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March 2001 Non-Manufacturing Report On Business®

FOR RELEASE: April 4, 2001

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS AT A SLOWER RATE 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 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 and Prices Increase
Order Backlogs, Inventories, Employment, Exports, and Imports Decrease

(Tempe, Arizona) — Business in the non-manufacturing sector grew faster in March 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 March, NAPM's Non-Manufacturing Business Activity Index indicated slower growth in the economy than it did in February," Kauffman said. "New Orders grew faster in March while Order Backlogs decreased more slowly than in February. Exports decreased for the first time in 13 months, and Imports decreased for the second month. Employment was reduced and Inventories declined more slowly. Supplier Deliveries continued to be slower in March. Prices increased at a somewhat slower rate and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a greater 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 50.3 percent in March, 1.4 percentage points lower than in February, indicating slower 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 March. Increased business activity in March was reported by 26 percent of purchasers, the same percentage as was reported in February. Of the industry groups reporting in the March NAPM non-manufacturing survey, 9 indicated increased activity, 6 indicated decreased activity, and 2 reported no change in activity compared to February. In February, 7 industry groups reported increased activity, 8 reported decreased activity, and 2 reported no change in activity level," said Kauffman.

This month our members reported decreased inventories for the fifth consecutive month and also indicated a slower rate of increase in the prices they pay for their purchases. The Prices Index decreased in March from 60.5 percent to 59.5 percent. The Prices Index has remained in the range of 57 to 62 percent for the past nine months after declining from a high of 72 percent in March 2000.

"Overall in March, non-manufacturing industries continued their long-term growth trend at a much decreased rate of growth compared to the year 2000. This month the New Orders Index recorded a small increase, 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 February, employment declined for the first time since inception of NAPM's non-manufacturing business survey in July 1997, and Prices increased at a slower rate in March," 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 50.3 51.7 -1.4 Increasing Slower
New Orders 52.2 51.3 + .9 Increasing Faster
Backlog of Orders 47.5 45.5 +2.0 Decreasing Slower
New Export Orders 49.5 53.5 -4.0 Decreasing from Increasing
Inventory Change 49.0 47.0 +2.0 Decreasing Slower
Inventory Sentiment 69.0 65.0 +4.0 Increased Feeling of "too high"
Imports 48.1 46.8 +1.3 Decreasing Slower
Prices 59.5 60.5 -1.0 Increasing Slower
Employment 49.4 50.3 - .9 Decreasing from Increasing
Supplier Deliveries 50.5 51.5 -1.0 Slowing Slower

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Survey
Question
March
Index %
Index Change
from Feb
Direction &
Rate of Change
March
Index
Index Change
from Feb
Direction &
Rate of Change
Business Activity / Production 50.3 -1.4 Increasing Slower 42.8 +3.1 Decreasing Slower
New Orders 52.2 + .9 Increasing Faster 42.3 +1.5 Decreasing Slower
Backlog of Orders 47.5 +2.0 Decreasing Slower 43.5 +6.5 Decreasing Slower
New Export Orders 49.5 -4.0 Decreasing from Increasing 50.6 +3.0 Increasing from Decreasing
Inventories 49.0 +2.0 Decreasing Slower 44.2 -1.5 Decreasing Faster
Inventory Sentiment 69.0 +4.0 Increased Feeling of "too high" N/A    
Imports 48.1 +1.3 Decreasing Slower 49.1 +2.6 Decreasing Slower
Prices 59.5 -1.0 Increasing Faster 49.9 -8.2 Decreasing from Increasing
Employment 49.4 - .9 Decreasing from Increasing 40.4 +3.2 Decreasing Slower
Supplier Deliveries 50.5 -1.0 Slowing Slower 48.3 -3.0 Faster from Slower

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing NAPM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in March decreased 1.4 percentage points to 50.3 percent, indicating slower business activity compared to February (51.7 percent). Purchasing executives' comments in March reflected slower growth in economic activity but are a mix of positive and negative indications. The percent of members reporting increased activity is 26 percent, the same as reported in February. Members reporting decreased activity dropped to 20 percent in March from 23 percent in February. Those reporting no change in activity in March totaled 54 percent, an increase of three percentage points from February's 51 percent.

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

Business
Activity
% Higher % Same % Lower Index*
March 2001 26 54 20 50.3
February 2001 26 51 23 51.7
January 2001 23 49 28 50.1
December 2000 29 48 23 61.1

*Index values are seasonally adjusted.

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 52.2 percent in March from 51.3 percent in February. Comments from members included: "Slowing economy," "Lower corporate investment levels in IT," "Big projects on the horizon for long transmission line construction," and "Low demand for scrap metals."

The industries reporting the highest rates of growth of new orders in March were: Health Services; Agriculture; Insurance; Mining; and Real Estate.

New Orders % Higher % Same % Lower Index*
March 2001 28 52 20 52.2
February 2001 25 53 22 51.3
January 2001 23 49 28 49.9
December 2000 26 50 24 57.0

*Index values are seasonally adjusted.

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 47.5 percent in March. This is the third consecutive monthly decline in order backlogs and the fourth decrease in five months. The March index is an increase of two percentage points from February's 45.5 percent. Purchasing executives' comments on backlogs of orders included: "Shipping the orders that were late," "Smaller orders," "Inventory received," and "Bad weather." Of the total respondents in March, 29 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in March were: Legal Services; Construction; Business Services; Retail Trade; and *Other Services. The industries reporting the highest rates of decline of order backlogs in March were: Entertainment; Wholesale Trade; Communication; Utilities; and Insurance.

Backlog
of Orders
% Higher % Same % Lower Index
March 2001 12 71 17 47.5
February 2001 12 67 21 45.5
January 2001 12 61 27 42.5
December 2000 20 61 19 50.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slower rate in March, registering an index value of 50.5 percent. This is one percentage point below February's 51.5 percent and is the lowest value of this Index since November 1998 (50 percent). Comments from purchasing executives included: "Continued delays in rail delivery," "Furniture manufacturers backlogged since December 2000," "Reduced demand by others," and "Suppliers have lower backlogs."

The industries that reported the highest rates of slowness of supplier deliveries in March were: Mining; Agriculture; Entertainment; Finance and Banking; and Public Administration.

Supplier
Deliveries
% Higher % Same % Lower Index
March 2001 8 83 9 50.5
February 2001 5 87 8 51.5
January 2001 6 85 9 51.5
December 2000 7 84 9 51.0

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 dropped to a negative value in March for the first time in 13 months. The New Export Orders Index for March is 49.5 percent compared to February's 53.5 percent. The last time this index indicated reduced New Export Orders (in February 2000) the index was 47.5 percent. Of the total respondents in March, 76 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 March were: Mining; Real Estate; Construction; and *Other Services. The industries reporting decreases in new export orders in March were: Entertainment; Communication; Business Services; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
March 2001 15 69 16 49.5
February 2001 15 77 8 53.5
January 2001 19 72 9 55.0
December 2000 24 65 11 56.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries in March decreased at a slower rate in March. NAPM's Non-Manufacturing Imports Index for March was 48.1 percent, an increase of 1.3 percentage points from the 46.8 percent reported in February. In March, 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 March were: Transportation; Construction; Retail Trade; and Business Services. Industries reporting decreased use of imports in March were: Entertainment and Communication.

Imports % Higher % Same % Lower Index*
March 2001 13 77 10 48.1
February 2001 7 79 14 46.8
January 2001 6 79 15 50.0
December 2000 14 75 11 55.2

*Index values are seasonally adjusted.

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in March for the fifth consecutive month. NAPM's Non-Manufacturing Inventories Index registered 49 percent in March, an increase of two percentage points from the 47 percent reported in February. Of the total respondents in March, 24 percent indicated they do not have inventories. Comments from member purchasers included: "Reducing inventories due to soft sales," "Inventory reduction program," "Closing warehouses," and "Year long plan and goal to reduce inventory 25 percent."

The industries reporting inventory increases in March were: Insurance; Insurance; Utilities; and Wholesale Trade. Industries reporting the highest rates of inventory decrease in March were: Transportation; Communication; Retail Trade; Finance and Banking; and Business Services.

Inventory
Change
% Higher % Same % Lower Index
March 2001 20 58 22 49.0
February 2001 17 60 23 47.0
January 2001 21 49 30 45.5
December 2000 24 49 27 48.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in March registered 69 percent compared to 65 percent for February. This increase in the index level indicates that non-manufacturing purchasing executives felt a greater degree of discomfort with current levels of inventory in March than they did during February. The index for March was the highest Inventory Sentiment Index since June 1998 when the index also registered 69 percent. In March, 43 percent of members felt their inventories were too high (37 percent in February). Also in March, 5 percent indicated their inventories were too low (7 percent in February), and 52 percent said that their inventories were about right (56 percent in February).

The industries that reported the highest rates of feeling that their inventories were "too high" in March were: Legal Services; Transportation; Wholesale Trade; Construction; and Insurance.

Inventory
Sentiment
% Higher % Same % Lower Index
March 2001 43 52 5 69.0
February 2001 37 56 7 65.0
January 2001 36 63 1 67.5
December 2000 35 60 5 65.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March for the 25th consecutive month and at a lower rate of increase than in February. NAPM's Non-Manufacturing Prices Index for March moved down to 59.5 percent from 60.5 percent in February. The percentage of members reporting higher prices decreased to 28 percent in March from 29 percent in February, the proportion indicating no change remained at 63 percent, and the number who noted lower prices increased to 9 percent from 8 percent in February.

The industries that reported the highest rates of increase in prices paid in March were: Legal Services; Agriculture; Wholesale Trade; Retail Trade; and Insurance.

Prices % Higher % Same % Lower Index
March 2001 28 63 9 59.5
February 2001 29 63 8 60.5
January 2001 28 68 4 62.0
December 2000 22 72 6 58.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in March for the first time since inception of NAPM's non-manufacturing business survey in July 1997. NAPM's Non-Manufacturing Employment Index for March was 49.4 percent compared to 50.3 percent in February. Comments from purchasers included: "Planned staff reduction," "Downsizing and attrition due to business uncertainty," "Attrition due to merger," and "Continued downsizing."

The industries reporting the highest rates of growth of employment in March were: Legal Services; Insurance; Retail Trade; Real Estate; *Other Services; and Public Administration. Industries reporting the highest rates of reduction in employment in March were: Transportation; Communication; Mining; Finance and Banking; and Agriculture.

Employment % Higher % Same % Lower Index*
March 2001 16 69 15 49.4
February 2001 14 68 18 50.3
January 2001 13 74 13 52.3
December 2000 16 70 14 52.8

*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 — 3rd month; Electronic Components.

Commodities Reported Up in Price

Airfares; Beef; Diesel Fuel — 2nd month; Electricity — 3rd month; Energy — 4th month; Fuel — 14th month (a few reports of price decreases); Gasoline — 2nd month (a few reports of price decreases); Labor; Natural Gas — 4th month; Office Supplies — 2nd month; Orthopedic Implants; Paper — 24th month; Paper Products; Plastics — 2nd month; Resin; Steel; Travel; Tyvek; Utilities — 2nd month.

Commodities Reported Down in Price

Computer Equipment; Computers (PCs) — 13th month; Copper; Corrugated; Propane.

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 indexes for Business Activity, New Orders, Imports, and Employment are seasonally adjusted. The remaining indexes do not currently exhibit identifiable seasonality.

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 180 affiliates with more than 47,000 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 April 2001 data will be released at 10:00 a.m. (ET) on May 3, 2001.



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