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April 2004 Non-Manufacturing ISM Report On Business®

FOR RELEASE: May 5, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 68.4%

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 2004.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in April 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 13th consecutive month in April," Kauffman said. He added, "Also in April, New Orders, Order Backlogs, Employment, Imports, Prices, Exports, and Inventories increased."

Purchasing and supply executives report that business activity continued to increase in April in the non-manufacturing sector, and at a faster rate of increase than in March, with some indexes reaching record high values. The Business Activity Index for April is 68.4 percent. April's index indicates continued growth across almost all non-manufacturing industries. In April, 16 industry groups reported growth, while one grew at the same rate as in March and none indicated contraction. Increased business activity in April was reported by 46 percent of members, compared to 42 percent in March. Reduced activity was reported by 8 percent of members, compared to 10 percent in March. In April, the remaining 46 percent of members indicated no change in business activity, compared to 48 percent that reported no change in March.

The Backlog of Orders Index increased by 1 percentage point to 53.5 percent, indicating growth in order backlogs for the 12th consecutive month and at a faster rate of increase than in March. The April New Orders Index increased from 62.8 percent in March to 65.6 percent in April. This indicates a faster rate of increase of new orders in April compared to March. Members reported that the prices they pay increased in April for the 25th consecutive month, with a faster rate of increase than in March. April's Prices Index is 68.6 percent, a rise of 2.9 percentage points from the 65.7 percent reported in March. This month, 16 industry groups reported paying higher prices compared to March, and one reported paying the same level of prices as in March. Many of members' comments concerning business in April indicate optimism. Specific comments include: "General business conditions improving"; "Activity this quarter continues to exceed budgeted projection"; "Improving picture — hiring freeze has been lifted"; "General conditions have been very strong, reflecting increased consumer activity"; and "Business seems to have turned on a dime. Our company has never seen anything like it. We are concerned the increase in demand might be short-lived."

In addition, Inventories increased for the second consecutive month. With regard to Inventory Sentiment for April, members reported a lower level of concern than in March that inventories are too high. New Export Orders increased for the ninth consecutive month, Imports increased for the 12th consecutive month, and Employment increased for the seventh consecutive month. Supplier Deliveries indicated slower performance for the 32nd consecutive month.

Significant reports of commodities in short supply or up or down in price in April indicate that beef; copper; steel; steel pipe and fittings; and steel items are in short supply. Price increases are reported for air conditioning equipment and parts; airfares; aluminum and aluminum products; beef; butter; cable and cable wire; carbon steel; cheese; chicken; conduit and fittings; copier paper; copper; copper products including pipe, cable, tubing and wire; corn; cotton goods/products; #2 diesel fuel; dairy and dairy products; electricity; energy; fittings; fuel; gasoline; #2 heating oil; metal; metal products; nickel; oil; paper; paper products; petroleum-based products; plastic; plastic bags; polyethylene films; polypropylene; pork; poultry; printed materials; pump parts; PVC/PVC pipe and fittings; shipping costs; soy oil; soybean meal; stainless steel; stainless steel welding wire/electrode; steel; steel beams; steel coil; steel pipe; steel pipe and fittings; steel products (large variety); steel-related products; steel scrap; unleaded gasoline; and valves. Computer hardware; copiers; corrugated; and pagers/paging 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 April
Index %
March
Index %
Index Change
from March
Direction &
Rate of Change
April
Index %
March
Index %
Index Change
from March
Business Activity / Production 68.4 65.8 +2.6 Increasing faster 67.0 65.5 +1.5
New Orders 65.6 62.8 +2.8 Increasing faster 65.0 65.7 -0.7
Employment 54.5 53.9 +0.6 Increasing faster 57.8 57.0 +0.8
Supplier Deliveries 58.0 55.0 +3.0 Slowing faster 67.1 67.9 -0.8
Inventories 56.5 51.5 +5.0 Increasing faster 44.8 48.3 -3.5
Prices 68.6 65.7 +2.9 Increasing faster 88.0 86.0 +2.0
Backlog of Orders 53.5 52.5 +1.0 Increasing faster 66.5 63.5 +3.0
New Export Orders 62.0 51.5 +10.5 Increasing faster 61.0 62.0 -1.0
Imports 60.5 60.5 0.0 Increasing at same rate 58.5 56.8 +1.7
Inventory Sentiment 58.0 60.5 -2.5 Lesser feeling of "too high" N/A N/A N/A
Customers' Inventories N/A N/A N/A   40.5 39.5 +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 April grew to 68.4 percent from March's seasonally-adjusted 65.8 percent, indicating a faster rate of growth of activity in April 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 last month's 65.8 percent. With the exception of March 2003, growth in business activity has been reported by ISM members every month beginning with February 2002. This month 16 sectors reported increased business activity, none reported decreased activity, and one reported unchanged activity compared to March.

The industries reporting the highest rates of growth of business activity in April are: Mining; Finance & Banking; Transportation; Entertainment; and Retail Trade. No industry is reporting contraction of business activity in April.

Business
Activity
% Higher % Same % Lower Index
April 2004 46 46 8 68.4
March 2004 42 48 10 65.8
February 2004 35 52 13 60.8
January 2004 40 40 20 65.7

New Orders

ISM's Non-Manufacturing New Orders Index rose to 65.6 percent in April from 62.8 percent in March. This indicates continued expansion of new orders at a faster rate of growth than in March. Comments from members include: "Capital spending is increasing"; "New job orders from the private sector — mostly in the healthcare industry"; "New stores and remodels for all divisions have started"; and "Tourism on the rise."

The industries reporting the highest rates of growth of new orders in April are: Mining; Transportation; Finance & Banking; Retail Trade; Utilities; and Real Estate. No industry is reporting contraction of new orders in April.

New Orders % Higher % Same % Lower Index
April 2004 42 49 9 65.6
March 2004 36 54 10 62.8
February 2004 34 54 12 60.3
January 2004 40 43 17 64.9

Employment

Employment in the non-manufacturing sector in April expanded for the seventh consecutive month after decreasing slightly in September 2003. ISM's Non-Manufacturing Employment Index for April is 54.5 percent compared to 53.9 percent in March. April's Employment Index indicates that non-manufacturing employment expanded at a faster rate in April than in March. Comments from respondents include: "[Employment] slightly higher due to production volume increase"; "Increased placement of permanent hires for clinical staffing"; "Increased business"; "Staffing for new stores"; and "Expansion of service areas, number of customers."

The industries reporting the highest rates of growth in employment in April are: Mining; Transportation; Communication; Agriculture; Construction; Insurance; and Retail Trade. The one industry reporting reduction in employment in April is Entertainment.

Employment % Higher % Same % Lower Index
April 2004 21 70 9 54.5
March 2004 17 75 8 53.9
February 2004 16 70 14 52.7
January 2004 18 68 14 53.4

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 32nd consecutive month in April. The index registered 58 percent, 3 percentage points higher than in March. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in April include: "Slower rail service"; "Steel shortage"; "Increased leadtimes due to metals"; and "Delays from manufacturers."

The industries reporting the highest rates of slowing in supplier deliveries in April are: Wholesale Trade; Construction; Utilities; Agriculture; Insurance; and Entertainment. The one industry reporting faster supplier deliveries in April is Finance & Banking.

Supplier
Deliveries
% Slower % Same % Faster Index
April 2004 19 78 3 58.0
March 2004 14 82 4 55.0
February 2004 15 81 4 55.5
January 2004 17 79 4 56.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 56.5 percent (a new high for the index) in April, 5 percentage points higher than the 51.5 percent reported in March. The previous high was 55 percent in October 2000. April's index indicates the second monthly increase in material inventories maintained by non-manufacturing organizations after two consecutive monthly decreases. Of the total respondents in April, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "Increase in demand"; "Increasing to meet new demands"; "Building stock for large promotions"; and "Inventory buildup for expected demand."

The industries reporting the highest rate of inventory increases in April are: Agriculture; Real Estate; Retail Trade; Insurance; and Mining. The industries reporting inventory decreases in April are: Business Services; Health Services; and Other Services*.

Inventory
Change
% Higher % Same % Lower Index
April 2004 28 57 15 56.5
March 2004 19 65 16 51.5
February 2004 18 62 20 49.0
January 2004 20 59 21 49.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in April for the 25th consecutive month (based on seasonal adjustments released in January 2004) and at a faster rate of increase than in March. ISM's Non-Manufacturing Prices Index for April is 68.6 percent a rise of 2.9 percentage points from the 65.7 percent registered for March. In April, the percentage of members reporting higher prices increased 10 percentage points to 53 percent from 43 percent in March, the proportion indicating no change dropped 10 percentage points to 44 percent, and the number who noted lower prices remained at 3 percent.

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

Prices % Higher % Same % Lower Index
April 2004 53 44 3 68.6
March 2004 43 54 3 65.7
February 2004 31 60 9 57.3
January 2004 26 70 4 59.7

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 53.5 percent in April. This is an increase of 1 percentage point from March's 52.5 percent and represents the 12th consecutive month of growth in order backlogs. 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: "Lack of inventory to accommodate increased orders"; "Reducing built up inventory from prior months"; "Orders are more than our workforces can complete"; and "Steel shortage has created stock outage of product."

The industries reporting the highest rates of growth in backlog of orders in April are: Construction; Transportation; Entertainment; Wholesale Trade; Mining; and Utilities. The industries reporting a decline of order backlogs in April are: Health Services; Retail Trade; and Other Services*.

Backlog
of Orders
% Higher % Same % Lower Index
April 2004 20 67 13 53.5
March 2004 18 69 13 52.5
February 2004 17 72 11 53.0
January 2004 19 69 12 53.5

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 ninth consecutive month in April. The New Export Orders Index for April is 62 percent compared to March's 51.5 percent, indicating a dramatically faster rate of growth in April compared to March. Of the total respondents in April, 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 April are: Communication; Transportation; Wholesale Trade; Entertainment; Retail Trade; and Business Services. No industries are reporting decreases in new export orders in April.

New Export
Orders
% Higher % Same % Lower Index
April 2004 27 70 3 62.0
March 2004 16 71 13 51.5
February 2004 23 65 12 55.5
January 2004 16 70 14 51.0

Imports

In April, the ISM Imports Index registered 60.5 percent, the same as in March. This indicates that use of imported materials by non-manufacturing industries increased at the same rate in April as in March. April's index marks the 12th consecutive month of import growth after the April 2003 index value of 50 percent indicated no change in imports compared to March 2003. In April, 68 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 April are: Construction; Finance & Banking; Business Services; Utilities; and Entertainment. No industries are reporting decreased use of imports in April.

Imports % Higher % Same % Lower Index
April 2004 25 71 4 60.5
March 2004 27 67 6 60.5
February 2004 25 67 8 58.5
January 2004 23 63 14 54.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in April registered 58 percent, a 2.5 percentage point decrease from 60.5 percent reported in March. This indicates that non-manufacturing purchasing and supply executives feel less discomfort with current levels of inventory in April than they did during March. In April, 26 percent of respondents felt their inventories were too high, 10 percent indicated their inventories were too low, and 64 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in April are: Communication; Utilities; Agriculture; Other Services*; Mining; and Construction. The industries reporting that their inventories are too low in April are: Entertainment and Public Administration.

Inventory
Sentiment
% Too High % About Right % Too Low Index
April 2004 26 64 10 58.0
March 2004 26 69 5 60.5
February 2004 26 64 10 58.0
January 2004 27 64 9 59.0

*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

Beef; Copper; Steel Pipe and Fittings — 3rd month; Steel — 3rd month; Steel Items — 2nd month.

Commodities Reported Up in Price

Air Conditioning and Parts; Airfares; Aluminum/Aluminum Products — 4th month; Beef; Butter; Cable and Cable Wire; Carbon Steel — 3rd month; Cheese; Chicken; Conduit and Fittings — 3rd month; Copier Paper; Copper — 8th month; Copper Products including Pipe, Cable, Tubing, and Wire — 3rd month; Corn; Cotton Goods/Products; #2 Diesel Fuel — 5th month; Dairy and Dairy Products; Electricity; Energy; Fittings; Fuel — 5th month; Gasoline — 5th month; #2 Heating Oil — 4th month; Metal; Metal Products; Nickel; Oil; Paper — 3rd month; Paper Products — 2nd month; Petroleum-Based Products; Plastic — 4th month; Plastic Bags — 2nd month; Polyethylene Films; Polypropylene — 2nd month; Pork; Poultry; Printed Materials — 2nd month; PVC/PVC Pipe and Fittings — 2nd month; Shipping Costs; Soy Oil; Soybean Meal; Stainless Steel; Stainless Steel Welding Wire/Electrode; Steel — 6th month; Steel Beams; Steel Coil; Steel Pipe and Fittings — 4th month; Steel Products (large variety) — 2nd month; Steel-Related Products; Steel Scrap — 2nd month; Unleaded Gasoline — 4th month; Valves — 3rd month.

Commodities Reported Down in Price

Computer Hardware; Copiers; Corrugated; Pagers/Paging 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 May 2004 data will be released at 10:00 a.m. (ET) on June 3, 2004.


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