April 2003 Non-Manufacturing ISM Report On Business®

FOR RELEASE: May 5, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 50.7%

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 2003.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in April 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 April, non-manufacturing business activity increased after decreasing in March," Kauffman said. He added, "Also in April, new orders, inventories, and exports increased."

With the ending of the war in Iraq, purchasing and supply executives report a return to growth in business activity in April. In the non-manufacturing sector, nine industry groups grew in April, while six groups contracted and one reported no change from March. Increased business activity in April was reported by 28 percent of members, compared to March's 23 percent. Reduced activity was reported by 19 percent of members compared to 24 percent in March. In April, the remaining 53 percent of members indicated no change in business activity, the same proportion as in March. The Backlog of Orders Index declined by 1.5 percentage points to 46 percent, indicating a more rapid decrease in backlogs in April compared to March. The April New Orders Index increased from 47.7 percent in March to 50.6 percent in April. This reflects an increase in April new orders after a decrease in March. Members reported that the prices they pay increased for the 14th consecutive month in April. April's Prices Index is 56.7 percent, down from 62 percent in March, due primarily to the recent drop in oil prices. This month, 13 industry groups reported paying higher prices compared to March, two reported paying the same, and two industry groups reported paying lower prices in April. As can be seen from this report's list of commodities reported up in price, many of the price increases reported this month are still related to high prices for oil and natural gas. Members' general comments on business in April continue to be mixed but seem to be a bit more positive than in March. Particular comments include: "Energy prices are somewhat lower"; "The soft economy and political climate are still affecting our business from a revenue perspective. This in turn puts additional pressure on purchasing to reduce cost"; "Cautiously optimistic that effects of Iraq were minimal and that overall economy is strengthening"; and "Sales continue to improve. Sales are up over 10 percent from the same month last year. Costs remain steady, with the exception of fuel, which we anticipate will fall back in line."

In addition, Inventories increased for the first time in nine months. With regard to Inventory Sentiment, members reported less concern that inventories are too high. New Export Orders increased and Imports were unchanged, while Employment contracted for the third consecutive month. Supplier Deliveries indicated slower performance for the 20th consecutive month.

Significant reports of commodities in short supply or up or down in price in April indicate that furniture is the only commodity in short supply. Price increases are reported for armored transportation; bacon; beef; castings, #2 diesel fuel; energy; fuel; fuel surcharges; gasoline; LDPE/resin; natural gas; oil-related products; petroleum-based products; plastic bags; plastic containers; plastic goods; polyethylene; polyethylene gas pipe; polypropylene; pork; PVC; resin; soy oil; stainless steel/products; and steel products (bars, pipe, plate). Furniture; lumber/products; and office supplies were reported down in price. Beef, fuel, and gasoline had reports of lower prices in addition to reports of higher prices.

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 50.7 47.9 +2.8 Increasing from decreasing 47.0 46.3 +0.7
New Orders 50.6 47.7 +2.9 Increasing from decreasing 45.2 46.2 -1.0
Employment 48.2 47.9 +0.3 Decreasing slower 41.4 42.1 -0.7
Supplier Deliveries 50.5 52.0 -1.5 Slowing slower 50.0 53.8 -3.8
Inventories 51.0 49.5 +1.5 Increasing from decreasing 42.7 42.3 +0.4
Prices 56.7 62.0 -5.3 Increasing slower 63.5 70.0 -6.5
Backlog of Orders 46.0 47.5 -1.5 Decreasing faster 47.5 41.5 +6.0
New Export Orders 52.5 48.5 +4.0 Increasing from decreasing 51.1 52.0 -0.9
Imports 50.0 55.0 -5.0 Unchanged from increasing 54.5 52.5 +2.0
Inventory Sentiment 62.5 66.0 -3.5 Lesser feeling of "too high" N/A    
Customers' Inventories N/A       44.5 42.0 +2.5

* 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.

Business Activity

ISM's Non-Manufacturing Business Activity Index in April increased 2.8 percentage points on a seasonally adjusted basis to 50.7 percent from March's 47.9 percent. April's index reverses March's dip into contraction territory (below an index value of 50) and resumes the growth pattern begun in February 2002. In April, nine sectors reported increased business activity, six sectors reported decreased activity, and one reported no change in activity compared to March.

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

Business
Activity
% Higher % Same % Lower Index
April 2003 28 53 19 50.7
March 2003 23 53 24 47.9
February 2003 28 53 19 53.9
January 2003 24 51 25 54.5

New Orders

ISM's Non-Manufacturing New Orders Index increased to 50.6 percent in April from 47.7 percent in March. Comments from members include: "New restaurant openings"; "Equipping and furnishing new schools"; "Poor economy"; and "Soft market."

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

New Orders % Higher % Same % Lower Index
April 2003 25 57 18 50.6
March 2003 24 53 23 47.7
February 2003 25 58 17 53.0
January 2003 24 55 21 56.2

Employment

Employment in the non-manufacturing sector decreased for the third consecutive month in April following one month of growth in January 2003. ISM's Non-Manufacturing Employment Index for April is 48.2 percent compared to 47.9 percent in March. Comments from respondents include: "Continuing downsizing"; "Hiring freeze is in place"; "Increase of business activity"; and "Reduction in workforce in response to economy."

The industries reporting the highest rates of growth in employment in April are: Retail Trade; Transportation; Utilities; Business Services; and Real Estate. Industries reporting the highest rates of reduction in employment in April are: Agriculture; Other Services*; Wholesale Trade; Public Administration; Health Services; and Communication.

Employment % Higher % Same % Lower Index
April 2003 17 66 17 48.2
March 2003 14 70 16 47.9
February 2003 12 69 19 49.0
January 2003 12 73 15 50.3

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 20th consecutive month in April. The index registered 50.5 percent, a decrease of 1.5 percentage points from the 52 percent reported in March. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in April include: "Lower backlog at suppliers"; "Manufacturers not able to get the components for servers"; "Warehouses are keeping smaller inventories of VHS product leading to more delays in filling orders"; and "Supplier business is also down."

The industries that reported slowing in supplier deliveries in April are: Entertainment; Agriculture; Insurance; and Retail Trade. The industries reporting faster supplier deliveries in April are: Construction; Business Services; Utilities; and Other Services*.

Supplier
Deliveries
% Slower % Same % Faster Index
April 2003 5 91 4 50.5
March 2003 7 90 3 52.0
February 2003 11 83 6 52.5
January 2003 8 88 4 52.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 51 percent in April, 1.5 percentage points higher than the 49.5 percent reported in March. April's index means that material inventories maintained by non-manufacturing organizations increased after eight consecutive months of decrease. Of the total respondents in April, 26 percent indicate they do not have inventories or do not measure them. Comments from members include: "Expansion of product lines"; "Using existing inventory wherever possible, rather than buying new"; "Need higher levels of inventory to support new stores"; and "Cost containment to keep inventory levels low."

The industries reporting inventory increases in April are: Retail Trade; Agriculture; Insurance; Business Services; and Wholesale Trade. The industries reporting the highest rates of inventory decrease in April are: Other Services*; Finance & Banking; Entertainment; Communication; and Construction.

Inventory
Change
% Higher % Same % Lower Index
April 2003 26 50 24 51.0
March 2003 18 63 19 49.5
February 2003 15 67 18 48.5
January 2003 18 57 25 46.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the 14th consecutive month in April. ISM's Non-Manufacturing Prices Index for April is 56.7 percent, a decrease of 5.3 percentage points from the 62 percent registered for March. In April, the percentage of members reporting higher prices decreased 5 percentage points to 30 percent from 35 percent in March, the proportion indicating no change rose 5 percentage points to 63 percent, and the number who noted lower prices remained the same as in March at 7 percent.

The industries reporting the highest rates of increase in prices paid in April are: Legal Services; Agriculture; Entertainment; Wholesale Trade; and Retail Trade. The industries reporting price decreases in April were: Transportation and Business Services.

Prices % Higher % Same % Lower Index
April 2003 30 63 7 56.7
March 2003 35 58 7 62.0
February 2003 31 63 6 60.9
January 2003 25 65 10 57.0

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 46 percent in April. This indicates a decline in order backlogs in April compared to March. The April index is a decrease of 1.5 percentage points from March's 47.5 percent. Of the total respondents in April, 40 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Dealers have less stock on hand"; "Fewer orders"; and "Doing a better job of clearing up backorders."

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

Backlog
of Orders
% Higher % Same % Lower Index
April 2003 11 70 19 46.0
March 2003 12 71 17 47.5
February 2003 12 76 12 50.0
January 2003 12 72 16 48.0

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. The New Export Orders Index for April is 52.5 percent compared to March's 48.5 percent, a reversal from contraction back to growth. Of the total respondents in April, 80 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 are: Entertainment; Real Estate; Finance & Banking; and Communication. The industries reporting decreases in new export orders in April are Wholesale Trade and Other Services.*

New Export
Orders
% Higher % Same % Lower Index
April 2003 16 73 11 52.5
March 2003 16 65 19 48.5
February 2003 25 67 8 58.5
January 2003 16 74 10 53.0

Imports

In April, the ISM Imports Index registered 50 percent, indicating that use of imported materials by non-manufacturing industries was unchanged from March. This result marks the end of six consecutive months of growth in imports. In April, 68 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 April are: Construction; Finance & Banking; and Retail Trade. The industries reporting decreases in use of imports in April are: Other Services* and Wholesale Trade.

Imports % Higher % Same % Lower Index
April 2003 15 70 15 50.0
March 2003 14 82 4 55.0
February 2003 18 67 15 51.5
January 2003 27 59 14 56.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in April registered 62.5 percent, 3.5 percentage points lower than the 66 percent reported for March. This indicates that non-manufacturing purchasing and supply executives felt a lesser degree of discomfort with current levels of inventory in April than they did during March. In April, 31 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 63 percent said that their inventories were about right.

The industries that reported the highest rates of feeling that their inventories were too high in April are: Legal Services; Agriculture; Wholesale Trade; Business Services; and Construction. The only industry that reported their inventories were too low in April was Public Administration.

Inventory
Sentiment
% Too High % About Right % Too Low Index
April 2003 31 63 6 62.5
March 2003 34 64 2 66.0
February 2003 38 57 5 66.5
January 2003 32 65 3 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

Furniture was reported in short supply in April.

Commodities Reported Up in Price

Armored Transportation; Bacon; Beef* — 4th month; Castings; #2 Diesel Fuel — 7th month; Energy — 2nd month; Fuel* — 4th month; Fuel Surcharges — 2nd month; Gasoline* — 7th month; LDPE/Resin; Natural Gas — 5th month; Oil-Related Products; Petroleum-Based Products — 3rd month; Plastic Bags; Plastic Containers; Plastic Goods; Polyethylene — 2nd month; Polyethylene Gas Pipe; Polypropylene; Pork; PVC; Resin — 2nd month; Soy Oil; Stainless Steel/Products; Steel Products (Bars, Pipe, Plate).

Commodities Reported Down in Price

Beef;* Fuel;* Furniture; Gasoline;* Lumber/Products; Office Supplies.

*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 May 2003 data will be released at 10:00 a.m. (ET) on June 4, 2003.


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