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March 2004 Non-Manufacturing ISM Report On Business®

FOR RELEASE: April 5, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 65.8%

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 2004.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in March 2004, 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. "Non-manufacturing Business Activity increased for the 12th consecutive month in March," Kauffman said. He added, "Also in March, New Orders, Order Backlogs, Employment, Prices, Imports, Exports, and Inventories increased."

Purchasing and supply executives report that business activity continued to increase in March in the non-manufacturing sector, and at a faster rate of increase than in February. The Business Activity Index for March is 65.8 percent. March's index indicates continued growth across almost all non-manufacturing industries. In March, 15 industry groups reported growth, while only two indicated contraction. Increased business activity in March was reported by 42 percent of members, compared to 35 percent in February. Reduced activity was reported by 10 percent of members, compared to 13 percent in February. In March, the remaining 48 percent of members indicated no change in business activity, compared to 52 percent that reported no change in February.

The Backlog of Orders Index decreased by 0.5 percentage point to 52.5 percent, indicating growth in order backlogs for the 11th consecutive month but at a slightly slower rate of increase than in February. The March New Orders Index increased from 60.3 percent in February to 62.8 percent in March. This indicates a faster rate of increase of new orders in March compared to February. Members reported that the prices they pay increased in March for the 24th consecutive month, with a faster rate of increase than in February. March's Prices Index is 65.7 percent, a jump of 8.4 percentage points from the 57.3 percent reported in February. This month, 16 industry groups reported paying higher prices compared to February, one reported paying the same, and none reported paying lower prices. Many of members' comments concerning business in March continue to indicate optimism but some concerns are also raised this month. Specific comments include: "Economy remains relatively strong"; "The general economy seems to be picking up"; "Volatile fuel and steel prices continue to give concern to recovery that is said to be in progress"; "Companies are making huge cuts in customer service, ultimately only alienating the very customers they're hoping to satisfy;" and "Economy still struggles, somewhat."

In addition, Inventories increased after two consecutive months of decrease. With regard to Inventory Sentiment for March, members reported a higher level of concern than in February that inventories are too high. New Export Orders increased for the eighth consecutive month, Imports increased for the 11th consecutive month, and Employment increased for the sixth consecutive month. Supplier Deliveries indicated slower performance for the 31st consecutive month.

Significant reports of commodities in short supply or up or down in price in March indicate that steel, steel items, steel pipe, and steel products are in short supply. Price increases are reported for aluminum and aluminum products; asphalt; carbon steel products; chemical products; chemicals; chicken; coffee; computers and peripherals; conduit and fittings; copper; copper products including pipe, cable, tubing and wire; #2 diesel fuel; electronic components and relays; fasteners; food; freight charges; fuel; fuel oil; gasoline; glass tubing and glassware; #2 heating oil; lumber and lumber products; natural gas; nickel alloys; oilfield equipment; paper; paper products; plastic; plastic bags; plywood; polypropylene and polypropylene film; printed materials; PVC; PVC pipe and fittings; roof felt safety equipment; software maintenance and support; stainless steel tube; stainless steel products; steel; steel tube; steel electrical boxes and fittings; steel pipe; steel products; steel scrap; steel surcharges; unleaded gasoline; valves; and waste disposal/removal. Cellular equipment; cellular phone service; and janitorial services are 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 65.8 60.8 +5.0 Increasing faster 65.5 63.9 +1.6
New Orders 62.8 60.3 +2.5 Increasing faster 65.7 66.4 -0.7
Employment 53.9 52.7 +1.2 Increasing faster 57.0 56.3 +0.7
Supplier Deliveries 55.0 55.5 -0.5 Slowing slower 67.9 62.1 +5.8
Inventories 51.5 49.0 +2.5 Increasing from decreasing 48.3 49.4 -1.1
Prices 65.7 57.3 +8.4 Increasing faster 86.0 81.5 +4.5
Backlog of Orders 52.5 53.0 -0.5 Increasing slower 63.5 62.0 +1.5
New Export Orders 51.5 55.5 -4.0 Increasing slower 62.0 54.9 +7.1
Imports 60.5 58.5 +2.0 Increasing faster 56.8 60.2 -3.4
Inventory Sentiment 60.5 58.0 +2.5 Greater feeling of "too high" N/A N/A N/A
Customers' Inventories N/A N/A N/A   39.5 38.5 +1.0

* 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 grew to 65.8 percent from February's seasonally-adjusted 60.8 percent, indicating a faster rate of growth of activity in March and reaching a new high for the index. The previous high for this index since inception of ISM's Non-Manufacturing Business Survey in July 1997 was 65.7 in January of this year. With the exception of March 2003, growth in business activity has been reported by ISM members every month beginning with February 2002. This month 15 sectors reported increased business activity, two reported decreased activity, and none reported unchanged activity compared to February.

The industries reporting the highest rates of growth of business activity in March are: Wholesale Trade; Mining; Communication; Retail Trade; Construction; and Business Services. The only industries reporting contraction of business activity in March are: Legal Services and Entertainment.

Business
Activity
% Higher % Same % Lower Index
March 2004 42 48 10 65.8
February 2004 35 52 13 60.8
January 2004 40 40 20 65.7
December 2003 36 40 24 58.0

New Orders

ISM's Non-Manufacturing New Orders Index rose to 62.8 percent in March from 60.3 percent in February. This indicates continued expansion of new orders at a faster rate of growth than in February. Comments from members include: "Increase in number of capital project expenditures"; "Construction projects have increased"; "More orders received"; and "Adding new stores and boat centers."

The industries reporting the highest rates of growth of new orders in March are: Communication; Wholesale Trade; Real Estate; Retail Trade; Utilities; Construction; and Finance & Banking. The industries reporting contraction of new orders in March are: Legal Services; Entertainment; and Agriculture.

New Orders % Higher % Same % Lower Index
March 2004 36 54 10 62.8
February 2004 34 54 12 60.3
January 2004 40 43 17 64.9
December 2003 36 44 20 59.5

Employment

Employment in the non-manufacturing sector in March expanded for the sixth consecutive month after decreasing slightly in September 2003. ISM's Non-Manufacturing Employment Index for March is 53.9 percent compared to 52.7 percent in February. March's Employment Index indicates that non-manufacturing employment expanded at a slightly faster rate in March than in February. Comments from respondents include: "Continued downsizing"; "Hiring for new positions"; "Slight increase in new hires secondary to replacement personnel and conversion of temp/agency staff to regular employees"; "Continue to reduce headcount as a result of operational consolidations"; and "Hiring freeze still in effect but positions are beginning to open slowly."

The industries reporting the highest rates of growth in employment in March are: Mining; Retail Trade; Insurance; Health Services; and Other Services*. Industries reporting reduction in employment in March are: Agriculture; Entertainment; Business Services; and Construction.

Employment % Higher % Same % Lower Index
March 2004 17 75 8 53.9
February 2004 16 70 14 52.7
January 2004 18 68 14 53.4
December 2003 19 68 13 54.0

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 31st consecutive month in March. The index registered 55 percent, 0.5 percentage point lower than in February. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in March include: "Steel shortage"; "JIT inventories not seasonally adjusted fast enough"; "No plant inventories to draw from"; and "Manufacturer backlogs increasing."

The industries reporting the highest rates of slowing in supplier deliveries in March are: Mining; Utilities; Entertainment; Communication; and Wholesale Trade. The industries reporting faster supplier deliveries in March are: Transportation and Public Administration.

Supplier
Deliveries
% Slower % Same % Faster Index
March 2004 14 82 4 55.0
February 2004 15 81 4 55.5
January 2004 17 79 4 56.5
December 2003 10 84 6 52.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 51.5 percent in March, 2.5 percentage points higher than the 49 percent reported in February. March's index indicates an increase in material inventories maintained by non-manufacturing organizations after two consecutive monthly decreases. Of the total respondents in March, 28 percent indicate they do not have inventories or do not measure them. Comments from members include: "Delayed deliveries from suppliers have caused us to increase stock levels"; "Continued efforts to reduce inventories"; "Building to support higher business sales"; and "Rapid increase in sales. We plan on increasing inventory ASAP."

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

Inventory
Change
% Higher % Same % Lower Index
March 2004 19 65 16 51.5
February 2004 18 62 20 49.0
January 2004 20 59 21 49.5
December 2003 22 59 19 51.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March for the 24th consecutive month (based on seasonal adjustments released in January 2004) and at a much faster rate of increase than in February. ISM's Non-Manufacturing Prices Index for March is 65.7 percent, a rise of 8.4 percentage points from the 57.3 percent registered for February. In March, the percentage of members reporting higher prices increased 8 percentage points to 43 percent from 31 percent in February, the proportion indicating no change dropped 6 percentage points to 54 percent, and the number who noted lower prices decreased 6 percentage points to 3 percent.

The industries reporting the highest rates of increase in prices paid in March are: Mining; Wholesale Trade; Utilities; Real Estate; and Construction. No industry is reporting price decreases in March.

Prices % Higher % Same % Lower Index
March 2004 43 54 3 65.7
February 2004 31 60 9 57.3
January 2004 26 70 4 59.7
December 2003 19 74 7 60.3

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52.5 percent in March. This is a decrease of 0.5 percentage point from February's 53 percent and represents the 11th consecutive month of growth in order backlogs. Of the total respondents in March, 42 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "[Backlogs] slightly higher"; "Increased activity"; "New contracts awarded"; and "Some requests have slowed, there is virtually no backlog."

The industries reporting the highest rates of growth in backlog of orders in March are: Transportation; Mining; Real Estate; Utilities; and Wholesale Trade. The industries reporting the highest rates of decline of order backlogs in March are: Entertainment; Finance & Banking; Business Services; Public Administration; and Retail Trade.

Backlog
of Orders
% Higher % Same % Lower Index
March 2004 18 69 13 52.5
February 2004 17 72 11 53.0
January 2004 19 69 12 53.5
December 2003 22 67 11 55.5

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 increased for the eighth consecutive month in March. The New Export Orders Index for March is 51.5 percent compared to February's 55.5 percent, indicating a slower rate of growth in March compared to February. 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: Business Services; Other Services*; and Retail Trade. The industries reporting decreases in new export orders in March are: Entertainment; Public Administration; Communication; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
March 2004 16 71 13 51.5
February 2004 23 65 12 55.5
January 2004 16 70 14 51.0
December 2003 24 67 9 57.5

Imports

In March, the ISM Imports Index registered 60.5 percent, up from 58.5 percent in February. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in March than in February. March's index marks the 11th consecutive month of import growth after the April 2003 index value of 50 percent indicated no change in imports compared to March 2003. In March, 66 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting the highest rates of increase in the use of imports in March are: Construction; Finance & Banking; Business Services; Retail Trade; and Mining. The industries reporting decreased use of imports in March are: Entertainment and Public Administration.

Imports % Higher % Same % Lower Index
March 2004 27 67 6 60.5
February 2004 25 67 8 58.5
January 2004 23 63 14 54.5
December 2003 22 70 8 57.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in March registered 60.5 percent, an increase from 58 percent reported in February. This indicates that non-manufacturing purchasing and supply executives feel more discomfort with current levels of inventory in March than they did during February. In March, 26 percent of respondents felt their inventories were too high, 5 percent indicated their inventories were too low, and 69 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in March are: Construction; Business Services; Finance & Banking; Communication; and Wholesale Trade. No industry is reporting that its inventories are too low in March.

Inventory
Sentiment
% Too High % About Right % Too Low Index
March 2004 26 69 5 60.5
February 2004 26 64 10 58.0
January 2004 27 64 9 59.0
December 2003 31 62 7 62.0

*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

Steel — 2nd month; Steel Items; Steel Pipe — 2nd month; Steel Products.

Commodities Reported Up in Price

Aluminum/Aluminum Products — 3rd month; Asphalt; Carbon Steel Products — 2nd month; Chemical Products; Chemicals — 3rd month; Chicken; Coffee; Computers and Peripherals; Conduit and Fittings — 2nd month; Copper — 7th month; Copper Products including Pipe, Cable, Tubing, and Wire — 2nd month; #2 Diesel Fuel — 4th month; Electronic Components and Relays; Fasteners; Food; Freight Charges — 3rd month; Fuel — 4th month; Fuel Oil; Gasoline — 4th month; Glass Tubing and Glassware; #2 Heating Oil — 3rd month; Lumber/Lumber Products; Natural Gas — 4th month; Nickel Alloys; Oilfield Equipment; Paper — 2nd month; Paper Products; Plastic — 3rd month; Plastic Bags; Plywood; Polypropylene and Polypropylene Film; Printed Materials; PVC/PVC Pipe and Fittings; Roof Felt; Safety Equipment; Software Maintenance and Support; Stainless Steel Tube; Stainless Steel Products (large variety) — 2nd month; Steel — 5th month; Steel Tube — 2nd month; Steel Electrical Boxes and Fittings; Steel Pipe — 3rd month; Steel Products (large variety); Steel Scrap; Steel Surcharges; Unleaded Gasoline — 3rd month; Valves — 2nd month; Waste Disposal/Removal.

Commodities Reported Down in Price

Cellular Equipment; Cellular Phone Service; Janitorial Services.

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 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.

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 2004 data will be released at 10:00 a.m. (ET) on May 5, 2004.



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