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April 2001 Non-Manufacturing Report On Business®

FOR RELEASE: May 3, 2001

Contact: Kristen Kioa
  NAPM Media Relations
  480/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTRACTS IN APRIL 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 April 2001.

Export Orders and Prices Increase
New Orders, Order Backlogs, Inventories, Employment, and Imports Decrease

(Tempe, Arizona) — Business in the non-manufacturing sector declined in April 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 April, NAPM's Non-Manufacturing Business Activity Index indicated reduced activity in the non-manufacturing economy compared to March," Kauffman said. "New Orders shrank in April while Order Backlogs decreased more rapidly than in March. Exports increased after decreasing in March, and Imports dropped for the third month. Employment was reduced and Inventories declined faster than in March. Supplier Deliveries continued to be slower in April. Prices increased at the same rate and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a lesser degree of discomfort with the level of inventories in April than they did in March," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 47.1 percent in April, 3.2 percentage points lower than in March, indicating contraction in non-manufacturing economic activity. Many of the comments from purchasing executives are indicative of the slowness of business activity in April. Increased business activity in April was reported by 22 percent of purchasers, compared to 26 percent in March. Of the industry groups reporting in the April NAPM non-manufacturing survey, 8 indicated increased activity, 7 indicated decreased activity, and 2 reported no change in activity compared to March. In March, 9 industry groups reported increased activity, 6 reported decreased activity, and 2 reported no change in activity level," said Kauffman.

This month our members reported decreased inventories for the sixth consecutive month and also indicated the same rate of increase (59.5 percent) as in March in the prices they pay for their purchases. Employment declined for the second consecutive month, with the Employment Index reaching its lowest level since inception of NAPM's non-manufacturing business survey in July 1997.

"Overall in April, non-manufacturing industries ended their long-term growth trend with both business activity and the volume of new orders contracting. For the Business Activity Index, it was the first time it registered reduced activity since inception of NAPM's non-manufacturing business survey in July 1997. Also this month, the Backlog of Orders Index indicated continued contraction of the number of orders not yet filled, non-manufacturing inventories decreased more rapidly than in March, employment declined for the second consecutive month, and prices increased at the same rate as in March," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series April
Indexes
March
Indexes
April vs. March
Index Change
Direction and Rate
of Change
Business Activity 47.1 50.3 -3.2 Decreasing from Increasing
New Orders 45.9 52.2 -6.3 Decreasing from Increasing
Backlog of Orders 44.0 47.5 -3.5 Decreasing Faster
New Export Orders 55.5 49.5 +6.0 Increasing from Decreasing
Inventory Change 45.5 49.0 -3.5 Decreasing Faster
Inventory Sentiment 64.0 69.0 -5.0 Decreased Feeling of "too high"
Imports 49.3 48.1 +1.2 Decreasing Slower
Prices 59.5 59.5 0 Increasing at Same Rate
Employment 46.7 49.4 -2.7 Decreasing Faster
Supplier Deliveries 51.0 50.5 +.5 Slowing Faster

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Survey
Question
April
Index %
Index Change
from Feb
Direction &
Rate of Change
April
Index
Index Change
from Feb
Direction &
Rate of Change
Business Activity / Production 47.1 -3.2 Decreasing from Increasing 42.9 +.1 Decreasing Slower
New Orders 45.9 -6.3 Decreasing from Increasing 45.9 +3.6 Decreasing Slower
Backlog of Orders 44.0 -3.5 Decreasing Faster 43.5 0 Decreasing at Same Rate
New Export Orders 55.5 +6.0 Increasing from Decreasing 47.3 -3.3 Decreasing from Increasing
Inventories 45.5 -3.5 Decreasing Faster 39.6 -4.6 Decreasing Faster
Inventory Sentiment 64.0 -5.0 Decreased Feeling of "too high" N/A    
Imports 49.3 +1.2 Decreasing Slower 47.2 -1.9 Decreasing Faster
Prices 59.5 0 Increasing at Same Rate 48.9 -1.0 Decreasing Faster
Employment 46.7 - 2.7 Decreasing Faster 38.1 -2.3 Decreasing Faster
Supplier Deliveries 51.0 + .5 Slowing Faster 47.4 - .9 Easing Faster

* 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 April decreased 3.2 percentage points to 47.1 percent from March's 50.3 percent. This indicates the first reduction in business activity and the lowest value of the Business Activity Index since the start of NAPM's non-manufacturing business survey in July 1997. Purchasing executives' comments in April reflected slower economic activity. The percent of members reporting increased activity in April is 22 percent compared to 26 percent in March. Members reporting decreased activity was at 20 percent in April, the same as in March. Those reporting no change in activity in April totaled 58 percent, an increase of 4 percentage points from March's 54 percent.

The industries reporting the highest rates of growth of business activity in April were: Transportation; Mining; Utilities; Construction; and Insurance. The industries reporting the highest rates of decrease in business activity in April were: Finance and Banking; Real Estate; Communication; Wholesale Trade; and Business Services.

Business Activity % Higher % Same % Lower Index
April 2001 22 58 20 47.1
March 2001 26 54 20 50.3
February 2001 26 51 23 51.7
January 2001 23 49 28 50.1

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index dropped to 45.9 percent in April from 52.2 percent in March. The April Index is the lowest value recorded by the New Orders Index and only the second indication of a reduction in new orders since the inception of NAPM's non-manufacturing business survey in July 1997. Comments from members included: "Lower sales," "Less demand for scrap metals," "No success in bidding," and "Cutting back spending."

The industries reporting the highest rates of growth of new orders in April were: Mining; Utilities; *Other Services; Health Services; and Insurance. The industries reporting the highest rates of decrease of new orders in April were: Finance and Banking; Real Estate; Entertainment; Wholesale Trade; and Communication.

New Orders % Higher % Same % Lower Index
April 2001 20 59 21 45.9
March 2001 28 52 20 52.2
February 2001 25 53 22 51.3
January 2001 23 49 28 49.9

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 44 percent in April. This is the fourth consecutive monthly decline in order backlogs and the fifth decrease in six months. The April index is a decrease of 3.5 percentage points from March's 47.5 percent. Purchasing executives' comments on backlogs of orders included: "No new orders/bookings," "No sales," "Old work is being completed," and "Medical supply back orders." Of the total respondents in April, 29 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in April were: Mining; Utilities; Communication; and *Other Services. The industries reporting the highest rates of decline of order backlogs in April were: Entertainment; Real Estate; Construction; Retail Trade; and Insurance.

Backlog
of Orders
% Higher % Same % Lower Index
April 2001 10 68 22 44.0
March 2001 12 71 17 47.5
February 2001 12 67 21 45.5
January 2001 12 61 27 42.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a faster rate in April, registering an index value of 51 percent. This is one-half percentage point above March's 50.5 percent. Comments from purchasing executives included: "Flooding in upper Midwest slowing rail deliveries," "Business is down," "Typical first quarter — distributor slowdown," and "Suppliers have excess resources."

The industries that reported the highest rates of slowness of supplier deliveries in April were: Legal Services; Utilities; Health Services; Wholesale Trade; and Entertainment.

Supplier
Deliveries
% Higher % Same % Lower Index
April 2001 6 86 8 51.0
March 2001 8 83 9 50.5
February 2001 5 87 8 51.5
January 2001 6 85 9 51.5

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 increased in April after dropping in March for the first time in 13 months. The New Export Orders Index for April is 55.5 percent compared to March's 49.5 percent. Of the total respondents in April, 75 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting the highest rates of increase in new export orders in April were: Mining; Insurance; *Other Services; Wholesale Trade; and Business Services. The only industry reporting a decrease in new export orders in April was Communication.

New Export
Orders
% Higher % Same % Lower Index
April 2001 22 67 11 55.5
March 2001 15 69 16 49.5
February 2001 15 77 8 53.5
January 2001 19 72 9 55.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries in April decreased at a slower rate in April. NAPM's Non-Manufacturing Imports Index for April was 49.3 percent, an increase of 1.2 percentage points from the 48.1 percent reported in March. In April, 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 April were: Wholesale Trade and Retail Trade. Industries reporting decreased use of imports in April were: Agriculture; Entertainment; Construction; Communication; and *Other Services.

Imports % Higher % Same % Lower Index
April 2001 12 77 11 49.3
March 2001 13 77 10 48.1
February 2001 7 79 14 46.8
January 2001 6 79 15 50.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in April for the sixth consecutive month. NAPM's Non-Manufacturing Inventories Index registered 45.5 percent in April, a decrease of 3.5 percentage points from the 49 percent reported in March. Of the total respondents in April, 29 percent indicated they do not have inventories. Comments from member purchasers included: "Using some excess stock items," "Inventory reduction focus," "Constant reduction program in effect to reduce inventories," and "Planned reduction of inventory."

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

Inventory
Change
% Higher % Same % Lower Index
April 2001 17 57 26 45.5
March 2001 20 58 22 49.0
February 2001 17 60 23 47.0
January 2001 21 49 30 45.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in April registered 64 percent compared to 69 percent for March. This decrease in the index level indicates that non-manufacturing purchasing executives felt a lesser degree of discomfort with current levels of inventory in April than they did during March. In April, 32 percent of members felt their inventories were too high (43 percent in March). Also in April, 4 percent indicated their inventories were too low (5 percent in March), and 64 percent said that their inventories were about right (52 percent in March).

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

Inventory
Sentiment
% Higher % Same % Lower Index
April 2001 32 64 4 64.0
March 2001 43 52 5 69.0
February 2001 37 56 7 65.0
January 2001 36 63 1 67.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in April for the 26th consecutive month and at the same rate of increase as in March. NAPM's Non-Manufacturing Prices Index for April remained at 59.5 percent. The percentage of members reporting higher prices stayed at 28 percent in April, the proportion indicating no change remained at 63 percent, and the number who noted lower prices held steady at 9 percent.

The industries that reported the highest rates of increase in prices paid in April were: Legal Services; Mining; Agriculture; Utilities; and Public Administration.

Prices % Higher % Same % Lower Index
April 2001 28 63 9 59.5
March 2001 28 63 9 59.5
February 2001 29 63 8 60.5
January 2001 28 68 4 62.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in April for the second time since inception of NAPM's non-manufacturing business survey in July 1997. NAPM's Non-Manufacturing Employment Index for April was 46.7 percent compared to 49.4 percent in March. April's Index was also the lowest value recorded since inception of NAPM's non-manufacturing business survey. Comments from purchasers included: "Reduction in force;" "Laying off people as work is completed;" "Reduction in employees, not replacing;" and "Downsizing."

The industries reporting the highest rates of growth of employment in April were: Insurance; Agriculture; Retail Trade; Public Administration; and Health Services. Industries reporting the highest rates of reduction in employment in April were: Transportation; Business Services; Entertainment; Finance and Banking; Mining; and Real Estate.

Employment % Higher % Same % Lower Index
April 2001 13 70 17 46.7
March 2001 16 69 15 49.4
February 2001 14 68 18 50.3
January 2001 13 74 13 52.3

*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

Electricity; Labor; Natural Gas; Palm Pilots; Temporary Help.

Commodities Reported Up in Price

Beef — 2nd month; Cheese; Diesel Fuel — 3rd month; Electricity — 4th month; Energy — 5th month; Fuel — 15th month; Furniture; Gasoline — 3rd month; Labor — 2nd month; Natural Gas — 5th month; Paper — 25th month (a few reports of price decreases); Petroleum Products; Plastics — 3rd month; Pork.

Commodities Reported Down in Price

Aluminum; Coffee; Computers (PCs) — 14th month; Copper — 2nd month; Memory; Paper Products; Soybean Oil; Stainless Steel.

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 resulting single index number is not seasonally adjusted.

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 May 2001 data will be released at 10:00 a.m. (ET) on June 5, 2001.


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