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March 2003 Non-Manufacturing ISM Report On Business®

FOR RELEASE: April 3, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 47.9 %

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 2003.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector decreased in March 2003, 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, non-manufacturing business activity decreased for the first time in 14 months. The reported reduced activity indicates the first contraction in the non-manufacturing sector since January 2002," Kauffman said. He added, "Also in March, new orders were below their February level, and the Backlog of Orders Index indicated that backlogs were less in March than in February."

Reflecting the reported contraction in business activity in March on a seasonally adjusted basis, purchasing and supply executives report that six industry groups grew in March, while eight groups contracted, and two others reported no change from February. Increased business activity in March was reported by 23 percent of members, compared to February's 28 percent. Reduced activity was reported by 24 percent of members compared to 19 percent in February. In March, the remaining 53 percent of members indicated no change in business activity, the same proportion as in February. The Backlog of Orders Index in March decreased by 2.5 percentage points to 47.5 percent, indicating a decrease in backlogs in March. The March New Orders Index declined from 53 percent in February to 47.7 percent in March. This reflects a decrease in March new orders after an increase in February. Members reported that the prices they pay increased for the 13th consecutive month in March. March's Prices Index at 62 percent is the highest since 62.1 percent was reported in December 2000. This month, 14 industry groups reported paying higher prices compared to February, one reported paying the same, and two industry groups reported paying lower prices in March. As can be seen from this report's list of commodities reported up in price, many of the price increases reported this month are related to higher prices for oil and natural gas. Members' general comments on business in March continue to be mixed but a bit more negative than in recent months. These included: "Impending war outbreak in Iraq and negative impact on economy in short term"; "The current economic environment and political instability from the impending hostilities affects our business globally. It has put more of a burden on purchasing to help control cost"; "Uneasiness on consumers' part, economy, stock market, war. People are uncertain and holding back"; and "Current world affairs are definitely having an effect on purchases. Very cautious. Even though interest rates are low, capital purchases have still not rebounded."

In addition, Inventories decreased for the eighth consecutive month but at a slower rate of decrease than in February. With regard to Inventory Sentiment, members reported concern that inventories are too high. New Export Orders decreased and Imports increased, while Employment contracted. Supplier Deliveries indicated slower performance for the 19th consecutive month.

Significant reports of commodities in short supply or up or down in price in March indicate that needles/syringes are the only commodities; in short supply. Price increases are reported for airfares; asphalt raw materials; asphalt products; auto fuel; beef; bituminous products and materials; building materials; carbon steel plate; computers/PCs and accessories; #2 diesel fuel; energy; freight; fuel; fuel oil; fuel surcharges; gasoline; HDPE; #2 heating fuel; isopropanol; natural gas; oil; paper; petroleum-based products; petroleum products; plastic; plastic material; plastic resin; polyethylene; printing and printed matter; propane; resin; resin-based products; steel; transportation services; and vehicle rentals. Computers is the only commodity reported down in price.

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 47.9 53.9 -6.0 Decreasing from increasing 46.3 55.4 -9.1
New Orders 47.7 53.0 -5.3 Decreasing from increasing 46.2 52.3 -6.1
Employment 47.9 49.0 -1.1 Decreasing faster 42.1 42.8 -0.7
Supplier Deliveries 52.0 52.5 -0.5 Slowing faster 53.8 53.3 +0.5
Inventories 49.5 48.5 +1.0 Decreasing slower 42.3 43.8 -1.5
Prices 62.0 60.9 +1.1 Increasing faster 70.0 65.5 +4.5
Backlog of Orders 47.5 50.0 -2.5 Decreasing from unchanged 41.5 49.0 -7.5
New Export Orders 48.5 58.5 -10.0 Decreasing from increasing 52.0 55.5 -3.5
Imports 55.0 51.5 +3.5 Increasing faster 52.5 55.4 -2.9
Inventory Sentiment 66.0 66.5 -0.5 Lesser feeling of "too high" N/A    
Customers' Inventories N/A       42.0 46.0 -4.0

* 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.

Business Activity

ISM's Non-Manufacturing Business Activity Index in March decreased six percentage points on a seasonally adjusted basis to 47.9 percent from February's 53.9 percent. March's index indicates a reversal from growth to contraction and ends 13 consecutive months of growth that began in February 2002. In March, six sectors reported increased business activity, eight sectors reported decreased activity, and two reported no change in activity compared to February.

The industries reporting growth of business activity in March are: Health Services; Utilities; Transportation; Wholesale Trade; Construction; and Real Estate. The industries reporting the highest rates of contraction of business activity in March are: Agriculture; Retail Trade; Other Services*; Insurance; and Public Administration.

Business
Activity
% Higher % Same % Lower Index
March 2003 23 53 24 47.9
February 2003 28 53 19 53.9
January 2003 24 51 25 54.5
December 2002 27 49 24 54.2

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 47.7 percent in March from 53 percent in February. Comments from members include: "Poor weather conditions"; "Budget constraints"; "Bad economy"; and "We have virtually stopped all capital expenditures."

The industries reporting the highest rates of growth of new orders in March are: Health Services; Transportation; Utilities; Construction; and Wholesale Trade. The industries reporting the highest rates of contraction of new orders in March are: Agriculture; Communication; Other Services*; Insurance; and Public Administration.

New Orders % Higher % Same % Lower Index
March 2003 24 53 23 47.7
February 2003 25 58 17 53.0
January 2003 24 55 21 56.2
December 2002 27 49 24 54.6

Employment

Employment in the non-manufacturing sector decreased for the second consecutive month in March after registering the first increase in 23 months in January. ISM's Non-Manufacturing Employment Index for March is 47.9 percent compared to 49 percent in February. Comments from respondents include: "Layoff due to drop in business level and revenues"; "Increased demand for mortgage business"; "Not filling vacant positions"; and "Added sales personnel."

The industries reporting growth in employment in March are: Finance & Banking; Transportation; Health Services; and Insurance. Industries reporting the highest rates of reduction in employment in March are: Agriculture; Public Administration; Other Services*; Business Services; and Retail Trade.

Employment % Higher % Same % Lower Index
March 2003 14 70 16 47.9
February 2003 12 69 19 49.0
January 2003 12 73 15 50.3
December 2002 14 64 22 46.9

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 19th consecutive month in March. The index registered 52 percent, a decrease of 0.5 percentage point from the 52.5 percent reported in February. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in March include: "Imported products, longer lead[times]"; Manufacturers have cut back on inventory"; "Still slow responding to increased business activity across many manufacturing segments"; "Lower inventories, production levels"; and "Weather."

The industries that reported slowing in supplier deliveries in March are: Mining; Utilities; Wholesale Trade; Health Services; and Retail Trade. The industries reporting faster supplier deliveries in March are: Business Services; Entertainment; and Public Administration.

Supplier
Deliveries
% Slower % Same % Faster Index
March 2003 7 90 3 52.0
February 2003 11 83 6 52.5
January 2003 8 88 4 52.0
December 2002 10 85 5 52.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 49.5 percent in March, one percentage point higher than the 48.5 percent reported in February. March's index means that material inventories maintained by non-manufacturing organizations decreased for the eighth consecutive month but at a slower rate of decrease than in February. Of the total respondents in March, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: "Due to increased contracts we plan on increasing inventory slightly. This is also dependent on removing older inventory"; "Ongoing inventory reduction plan"; "Conscious effort to lower working inventories"; and "We are using all our 'winter stock' before ordering new."

The industries reporting inventory increases in March are: Utilities; Insurance; Retail Trade; and Wholesale Trade. The industries reporting the highest rates of inventory decrease in March are: Entertainment; Communication; Other Services*; Agriculture; and Construction.

Inventory
Change
% Higher % Same % Lower Index
March 2003 18 63 19 49.5
February 2003 15 67 18 48.5
January 2003 18 57 25 46.5
December 2002 18 55 27 45.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the 13th consecutive month in March. ISM's Non-Manufacturing Prices Index for March is 62 percent, an increase of 1.1 percentage points from the 60.9 percent registered for February. In March, the percentage of members reporting higher prices increased 4 percentage points to 35 percent from 31 percent in February, the proportion indicating no change dropped 5 percentage points to 58 percent, and the number who noted lower prices increased 1 percentage point in March to 7 percent.

The industries reporting the highest rates of increase in prices paid in March are: Agriculture; Transportation; Public Administration; Wholesale Trade; Insurance; and Mining. The industries reporting price decreases in March were Entertainment and Finance & Banking.

Prices % Higher % Same % Lower Index
March 2003 35 58 7 62.0
February 2003 31 63 6 60.9
January 2003 25 65 10 57.0
December 2002 14 75 11 55.3

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 47.5 percent in March. This indicates a decline in order backlogs in March compared to February. The March index is a decrease of 2.5 percentage points from February's 50 percent. Of the total respondents in March, 40 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Leadtimes exist for conveyor belting due to manufacturers cutting back on inventory of fabric"; "Reduced number of requests received"; and "Bad economy for airline industry."

The industries reporting growth in backlog of orders in March are: Insurance; Utilities; and Construction. The industries reporting the highest rates of decline of order backlogs in March are: Mining; Business Services; Communication; Public Administration; and Other Services.*

Backlog
of Orders
% Higher % Same % Lower Index
March 2003 12 71 17 47.5
February 2003 12 76 12 50.0
January 2003 12 72 16 48.0
December 2002 18 67 15 51.5

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 four consecutive months of growth. The New Export Orders Index for March is 48.5 percent compared to February's 58.5 percent, a dramatic reversal from growth to contraction. Of the total respondents in March, 77 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 are: Utilities; Communication; and Other Services.* The industries reporting decreases in new export orders in March are Mining; Wholesale Trade; Business Services; and Public Administration.

New Export
Orders
% Higher % Same % Lower Index
March 2003 16 65 19 48.5
February 2003 25 67 8 58.5
January 2003 16 74 10 53.0
December 2002 16 76 8 54.0

Imports

In March, the ISM index indicating use of imported materials by non-manufacturing industries increased from February's value. The index also indicates growth for the sixth consecutive month and at a faster rate than in February. ISM's Non-Manufacturing Imports Index for March is 55 percent, an increase of 3.5 percentage points from the 51.5 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 increases in use of imports in March are: Communication; Public Administration; Retail Trade; and Wholesale Trade. The only industry reporting decreased use of imports in March is Entertainment.

Imports % Higher % Same % Lower Index
March 2003 14 82 4 55.0
February 2003 18 67 15 51.5
January 2003 27 59 14 56.5
December 2002 7 86 7 51.8

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in March registered 66 percent, 0.5 percentage point lower than the 66.5 percent reported for February. This 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, 34 percent of respondents felt their inventories were too high, 2 percent indicated their inventories were too low, and 64 percent said that their inventories were about right.

The industries that reported the highest rates of feeling that their inventories were too high in March are: Legal Services; Insurance; Construction; Wholesale Trade; and Real Estate. No industry reported that their inventories were too low in March.

Inventory
Sentiment
% Too High % About Right % Too Low Index
March 2003 34 64 2 66.0
February 2003 38 57 5 66.5
January 2003 32 65 3 64.5
December 2002 35 56 9 63.0

*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

Needles/syringes were reported in short supply in March.

Commodities Reported Up in Price

Airfares — 2nd month; Asphalt Raw Materials; Asphalt Products — 2nd month; Auto Fuel; Beef — 3rd month; Bituminous Products and Materials; Building Materials — 2nd month; Carbon Steel Plate; Computers*/PCs and Accessories; #2 Diesel Fuel — 6th month; Energy; Freight; Fuel — 3rd month; Fuel Oil; Fuel Surcharges; Gasoline — 6th month; HDPE; #2 Heating Fuel — 5th month; Isopropanol; Natural Gas — 4th month; Oil; Paper — 3rd month; Petroleum-Based Products — 2nd month; Petroleum Products — 3rd month; Plastic; Plastic Material; Plastic Resin; Polyethylene; Printing and Printed Matter; Propane; Resin; Resin-Based Products; Steel; Transportation Services; Vehicle Rentals.

Commodities Reported Down in Price

Computers* were reported down in price in March.

*Reported as both up and down in price.

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 data presented herein is obtained from a survey of 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.

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 April 2003 data will be released at 10:00 a.m. (ET) on May 5, 2003.



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