April 2002 Non-Manufacturing ISM Report On Business®

FOR RELEASE: May 3, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 55.3%

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 April 2002.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in April 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 April, non-manufacturing business activity increased, but not as strongly as it did in March," Kauffman said. He added, "This month's Index is at 55.3 percent. While below the 57.3 percent recorded in March, this is the third consecutive month of significant growth in non-manufacturing business activity. The good news this month is that the New Orders Index is at 56.4 percent, 1.5 percentage points above the 54.9 percent New Orders Index for March. This provides some optimism that the non-manufacturing economy will continue to grow in the coming months. The bad news is another increase in the Prices Index indicating that non-manufacturing buyers had to pay more for their purchases in April than in March."

Reports from purchasing and supply executives indicate 12 industry groups grew in April and three groups contracted, with one group indicating no change. Increased business activity in April was reported by 31 percent of members, compared to March's 32 percent. Reduced activity was reported by 13 percent of members compared to 11 percent in March. In April, the remaining 56 percent of members indicated no change in business activity compared to 57 percent in March.

Also this month, inventories, after being unchanged in March, increased for only the second time in 18 months. New Export Orders and Imports reversed March's decreases and increased in April, while Employment shrank for the 14th consecutive month. The Inventory Sentiment Index declined for the second month, indicating lesser discomfort with current inventory levels. Supplier Deliveries indicated slower performance for the eighth month.

"Overall in April, non-manufacturing industries reported continued growth in business activity, although at a slower rate than in March. In addition, New Orders grew at a higher rate than in March. Order backlogs continued to decline; inventories, exports, and imports increased. Employment continued to decrease (but more slowly than in March), and prices increased at the fastest rate in 11 months," Kauffman commented.

Significant reports of commodities in short supply, or up or down in price in April included only steel in short supply. Price increases were reported for copper and copper products; copy paper; diesel fuel; drywall; fuel; fuel oil; gasoline; lumber; natural gas; oil; paper products; petroleum-based products; PVC; PVC pipe and fittings; roofing materials; steel and steel products; and unleaded gasoline. Price decreases were reported for acoustical tile and ceiling materials; beef; corrugated; paper; and produce.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index April
Index %
March
Index %
Index Change
from March
Direction & Rate
of Change
April
Index %
March
Index %
Index Change
from March
Business Activity/ Production 55.3 57.3 -2.0 Increasing more slowly 58.0 57.8 +0.2
New Orders 56.4 54.9 +1.5 Increasing faster 59.0 65.3 -6.3
Employment 48.9 45.5 +3.4 Decreasing Slower 46.7 47.5 -0.8
Supplier Deliveries 51.5 52.0 -0.5 Slowing slower 53.7 53.1 +0.6
Inventories 52.5 50.0 +2.5 Increasing from Unchanged 42.9 41.2 +1.7
Customer Inventories N/A       40.5 40.0 +0.5
Prices 59.5 53.0 +6.5 Increasing Faster 60.3 51.9 +8.4
Backlog of Orders 48.5 49.5 -1.0 Decreasing Faster 56.0 62.5 -6.5
New Export Orders 52.5 49.5 +3.0 Increasing from Decreasing 51.9 51.0 +0.9
Imports 56.2 48.9 +7.3 Increasing from Decreasing 55.7 53.4 +2.3
Inventory Sentiment 63.0 65.5 -2.5 Decreased Feeling of "too high" N/A    

* Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders and Customer Inventories.

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 April declined 2 percentage points on a seasonally adjusted basis to 55.3 percent from March's 57.3 percent. April's Index reflects continued growth in non-manufacturing activity during the month but at a slower rate of growth than in March. In April, 12 sectors reported increased business activity, three sectors reported decreased activity, and one was unchanged, compared to March. The percent of members reporting increased activity in April was 31 percent, a decrease of 1 percentage point from March's 32 percent. Decreased activity was reported by 13 percent of members in April, compared to 11 percent in March. Those reporting no change in activity in April totaled 56 percent, compared to 57 percent in March.

The industries reporting the highest rates of growth of business activity in April were: Agriculture; Transportation; Insurance; Real Estate; Wholesale Trade; and Retail Trade. The industries reporting contraction of business activity in April were: Mining; Entertainment; and Finance and Banking.

Business
Activity
% Higher % Same % Lower Index
April 2002 31 56 13 55.3
March 2002 32 57 11 57.3
February 2002 31 53 16 58.7
January 2002 21 48 31 49.6

New Orders

ISM's Non-Manufacturing New Orders Index increased to 56.4 percent in April from 54.9 percent in March. Comments from members included: "Increasing sales"; "Addition of new distributors, overall sales are up and continue to show slow improvement"; "Money loosening up — increase primarily in tech orders"; and "Increased volume."

The industries reporting the highest rates of growth of new orders in April were: Transportation; Agriculture; Insurance; Wholesale Trade; Entertainment; and Real Estate. The industries reporting contraction of new orders in April were: Mining; Other Services*; and Public Administration.

New Orders % Higher % Same % Lower Index
April 2002 33 55 12 56.4
March 2002 28 59 13 54.9
February 2002 30 53 17 57.3
January 2002 20 51 29 49.4

Employment

Employment in the non-manufacturing sector contracted in April for the 14th consecutive month. ISM's Non-Manufacturing Employment Index for April was 48.9 percent compared to 45.5 percent in March. After February's decline in the Index, April marks the second month of slower rates of employment decrease as indicated by the Index moving closer to the 50 percent mark. Comments from members included: "More projects being started," "Continued right sizing," "Few openings now," and "Increased business activity. Open positions now allowed to fill."

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

Employment % Higher % Same % Lower Index
April 2002 12 75 13 48.9
March 2002 11 71 18 45.5
February 2002 7 69 24 43.6
January 2002 7 72 21 44.5

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the eighth consecutive month in April, registering an index value of 51.5 percent, 0.5 percentage point less than March's 52 percent. Comments from purchasing and supply executives concerning supplier deliveries in April included: "Economy seems to be improving," "Do not have inventory to deliver," "Smaller supplier inventory," and "Lead times are increasing."

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

Supplier
Deliveries
% Slower % Same % Faster Index
April 2002 6 91 3 51.5
March 2002 6 92 2 52.0
February 2002 9 88 3 53.0
January 2002 9 88 3 53.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 52.5 percent in April, an increase of 2.5 percentage points from the 50 percent reported in March. April's Index means that material inventories maintained by non-manufacturing organizations increased in April for only the second time since October 2000 when the Index was 55 percent. The other increase was in February of this year with an Index of 51.5 percent. Of the total respondents in April, 29 percent indicated they do not have inventories. Comments from members included: "Higher [inventories] for supplies," "Preparation for seasonal increase," "Recent arrival of offshore steel pipe," and "Materials for a major line project are flowing in."

The industries reporting the highest rates of inventory increases in April were: Insurance; Agriculture; Real Estate; Wholesale Trade; Business Services; and Mining. Industries reporting inventory decrease in April were: Finance and Banking; Entertainment; Communication; Utilities; and Other Services*.

Inventory
Change
% Higher % Same % Lower Index
April 2002 21 63 16 52.5
March 2002 19 62 19 50.0
February 2002 22 59 19 51.5
January 2002 22 51 27 47.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the second month in April after eight months of reports of lower or unchanged prices prior to March 2002. ISM's Non-Manufacturing Prices Index for April was 59.5 percent, an increase of 6.5 percentage points from March's 53 percent, and the highest Prices Index since May 2001 (59.5 percent). The percentage of members reporting higher prices jumped to 26 percent from 16 percent in March, the proportion indicating no change decreased 7 percentage points to 67 percent, and the number who noted lower prices decreased 3 percentage points to 7 percent.

The industries reporting the highest rates of increase in prices paid in April were: Agriculture; Real Estate; Wholesale Trade; Public Administration; Business Services; and Health Services. The industries that reported price decreases in April were: Retail Trade; Transportation; Mining; and Finance and Banking.

Prices % Higher % Same % Lower Index
April 2002 26 67 7 59.5
March 2002 16 74 10 53.0
February 2002 16 68 16 50.0
January 2002 12 74 14 49.0

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 48.5 percent in April. This is the 16th consecutive monthly decline in order backlogs. The April index is a decrease of 1 percentage point from March's 49.5 percent. Purchasing and supply executives' comments on backlogs of orders included: "Reduced activity," "Success on bids," "Expected seasonal backlog," and "Budget cuts." Of the total respondents in April, 33 percent indicated they do not measure backlog of orders.

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

Backlog
of Orders
% Higher % Same % Lower Index
April 2002 10 77 13 48.5
March 2002 15 69 16 49.5
February 2002 11 73 16 47.5
January 2002 11 69 20 45.5

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 in April after a slight dip in March. The New Export Orders Index for April was 52.5 percent compared to March's 49.5 percent. Of the total respondents in April, 74 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 April were: Finance and Banking; Insurance; Communication; and Wholesale Trade. The industries reporting decreases in new export orders in April were: Retail Trade and Other Services*.

New Export
Orders
% Higher % Same % Lower Index
April 2002 10 85 5 52.5
March 2002 15 69 16 49.5
February 2002 15 75 10 52.5
January 2002 20 73 7 56.5

Imports

Use of imported materials by non-manufacturing industries increased in April after a decrease in March. ISM's Non-Manufacturing Imports Index for April was 56.2 percent, an increase of 7.3 percentage points from the 48.9 percent reported in March. In April, 67 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 April were: Retail Trade; Utilities; Communication; Wholesale Trade; and Other Services*. No industries reporting decreased use of imports in April.

Imports % Higher % Same % Lower Index
April 2002 16 82 2 56.2
March 2002 13 78 9 48.9
February 2002 12 79 9 54.3
January 2002 11 79 10 55.3

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in April registered 63 percent compared to 65.5 percent for March. This decrease in the index level indicates that non-manufacturing purchasing and supply executives felt a somewhat lesser degree of discomfort with current levels of inventory in April than they did during March. In April, 33 percent of members felt their inventories were too high (35 percent in March). Also in April, 7 percent indicated their inventories were too low (4 percent in March), and 60 percent said that their inventories were about right (61 percent in March).

The industries that reported the highest rates of feeling that their inventories were "too high" in April were: Finance and Banking; Communication; Mining; Entertainment; and Wholesale Trade. The only industry to report that its inventories were "too low" in April was Public Administration.

Inventory
Sentiment
% Too High % About Right % Too Low Index
April 2002 33 60 7 63.0
March 2002 35 61 4 65.5
February 2002 36 61 3 66.5
January 2002 36 57 7 64.5

*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

Steel.

Commodities Reported Up in Price

Copper and copper products — 2nd month; Copy Paper; Diesel Fuel — 2nd month; Drywall; Fuel — 2nd month; Fuel Oil; Gasoline — 3rd month; Lumber — 3rd month; Natural Gas — 2nd month; Oil; Paper Products; Petroleum-Based Products; PVC; PVC Pipe and Fittings — 2nd month; Roofing Materials; Steel and Steel Products — 3rd month; Unleaded Gasoline.

Commodities Reported Down in Price

Acoustical Tile and Ceiling Materials; Beef; Corrugated; Paper; Produce.

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 May 2002 data will be released at 10:00 a.m. (ET) on June 5, 2002.


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