March 2002 Non-Manufacturing ISM Report On Business®

FOR RELEASE: April 3, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 57.3%

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing and supply reports released across the country or the Manufacturing ISM 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 2002.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in March 2002, 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 purchasing and supply management program, University of Houston-Downtown. "In March, ISM's non-manufacturing business activity increased almost as strongly as it did in February," Kauffman said. He also added, "This month's Index at 57.3 percent is the second strongest (next to February's 58.7 percent) business activity index since 59.5 percent was recorded in November 2000. March's result is the second consecutive month with the Index significantly above the 49.6 to 50.1 percent range of November to January's Indexes. Considering March's relatively strong New Orders Index, and a continued increase in the Backlog of Orders Index, it appears that the non-manufacturing economy may continue to grow in the coming months."

"Reports from purchasing and supply executives indicate 10 industry groups grew in March and five groups contracted, with two groups indicating no change. Increased business activity in March was reported by 32 percent of members, compared to February's 31 percent. Reduced activity was reported by 11 percent of members compared to 16 percent in February. In March the remaining 57 percent of members indicated no change in business activity compared to 53 percent in February.

Also this month, inventories, after increasing in February for the first time in 16 months, were unchanged in March. New Export Orders and Imports reversed several months of increases and decreased in March, while Employment shrank for the 13th consecutive month. Perhaps the most worrisome result this month is that the Prices Index registered its first indication of increased prices in 10 months. The Inventory Sentiment Index, after rising in February, declined somewhat in March, indicating lesser discomfort with current inventory levels. Supplier Deliveries indicated slower performance for the seventh month, with some members commenting as they did in February that suppliers do not have sufficient inventory when they need it," said Kauffman.

"Overall in March, non-manufacturing industries reported the second strongest (next to February) rate of growth in business activity in 16 months. In addition, growth was indicated for new orders. Order backlogs declined at the slowest rate in 15 months, inventories were unchanged, and exports and imports decreased. Employment continued to decrease (but more slowly), and prices increased," Kauffman commented.

Significant reports of commodities in short supply, or up or down in price in March did not include any items in short supply. Price increases were reported for computer memory; copper products; diesel fuel; fuel (some reports of price decreases); furniture; gasoline; lettuce and other produce; lumber; natural gas; paper (with some reports of decreased paper prices); PVC pipe and fittings; and some steel products. Price decreases were reported for paper products and PC's.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index March
Index %
February
Index %
Index Change
from February
Direction &
Rate of Change
March
Index %
February
Index %
Index Change
from February
Business Activity/ Production 57.3 58.7 -1.4 Increasing more slowly 57.8 61.2 -3.4
New Orders 54.9 57.3 -2.4 Increasing more slowly 65.3 62.8 +2.5
Employment 45.5 43.6 +1.9 Decreasing Slower 47.5 43.8 +3.7
Supplier
Deliveries
52.0 53.0 -1.0 Slowing more slowly 53.1 52.3 +0.8
Inventories 50.0 51.5 -1.5 Unchanged from Increasing 41.2 39.5 +1.7
Prices 53.0 50.0 +3.0 Increasing from Unchanged 51.9 41.5 +10.4
Backlog of Orders 49.5 47.5 +2.0 Decreasing Slower 62.5 53.0 +9.5
New Export Orders 49.5 52.5 -3.0 Decreasing from Increasing 51.0 51.1 -0.1
Imports 48.9 54.3 -5.4 Decreasing from Increasing 53.4 52.0 +1.4
Inventory Sentiment 65.5 66.5 -1.0 Decreased Feeling of "too high" N/A    

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

Business Activity

ISM's Non-Manufacturing Business Activity Index in March declined 1.4 percentage points on a seasonally adjusted basis to 57.3 percent from February's 58.7 percent. February's Index was the highest since November 2000 (59.5 percent) with the March Index a close second. In March, 10 sectors reported increased business activity, five sectors reported decreased activity, and two were unchanged, compared to February. The percent of members reporting increased activity in March was 32 percent, an increase of 1 percentage point from February's 31 percent. Decreased activity was reported by 11 percent of members in March, compared to 16 percent in February. Those reporting no change in activity in March totaled 57 percent, compared to 53 percent in February.

The industries reporting the highest rates of growth of business activity in March were: Legal Services; Business Services; Retail Trade; Wholesale Trade; and Health Services. The industries reporting contraction of business activity in March were: Mining; Utilities; Construction; Finance and Banking; and Communication.

Business
Activity
% Higher % Same % Lower Index
March 2002 32 57 11 57.3
February 2002 31 53 16 58.7
January 2002 21 48 31 49.6
December 2001 21 52 27 50.1

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 54.9 percent in March from 57.3 percent in February. Comments from members included: "Slightly higher," "Increased bids/work," "More business," and "New orders are up — repeat business is still same from last month."

The industries reporting the highest rates of growth of new orders in March were: Legal Services; Business Services; Wholesale Trade; Insurance; and Retail Trade. The industries reporting contraction of new orders in March were: Mining; Agriculture; Transportation; Utilities; Construction; and Finance and Banking.

New Orders % Higher % Same % Lower Index
March 2002 28 59 13 54.9
February 2002 30 53 17 57.3
January 2002 20 51 29 49.4
December 2001 21 52 27 51.5

Employment

Employment in the non-manufacturing sector contracted in March for the 13th consecutive month. ISM's Non-Manufacturing Employment Index for March was 45.5 percent compared to 43.6 percent in February. After February's decline in the Index, March marks a return to slower rates of employment decrease as indicated by the Index moving up closer to the 50 percent mark. Comments from members included: "More cutbacks to come," "Hiring of vacancies frozen," "Continuing trend to reduce headcount," and "Positions put on hold in September — now hiring."

The industries reporting growth in employment in March were: Legal Services; Mining; Retail Trade; Real Estate; and Business Services. Industries reporting the highest rates of reduction in employment in March were: Transportation; Construction; Utilities; Communication; and Entertainment.

Employment % Higher % Same % Lower Index
March 2002 11 71 18 45.5
February 2002 7 69 24 43.6
January 2002 7 72 21 44.5
December 2001 11 65 24 44.4

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the seventh consecutive month in March, registering an index value of 52 percent, 1 percentage point below February's 53 percent. Comments from purchasing and supply executives concerning supplier deliveries in March included: "Lower (supplier) inventory in hand"; "Items out of stock, unavailable"; "Increased lead times"; and "Mfg business seems to be lagging behind consumer business."

The industries that reported the highest rates of slowness of supplier deliveries in March were: Utilities; Wholesale Trade; Health Services; Business Services; and Public Administration. The industries reporting faster supplier deliveries in March were: Construction; Finance and Banking; and Retail Trade.

Supplier
Deliveries
% Slower % Same % Faster Index
March 2002 6 92 2 52.0
February 2002 9 88 3 53.0
January 2002 9 88 3 53.0
December 2001 10 87 3 53.5

Inventories

Material inventories maintained by non-manufacturing organizations were unchanged in March after rising in February for the first time in 16 months (the last inventory increase prior to February was in October 2000 at 55 percent). ISM's Non-Manufacturing Inventories Index registered 50 percent in March, a decrease of 1.5 percentage points from the 51.5 percent reported in February. Of the total respondents in March, 26 percent indicated they do not have inventories. Comments from members included: "Planned increase," "Attempting to lower inventory to gain cash," "Hand-to-mouth policy and standardization effort," and "Placed large orders before price increases. Many of our vendors raised prices."

The industries reporting inventory increases in March were: Legal Services; Utilities; Retail Trade; and Health Services. Industries reporting the highest rates of inventory decrease in March were: Finance and Banking; Insurance; Mining; Entertainment; and *Other Services.

Inventory
Change
% Higher % Same % Lower Index
March 2002 19 62 19 50.0
February 2002 22 59 19 51.5
January 2002 22 51 27 47.5
December 2001 20 57 23 48.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March after eight months of reports of lower or unchanged prices. ISM's Non-Manufacturing Prices Index for March is 53 percent, an increase of 3 percentage points from February's 50 percent, and the highest Prices Index since June 2001 (55.5 percent). The percentage of members reporting higher prices remained the same at 16 percent, the proportion indicating no change rose 6 percentage points to 74 percent, and the number who noted lower prices decreased 6 percentage points to 10 percent.

The industries reporting the highest rates of increase in prices paid in March were: Wholesale Trade; Agriculture; Construction; Real Estate; and Public Administration. The industries that reported price decrease in March were: Business Services; Transportation; Retail Trade; Insurance; and *Other Services.

Prices % Higher % Same % Lower Index
March 2002 16 74 10 53.0
February 2002 16 68 16 50.0
January 2002 12 74 14 49.0
December 2001 4 69 27 38.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 49.5 percent in March. This is the 15th consecutive monthly decline in order backlogs. The March index is an increase of 2 percentage points from February's 47.5 percent, and the highest Backlog of Orders Index since December 2000 (50.5 percent). Purchasing and supply executives' comments on backlogs of orders included: "(Backlog) much higher," "Got more jobs from bidding," "Better flow of inventory," and "Higher 'fill rates' on first time requests." Of the total respondents in March, 42 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in March were: Legal Services; Finance and Banking; Real Estate; Communication; Wholesale Trade; and *Other Services. The industries reporting the highest rates of decline of order backlogs in March were: Entertainment; Construction; Mining; Public Administration; and Transportation.

Backlog
of Orders
% Higher % Same % Lower Index
March 2002 15 69 16 49.5
February 2002 11 73 16 47.5
January 2002 11 69 20 45.5
December 2001 12 69 19 46.5

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 decreased in March after three consecutive months of increase. The New Export Orders Index for March was 49.5 percent compared to February's 52.5 percent. Of the total respondents in March, 79 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: Communication; Retail Trade; and Wholesale Trade. The industries reporting decreases in new export orders in March were: Transportation and *Other Services.

New Export
Orders
% Higher % Same % Lower Index
March 2002 15 69 16 49.5
February 2002 15 75 10 52.5
January 2002 20 73 7 56.5
December 2001 21 68 11 55.0

Imports

Use of imported materials by non-manufacturing industries decreased in March after eight consecutive months of increase. ISM's Non-Manufacturing Imports Index for March was 48.9 percent, a decrease of 5.4 percentage points from the 54.3 percent reported in February. In March, 71 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting an increase in use of imports in March were: Utilities; Business Services; Retail Trade; Wholesale Trade; and Communication. Industries reporting decreased use of imports in March were Agriculture and Transportation.

Imports % Higher % Same % Lower Index
March 2002 13 78 9 48.9
February 2002 12 79 9 54.3
January 2002 11 79 10 55.3
December 2001 17 74 9 55.9

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in March registered 65.5 percent compared to 66.5 percent for February. This decrease in the index level indicates that non-manufacturing purchasing and supply executives felt a slightly lesser degree of discomfort with current levels of inventory in March than they did during February. In March, 35 percent of members felt their inventories were too high (36 percent in February). Also in March, 4 percent indicated their inventories were too low (3 percent in February), and 61 percent said that their inventories were about right (same as in February).

The industries that reported the highest rates of feeling that their inventories were "too high" in March were: Legal Services; Mining; Utilities; Communication; and Health Services. No industry reported its inventories were too low.

Inventory
Sentiment
% Too High % About Right % Too Low Index
March 2002 35 61 4 65.5
February 2002 36 61 3 66.5
January 2002 36 57 7 64.5
December 2001 37 59 4 66.5

*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

None

Commodities Reported Up in Price

Computer Memory; Copper and copper products; Diesel Fuel; Fuel (some reports of price decreases); Furniture; Gasoline — 2nd month; Lettuce; Lumber — 2nd month; Natural Gas; Paper (some reports of price decreases); Produce; PVC Pipe and Fittings; Steel Products — 2nd month.

Commodities Reported Down in Price

Paper Products — 2nd month; PCs.


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, Imports, 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. In May 2001 the membership of NAPM voted to change the association's name from the National Association of Purchasing Management to the Institute for Supply Management™ to reflect the increasing strategic and global significance of supply management. For further information, see the ISM Web site at www.ism.ws.

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 April 2002 data will be released at 10:00 a.m. (ET) on May 3, 2002.



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