increase in business"; "Economic recovery, changing new hiring and frozen position filling"; "Additional employees needed to accommodate the 20 percent growth last year"; and "Slightly higher to cover business activity without hurting service."

The industries reporting the highest rates of growth in employment in February are: Finance & Banking; Mining; Construction; Business Services; Transportation; Retail Trade; and Health Services. The one industry reporting a reduction in employment in February is Agriculture.

Employment %Higher %Same %Lower Index
Feb 2005 20 74 6 59.6
Jan 2005 15 71 14 52.2
Dec 2004 19 70 11 55.0
Nov 2004 18 74 8 54.9

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 42nd consecutive month in February. The index registered 52.5 percent, the same as in January. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in February include: "Suppliers catching up with demand"; "Shortage of drivers"; "Still mixed — with more late deliveries than improved ones"; and "Late supplier shipments and slower railroad transit times."

The industries reporting the highest rates of slowing in supplier deliveries in February are: Legal Services; Mining; Utilities; Wholesale Trade; Construction; and Health Services. Industries reporting faster supplier deliveries in February are: Entertainment; Transportation; Finance & Banking; and Public Administration.

Supplier
Deliveries
%Slower %Same %Faster Index
Feb 2005 10 85 5 52.5
Jan 2005 9 87 4 52.5
Dec 2004 15 81 4 55.5
Nov 2004 13 84 3 55.0

NOTE: A list of commodities in short supply is available on page two of this report.

Inventories

ISM's Non-Manufacturing Inventories Index registered 52 percent in February, 2.5 percentage points higher than the 49.5 percent reported in January. This reading indicates increased inventories in February after a dip in inventory levels in January. Of the total respondents in February, 32 percent indicate they do not have inventories or do not measure them. Comments from members include: "Replenishment"; "Slightly higher need for increased business push"; "Preparing for spring business"; and "Concerted move to reduce nonessential inventory."

The industries reporting the highest rates of inventory increases in February are: Transportation; Public Administration; Utilities; Business Services; and Other Services*. The industries reporting the highest rates of inventory decreases in February are: Mining; Legal Services; Entertainment; Agriculture; and Insurance.

Inventory
Change
%Higher %Same %Lower Index
Feb 2005 25 54 21 52.0
Jan 2005 22 55 23 49.5
Dec 2004 32 48 20 56.0
Nov 2004 24 57 19 52.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in February for the 21st consecutive month, but at a slightly slower rate of increase than in January. ISM's Non-Manufacturing Prices Index for February is 66.4 percent, down 0.2 percentage point from the seasonally adjusted 66.6 percent registered for January. In February, the percentage of members reporting higher prices rose to 43 percent (six points higher than January's 37 percent), the proportion indicating no change dropped 5 percentage points to 54 percent, and the number who noted lower prices decreased 1 percentage point to 3 percent.

The industries reporting the highest rates of increase in prices paid in February are: Mining; Legal Services; Real Estate; Construction; and Wholesale Trade. No industries are reporting price decreases in February.

Prices %Higher %Same %Lower Index
Feb 2005 43 54 3 66.4
Jan 2005 37 59 4 66.6
Dec 2004 38 57 5 73.6
Nov 2004 38 58 4 73.2

NOTE: A list of commodities reported up in price and down in price is available on page two of this report.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 51.5 percent in February. This is an increase of 3.5 percentage points from the 48 percent reported for January. February's increase in order backlogs follows a one-month drop, prior to which there were 20 consecutive months of reported increases in order backlogs. Of the total respondents in February, 42 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "For the last couple of months we have pretty much shipped everything leaving little backlog"; "Additional work scope on existing products"; "Capacity [problems]"; and "Internal staffing reasons. Training new buyers after retirements."

The industries reporting the highest rates of increase in order backlogs in February are: Construction; Mining; Transportation; Utilities; and Other Services*. The industries reporting decreases in backlog of orders in February are: Entertainment; Real Estate; Retail Trade; and Wholesale Trade.

Backlog
of Orders
%Higher %Same %Lower Index
Feb 2005 15 73 12 51.5
Jan 2005 12 72 16 48.0
Dec 2004 21 71 8 56.5
Nov 2004 18 72 10 54.0

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 for the 19th consecutive month in February. The New Export Orders Index for February is 56 percent, compared to January's 52.5 percent, indicating a faster rate of growth in February compared to January. Of the total respondents in February, 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 February are: Transportation; Other Services*; Mining; and Wholesale Trade. The one industry reporting a decrease in new export orders in February is Business Services.

New Export
Orders
%Higher %Same %Lower Index
Feb 2005 19 74 7 56.0
Jan 2005 18 69 13 52.5
Dec 2004 18 75 7 55.5
Nov 2004 17 73 10 53.5

Imports

In February, the ISM Imports Index registered 57.5 percent, 4.5 percentage points higher than the 53 percent reported in January. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in February than in January. February's index marks the 22nd consecutive month of import growth. In February, 67 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting increases in the use of imports in February are: Public Administration; Entertainment; Health Services; Wholesale Trade; and Retail Trade. The one industry reporting a decrease in the use of imports in February is Business Services.

Imports %Higher %Same %Lower Index
Feb 2005 23 69 8 57.5
Jan 2005 17 72 11 53.0
Dec 2004 29 64 7 61.0
Nov 2004 29 66 5 62.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in February registered 64.5 percent, the same as reported in January. This indicates that non-manufacturing purchasing and supply executives feel the same degree of discomfort with current levels of inventory in February as they did during January. In February, 35 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 59 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in February are: Construction; Wholesale Trade; Agriculture; Legal Services; and Communication. No industry reported that its inventories are too low in February.

Inventory
Sentiment
%Too High %About Right %Too Low Index
Feb 2005 35 59 6 64.5
Jan 2005 35 59 6 64.5
Dec 2004 36 56 8 64.0
Nov 2004 29 65 6 61.5

*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.

About this Report

The data presented herein is obtained from a survey of non-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.

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, Prices, 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.

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 March 2005 data will be released at 10:00 a.m. (ET) on April 5, 2005.



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