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March 2000 Non-Manufacturing Report On Business®

FOR RELEASE: April 5, 2000

Contact: Zenobia Daruwalla
  NAPM Media Relations
  602/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS STRONGLY IN MARCH 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 March 2000.

Business Activity Index Up to 64%
New Orders, Order Backlogs, Employment, and Prices Increase

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

"NAPM's Non-Manufacturing Business Activity Index registered 64 percent in March, 6 percentage points higher than in February, indicating faster growth in non-manufacturing economic activity. Comments from purchasing executives were very positive on business activity in March. Increased business activity in March was reported by 39 percent of purchasers, an increase of 11 percentage points from the 28 percent reporting more activity in February. Of the industry groups reporting in the March NAPM non-manufacturing survey, 15 indicated increased activity and 1 indicated decreased activity. In February, 13 industry groups reported increased activity, 2 reported decreased activity, and 2 advised no change," said Kauffman.

This month our members reported an increase in their inventories compared to February. Any excess Y2K inventory has been used and members are stocking up for increased business. Prices paid by members' firms for purchased materials and services continue to be a concern. The Price Index has surged over the past four months from 56 percent in December 1999 to 72 percent in March. The percent of members reporting higher prices also rose dramatically over the same period, from 17 percent in December to 50 percent in March.

"Overall in March, non-manufacturing industries continued their long-term growth trend. This month the Business Activity Index reached its highest level since April 1999 and the New Orders Index reached the highest level since inception of NAPM's non-manufacturing business survey in July 1997. Non-manufacturing employment rose in March, and the Prices Index hit another new high," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series March
Indexes
February
Indexes
March vs. February
Index Change
Direction and
Rate of Change
Business Activity 64.0 58.0 +6.0 Increasing Faster
New Orders 64.0 59.0 +5.0 Increasing Faster
Backlog of Orders 53.0 52.0 +1.0 Increasing Faster
New Export Orders 55.5 47.5 +8.0 Increasing from Decreasing
Inventory Change 51.5 49.5 +2.0 Increasing from Decreasing
Inventory Sentiment 60.5 66.5 -6.0 Decreased Feeling of "too high"
Imports 58.0 50.0 +8.0 Increasing from Unchanged
Prices 72.0 68.5 +3.5 Increasing Faster
Employment 56.0 50.0 +6.0 Increasing from Unchanged
Supplier Deliveries 52.5 55.0 -2.5 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 March with a faster rate of growth in non-manufacturing business activity. New orders also increased for both the non-manufacturing and manufacturing sectors with a greater rate of increase for non-manufacturing. Backlog of orders increased for both sectors, and at a faster rate for non-manufacturing. Prices increased in March for both areas but rose faster for manufacturing. Employment in March increased for both sectors and grew faster for non-manufacturing. Inventories decreased for manufacturing and increased for non-manufacturing. New export orders increased for both manufacturing and non-manufacturing with a slightly faster rate of increase for non-manufacturing. Supplier delivery performance in March was reported to be slower by both sectors but with a higher rate of slowness in manufacturing. Use of Imports was up in both manufacturing and non-manufacturing in March with non-manufacturing reporting a higher rate of increase.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 64.0 Production 61.8
New Orders 64.0 New Orders 56.9
Backlog of Orders 53.0 Backlog of Orders 51.0
New Export Orders 55.5 New Export Orders 55.3
Inventory Change 51.5 Inventories 48.4
Inventory Sentiment 60.5    
Imports 58.0 Imports 54.9
Prices 72.0 Prices 79.8
Employment 56.0 Employment 51.5
Supplier Deliveries 52.5 Supplier Deliveries 54.1

* 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 March rose to 64 percent, indicating increased business activity at a faster rate of increase than in February. The Business Activity Index for March was the highest since April 1999 (also 64 percent). Purchasing executives' comments in March were very positive. The percent of members reporting increased activity jumped from 28 percent in February to 39 percent in March. Members reporting decreased activity dropped slightly from 12 percent in February to 11 percent in March. Those reporting no change in activity in March totaled 50 percent, a drop of 10 percentage points from February's 60 percent.

The industries reporting the highest rates of growth of business activity in March were: Mining; Communication; Insurance; Finance and Banking; and Business Services.

Business
Activity
% Higher % Same % Lower Index
March 2000 39 50 11 64.0
February 2000 28 60 12 58.0
January 2000 30 45 25 52.5
December 1999 28 55 17 55.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 64 percent in March from 59 percent in February, indicating a faster rate of increase for new orders to non-manufacturers. March's New Orders Index is the highest reported since inception of NAPM's non-manufacturing business survey in July 1997 and indicates continued high levels of activity with an increased rate of growth. Comments from members included: "Additional contracts," "Growth in new business," and "Increased sales."

The industries reporting the highest rates of growth of new orders in March were: Entertainment; Wholesale Trade; Mining; Communication; and Finance and Banking.

New Orders % Higher % Same % Lower Index
March 2000 37 54 9 64.0
February 2000 29 60 11 59.0
January 2000 32 49 19 56.5
December 1999 28 56 16 56.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index grew for the second consecutive month and rose to 53 percent in March, indicating an increased rate of growth in order backlogs. Purchasing executives' comments on backlogs of orders included: "More orders," "Increase in demand," "PCs are backordered," and "Long lead times on fiber optic cable." Of the total respondents in March, 28.8 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in March were: Finance and Banking; Insurance; Communication; Mining; and Real Estate.

Backlog
of Orders
% Higher % Same % Lower Index
March 2000 17 72 11 53.0
February 2000 17 70 13 52.0
January 2000 15 67 18 48.5
December 1999 12 74 14 49.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slower rate in March than in February indicating that significant supply shortages do not appear to be developing in the non-manufacturing sectors. NAPM's Non-Manufacturing Supplier Deliveries Index for March was 52.5 percent compared to 55 percent in February. Comments from purchasing executives included: "Suppliers are past busy crunch," "Suppliers now have material to manufacture. "Lack of inventory," and "Longer lead times by manufacturers, distributors, suppliers."

The industries that reported the highest rates of slowness of supplier deliveries in March were: Mining; Entertainment; Public Administration; Communication; and Wholesale Trade.

Supplier
Deliveries
% Higher % Same % Lower Index
March 2000 7 81 12 52.5
February 2000 3 84 13 55.0
January 2000 4 81 15 55.5
December 1999 5 84 11 53.0

Non-Manufacturing New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by U.S.-based personnel increased in March after a sudden drop in February. NAPM's Non-Manufacturing New Export Orders Index was 55.5 percent in March compared to 47.5 percent in February. Of the total respondents in March, 74 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting growth of new export orders in March were: Business Services; *Other Services; Communication; Retail Trade; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
March 2000 15 81 4 55.5
February 2000 11 73 16 47.5
January 2000 24 67 9 57.5
December 1999 24 68 8 58.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in March after being unchanged in January and February. NAPM's Non-Manufacturing Imports Index for March was 58 percent, an increase of eight percentage points from the 50 percent indicated in February. In March, 71.8 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting higher rates of growth in use of imports in March were: Construction; Mining; Retail Trade; Public Administration; Communication; and Wholesale Trade.

Imports % Higher % Same % Lower Index
March 2000 21 74 5 58.0
February 2000 14 72 14 50.0
January 2000 10 80 10 50.0
December 1999 11 76 13 49.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in March after being unchanged in December 1999, and decreasing in January and February 2000. NAPM's Non-Manufacturing Inventories Index registered 51.5 percent in March, compared to 49.5 percent in February. Of the total respondents in March, 20.6 percent indicated they do not have inventories. Comments from member purchasers included: "Longer lead times, shortage of raw materials," "Increased sales," "Build up for heavier business," and "More manufacturers cutting floor stock."

Industries reporting the highest rates of inventory increase in March were: Business Services; Real Estate; Construction; Retail Trade; and Finance and Banking.

Inventory
Change
% Higher % Same % Lower Index
March 2000 22 59 19 51.5
February 2000 19 61 20 49.5
January 2000 20 59 21 49.5
December 1999 20 60 20 50.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in March registered 60.5 percent compared to 66.5 percent for February. This decreased index level indicates that non-manufacturing purchasing executives felt a lesser degree of discomfort with current levels of inventory in March than they did during February. The March report is the lowest level of this Index since October 1999 (58 percent). In March, 29 percent of members felt their inventories were too high (39 percent in February). Also in March, 8 percent indicated their inventories were too low (6 percent in February), and 63 percent said that their inventories were about right (55 percent in February).

The industries that reported the highest rates of feeling that their inventories were "too high" in March were: Business Services; Construction; Communication; Wholesale Trade; Mining; and Entertainment.

Inventory
Sentiment
% Higher % Same % Lower Index
March 2000 29 63 8 60.5
February 2000 39 55 6 66.5
January 2000 40 54 6 67.0
December 1999 31 61 8 61.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March for the 13th consecutive month and at a higher rate of increase than in February. NAPM's Non-Manufacturing Price Index for March rose to 72 percent, compared to 68.5 percent in February. The March 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 March were: Wholesale Trade; Mining; Construction; Transportation; Real Estate; and Public Administration.

Prices % Higher % Same % Lower Index
March 2000 50 44 6 72.0
February 2000 39 59 2 68.5
January 2000 28 67 5 61.5
December 1999 17 78 5 56.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew in March after being unchanged in February. NAPM's Non-Manufacturing Employment Index for March was 56 percent compared to 50 percent for February. Comments from purchasers included: "Not enough bodies to do all clerical and acquisition work," "Hiring more people for contracts booked," "Backlog of unfilled positions," and "Increased business activity."

The industries reporting the highest rates of growth of employment in March were: Finance and Banking; Communication; Real Estate; Construction; and Agriculture.

Employment % Higher % Same % Lower Index
March 2000 22 68 10 56.0
February 2000 14 72 14 50.0
January 2000 13 75 12 50.5
December 1999 15 73 12 51.5

*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:

Aircraft Parts; Capacitors; Furniture; Labor; Laptops; PVC Pipe — 2nd month.

Commodities Reported Up in Price:

Aluminum; Asphalt — 2nd month; Bond Paper; Business Forms; Chemicals; Copper and Copper Products; Copy Paper — 2nd month; Corn; Corrugated — 2nd month; Diesel Fuel — 2nd month; Freight Service; Fuel — 2nd month; Fuel Oil — 2nd month; Gasoline — 13th month; Labor; Linerboard; Natural Gas; Oil — 2nd month; Paper — 12th month; Paper Products — 7th month; Petroleum; Petroleum-based Products — 3rd month; Pipe Fittings — 2nd month; Plastic; Polyethylene; PVC; PVC Pipe — 2nd month; Soybean Meal; Stainless Steel Products — 3rd month; Steel — 2nd month; Transportation; Utilities; Wire and Cable.

Commodities Reported Down in Price:

Computers.

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 45,000 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 April 2000 data will be released at 10:00 a.m. (ET) on May 3, 2000.



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