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March 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: April 5, 2005

Contact: Terri Tracey
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3071
  E-mail: ttracey@ism.ws
Business Activity at 63.1%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national 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 2005.


Backlog of Orders Index Up 5 points to 56.5%
Exports Index Down 4.5 points to 51.5%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in March 2005, 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 Supply Chain Management Program, University of Houston-Downtown. "Non-manufacturing business activity increased for the 24th consecutive month in March," Kauffman said. He added, "Business activity increased at a faster rate in March, as did new orders. Backlogs of orders also increased at a substantially faster rate than in February, indicating the likelihood of continued strong business activity in the months ahead. Additional good news is that none of the 17 industries included in ISM's non-manufacturing business survey reported a decrease in business activity compared to February."

TOP PERFORMING INDUSTRIES

The 15 industries reporting growth in March — listed in order — are: Entertainment; Mining; Communication; Finance & Banking; Retail Trade; Other Services*; Agriculture; Insurance; Construction; Public Administration; Utilities; Transportation; Business Services; Health Services; and Wholesale Trade. The two industries reporting activity the same as last month are: Real Estate and Legal Services. No industry is reporting decreased activity from the prior month.

WHAT RESPONDENTS ARE SAYING …
  • "We have experienced an increase in business activity beginning in late February. The trend is continuing into March. The activity includes new job order requests and new hire professionals starting new assignments. Our staff/temporary worker level increased by approximately 20 percent in March."
  • "Overall business is good and growing. Ninety-day forecast looks better. Expecting a 5 percent increase in business for the rest of the year."
  • "Price of fuel continuing to move prices upward and is now being incorporated into price lists as permanent increases rather than as surcharges."
  • "Economy is perking, leading to higher prices for key commodities used by our company."
  • "Business continues to accelerate. Prices for anything petroleum-related have increased, carpet as an example."
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
MARCH 2005
  Non-Manufacturing Manufacturing
Index Series
Index
Mar
Series
Index
Feb
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
Mar
Series
Index
Feb
Percent
Point
Change
Business Activity/ Production 63.1 59.8 +3.3 Increasing Faster 24 56.5 56.7 -0.2
New Orders 62.1 61.6 +0.5 Increasing Faster 24 57.1 55.8 +1.3
Employment 57.1 59.6 -2.5 Increasing Slower 18 53.3 57.4 -4.1
Supplier Deliveries 53.0 52.5 +0.5 Slowing Faster 43 52.5 53.9 -1.4
Inventories 52.5 52.0 +0.5 Increasing Faster 2 54.1 48.6 +5.5
Prices 65.6 66.4 -0.8 Increasing Slower 22 73.0 65.5 +7.5
Backlog of Orders 56.5 51.5 +5.0 Increasing Faster 2 56.0 50.5 +5.5
New Export Orders 51.5 56.0 -4.5 Increasing Slower 20 55.4 57.4 -2.0
Imports 59.0 57.5 +1.5 Increasing Faster 23 58.9 60.7 -1.8
Inventory Sentiment 64.5 64.5 0.0 "Too High" No Change 94 N/A N/A  
Customers' Inventories N/A N/A         46.0 42.5 +3.5

* 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.
** Number of months moving in current direction.

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Air Conditioning; Aluminum (15); Asphalt/Asphalt Products; Bearings; Beef (4); Cable; Chemicals; Coffee; Coffee Products; Construction Services; Copper (19); Copper Cable and Wire; Corrugated Boxes/Packaging; Dairy Products (2); #1 Diesel Fuel; #2 Diesel Fuel (3); Fuel (16); Gasoline (16); Hotel Rates (4); Iron; Lumber and Lumber Products including Pine, Spruce and Treated (3); Metals/Metal-Related Products (2); Natural Gas (7); Office Supplies (2); Packaging; Paper/Paper Products (14); Petrochemical Products; Petroleum-Based Products (2); Pipe; Plastic Items/Products (3); Plastics (15); Polyester Products; Polyethylene Products (2); Produce; PVC (3); Resin/Resin-Based Products; Roofing Products/Shingles (5); Soy Oil; Stainless Steel (3); Steel (17); Steel Products (13); Transportation/Freight Charges (11); Travel Costs; and Unleaded Gasoline (2).

Commodities Down in Price

Computer Hardware (PCs and related products) (6).

Commodities in Short Supply

Bearings: Paper Roller, Radial, Spherical, Taper; Conveyor Belts; Roofing Insulation and Materials (2); and Steel (14).

Note: The number of consecutive months the commodity is listed is indicated after each item.


MARCH 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in March increased to 63.1 percent from February's seasonally adjusted 59.8 percent, indicating a faster rate of growth of activity in March. This month, 15 sectors report increased business activity, none are reporting decreased activity, and two indicate unchanged activity compared to February.

The industries reporting the highest rates of growth of business activity in March are: Entertainment; Mining; Communication; Finance & Banking; Retail Trade; and Other Services*. No industry is reporting contraction of business activity in March.

Business Activity %Higher %Same %Lower Index
Mar 2005 37 56 7 63.1
Feb 2005 31 58 11 59.8
Jan 2005 29 53 18 59.2
Dec 2004 36 50 14 63.9

THE LAST 12 MONTHS
Month Business Activity
Index
  Month Business Activity
Index
Mar'05 63.1   Sep'04 58.7
Feb'05 59.8   Aug'04 59.3
Jan'05 59.2   Jul'04 63.4
Dec'04 63.9   Jun'04 61.1
Nov'04 61.9   May'04 63.3
Oct'04 61.5   Apr'04 66.9
Average for 12 months – 61.8
High – 66.9
Low – 58.7

New Orders

ISM's Non-Manufacturing New Orders Index increased to 62.1 percent in March from 61.6 percent in February. This indicates continued expansion of new orders but at a faster rate of growth than in February. Comments from members include: "More requests from customers"; "New accounts"; "Projects, projects and more projects"; and "Increased lab support for ongoing research."

Industries reporting the highest rates of growth of new orders in March are: Mining; Communication; Construction; Other Services*; Retail Trade; and Public Administration. No industry is reporting contraction of new orders in March.

New Orders %Higher %Same %Lower Index
Mar 2005 33 59 8 62.1
Feb 2005 31 62 7 61.6
Jan 2005 31 55 14 60.5
Dec 2004 36 46 18 61.3

Employment

Employment activity in the non-manufacturing sector increased at a slower rate in March compared to February. This was the 18th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for March is 57.1 percent, a decline of 2.5 percentage points from February's 59.6 percent. Ten industries are reporting increased employment, three report a decrease, and four indicate employment is unchanged from February. Comments from respondents include: "Increased workload projected for last half of year"; "Gearing up for more business"; "New personnel hires due to upturn in business"; "Necessary to handle increased sales volume"; and "Continuing to fill backlog."

The industries reporting the highest rates of growth in employment in March are: Construction; Mining; Utilities; Public Administration; and Wholesale Trade. The industries reporting reductions in employment in March are: Legal Services; Transportation; and Communication.

Employment %Higher %Same %Lower Index
Mar 2005 24 67 9 57.1
Feb 2005 20 74 6 59.6
Jan 2005 15 71 14 52.2
Dec 2004 19 70 11 55.0

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 43rd consecutive month in March. The index registered 53 percent, 0.5 percentage point higher than in February. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in March include: "Capacity shortfall"; "Suppliers have higher backlogs"; "Not enough [truck] drivers, equipment shortages in some markets"; and "Demand is higher than production capacity, raw material shortage — steel."

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

Supplier
Deliveries
%Slower %Same %Faster Index
Mar 2005 11 84 5 53.0
Feb 2005 10 85 5 52.5
Jan 2005 9 87 4 52.5
Dec 2004 15 81 4 55.5

NOTE: A list of commodities in short supply is available on page 2 of this report.

Inventories

ISM's Non-Manufacturing Inventories Index registered 52.5 percent in March, 0.5 percentage point higher than the 52 percent reported in February. This is the second consecutive month of higher inventories after a dip in inventory size in January. Of the total respondents in March, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "Just bringing [inventories] back up after the 'freeze'"; "Added new branches to business"; "Better utilization of current inventories"; and "Forward purchase of material for later installation."

The industries reporting the highest rates of inventory increases in March are: Transportation; Retail Trade; Utilities; Communication; Public Administration; and Business Services. The industries reporting inventory decreases in March are: Insurance; Health Services; Mining; and Agriculture.

Inventory
Change
%Higher %Same %Lower Index
Mar 2005 23 59 18 52.5
Feb 2005 25 54 21 52.0
Jan 2005 22 55 23 49.5
Dec 2004 32 48 20 56.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March for the 22nd consecutive month but at a slower rate of increase than in February. ISM's Non-Manufacturing Prices Index for March is 65.6 percent, down 0.8 percentage point from the seasonally adjusted 66.4 percent registered for February. In March, the percentage of members reporting higher prices remained at 43 percent, the same as in February, the proportion indicating no change rose 2 percentage points to 56 percent, and the number noting lower prices decreased 2 percentage points to 1 percent.

The industries reporting the highest rates of increase in prices paid in March are: Agriculture; Transportation; Entertainment; Utilities; and Wholesale Trade. No industry is reporting price decreases in March.

Prices %Higher %Same %Lower Index
Mar 2005 43 56 1 65.6
Feb 2005 43 54 3 66.4
Jan 2005 37 59 4 66.6
Dec 2004 38 57 5 73.6

NOTE: A list of commodities reported up in price and down in price is available on page 2 of this report.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 56.5 percent in March. This is an increase of 5 percentage points from the 51.5 percent reported for February. March's increase in order backlogs marks 22 out of the last 23 months that an increase has been reported in order backlogs. Of the total respondents in March, 41 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "On key raw material, supply will improve in the second quarter"; "Increased investment in infrastructure"; "New business"; and "Increased demand."

The industries reporting the highest rates of increase in order backlogs in March are: Transportation; Communication; Construction; Insurance; and Other Services*. The one industry reporting a decrease in backlog of orders in March is Wholesale Trade.

Backlog
of Orders
%Higher %Same %Lower Index
Mar 2005 17 79 4 56.5
Feb 2005 15 73 12 51.5
Jan 2005 12 72 16 48.0
Dec 2004 21 71 8 56.5

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 20th consecutive month in March. The New Export Orders Index for March is 51.5 percent compared to February's 56 percent, indicating a slower rate of growth in March compared to February. Of the total respondents in March, 78 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: Mining; Retail Trade; and Other Services*. The industries reporting decreases in new export orders in March are: Public Administration and Wholesale Trade.

New Export
Orders
%Higher %Same %Lower Index
Mar 2005 15 73 12 51.5
Feb 2005 19 74 7 56.0
Jan 2005 18 69 13 52.5
Dec 2004 18 75 7 55.5

Imports

In March, the ISM Imports Index registered 59 percent, 1.5 percentage points higher than the 57.5 percent reported 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 23rd consecutive month of import growth. In March, 67 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting increases in the use of imports in March are: Mining; Utilities; Retail Trade; Other Services*; Wholesale Trade; and Business Services. The one industry reporting a decrease in the use of imports in March is Entertainment.

Imports %Higher %Same %Lower Index
Mar 2005 21 76 3 59.0
Feb 2005 23 69 8 57.5
Jan 2005 17 72 11 53.0
Dec 2004 29 64 7 61.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in March registered 64.5 percent, the same as reported in February. This indicates that non-manufacturing purchasing and supply executives feel the same degree of discomfort with current levels of inventory in March as they did during February and January. In March, 32 percent of respondents felt their inventories were too high, 3 percent indicated their inventories were too low, and 65 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: Wholesale Trade; Construction; Agriculture; Communication; and Business Services. The one industry reporting that its inventories are too low in March is Mining.

Inventory
Sentiment
%Too High %About Right %Too Low Index
Mar 2005 32 65 3 64.5
Feb 2005 35 59 6 64.5
Jan 2005 35 59 6 64.5
Dec 2004 36 56 8 64.0

*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.

About this Report

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.

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 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 largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

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 2005 data will be released at 10:00 a.m. (ET) on May 4, 2005.



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