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May 2000 Non-Manufacturing NAPM Report On Business®

FOR RELEASE: June 5, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTINUES TO GROW IN MAY 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 May 2000.

Business Activity, New Orders, Order Backlogs, Employment, and Prices Increase, but at Slower Rates

(Tempe, Arizona) — Business in the non-manufacturing sector grew in May 2000 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 May, NAPM's Non-Manufacturing Business Activity Index continued its indication of a long-term growth trend, but the index itself and several other indexes decreased, indicating a slower rate of business increase in May than in April," Kauffman said. "New Orders and Backlog of Orders increased at slower rates in May, as did Employment and Prices. Countering these slower rates of increase, New Export Orders and usage of Imports both increased at faster rates. Supplier Deliveries were slower than in April, and with an increased rate of slowing. Inventories decreased in May after increasing in March and April. The Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a slightly lesser degree of discomfort with the level of inventories in May than they did in April," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 61.5 percent in May, 3.5 percentage points lower than in April, indicating slower growth in non-manufacturing economic activity. However, comments from purchasing executives continued to be positive on business activity in May. Increased business activity in May was reported by 35 percent of purchasers, a decrease of 2 percentage points from the 37 percent reporting more activity in April. Of the industry groups reporting in the May NAPM non-manufacturing survey, 14 indicated increased activity, 1 indicated decreased activity, and 2 reported no change from April. In April, 14 industry groups reported increased activity and 2 reported decreased activity," said Kauffman.

This month our members reported a decrease in their inventories compared to April. Comments from members indicate that some are beginning to cut back due to inventory reduction efforts or in anticipation of a slowdown in sales. Prices paid by members' firms for purchased materials and services continue to be a concern although the rate of price increase moderated in May. The May Price Index decreased to 65.5 percent from 71 percent in April. However, compared to December 1999, the Price Index is still up almost 10 percentage points (December 1999 index was 56 percent). The percent of members reporting higher prices also dipped substantially in May (to 34 percent from 47 percent in April). However, in December 1999 only 17 percent of members reported paying higher prices for materials and services.

"Overall in May, non-manufacturing industries continued their long-term growth trend, although at a slower rate of growth than in April. This month the Business Activity Index and the New Orders Index both moderated. Non-manufacturing employment rose at a slower rate of increase in May, and the Prices Index also indicated a slowing in the rate of price increase compared to April," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series May
Indexes
April
Indexes
May vs. April
Index Change
Direction and
Rate of Change
Business Activity 61.5 65.0 -3.5 Increasing Slower
New Orders 63.5 65.0 -1.5 Increasing Slower
Backlog of Orders 53.5 55.5 -2.0 Increasing Slower
New Export Orders 62.0 59.0 +3.0 Increasing Faster
Inventory Change 49.5 53.5 -4.0 Decreasing from Increasing
Inventory Sentiment 63.0 64.0 -1.0 Decreased Feeling of "too high"
Imports 56.0 55.5 +0.5 Increasing Faster
Prices 65.5 71.0 -5.5 Increasing Slower
Employment 54.5 56.0 -1.5 Increasing Slower
Supplier Deliveries 57.0 55.0 +2.0 Slowing at a Faster Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in May with a faster rate of growth in non-manufacturing business activity. New orders also increased for both the non-manufacturing and manufacturing sectors with a greater rate of increase for non-manufacturing. Backlog of orders increased for non-manufacturing and decreased in manufacturing. Prices increased in May for both areas but rose slightly faster for manufacturing. Employment in May increased for both sectors and grew slightly faster for non-manufacturing. Inventories decreased for both sectors with a faster rate of reduction for manufacturing. New export orders increased for both manufacturing and non-manufacturing with a faster rate of increase for non-manufacturing. Supplier delivery performance in May was reported to be slower by both sectors but with a higher rate of slowness in non-manufacturing. Use of Imports was up in both manufacturing and non-manufacturing in May with non-manufacturing reporting a higher rate of increase.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 61.5 Production 56.3
New Orders 63.5 New Orders 51.1
Backlog of Orders 53.5 Backlog of Orders 49.0
New Export Orders 62.0 New Export Orders 56.3
Inventory Change 49.5 Inventories 47.1
Inventory Sentiment 63.0    
Imports 56.0 Imports 54.7
Prices 65.5 Prices 65.8
Employment 54.5 Employment 54.1
Supplier Deliveries 57.0 Supplier Deliveries 55.0

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing NAPM Report On Business® data is not seasonally adjusted.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in May decreased to 61.5 percent, indicating increased business activity at a slower rate of increase than in April (65 percent). Purchasing executives' comments in May continued to be positive. The percent of members reporting increased activity dropped for the second month from 37 percent in April to 35 percent in May. Members reporting decreased activity increased from 7 percent in April to 12 percent in May. Those reporting no change in activity in May totaled 53 percent, an decrease of 3 percentage points from April's 56 percent.

The industries reporting the highest rates of growth of business activity in May were: Real Estate; Insurance; Retail Trade; *Other Services; and Agriculture.

Business
Activity
% Higher % Same % Lower Index
May 2000 35 53 12 61.5
April 2000 37 56 7 65.0
March 2000 39 50 11 64.0
February 2000 28 60 12 58.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index decreased to 63.5 percent in May from 65 percent in April, indicating a somewhat slower rate of increase for new orders to non-manufacturers. Comments from members included: "High level of requests for new technology," "Continued strong economy," and "Increased activities, procedures."

The industries reporting the highest rates of growth of new orders in May were: Real Estate; *Other Services; Insurance; Retail Trade; and Business Services.

New
Orders
% Higher % Same % Lower Index
May 2000 38 51 11 63.5
April 2000 38 54 8 65.0
March 2000 37 54 9 64.0
February 2000 29 60 11 59.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated increased backlogs for the fourth consecutive month by registering 53.5 percent in May. This is a decrease of 2 percentage points from April's 55.5 percent, indicating a decreased rate of growth in order backlogs in May. Purchasing executives' comments on backlogs of orders included: "Demand for materials," "More business," "Delayed shipments," and "Many vendor delays of food products. "Of the total respondents in May, 25.3 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in May were: Retail Trade; Agriculture; Mining; Public Administration; and Finance and Banking.

Backlog
of Orders
% Higher % Same % Lower Index
May 2000 20 67 13 53.5
April 2000 18 75 7 55.5
March 2000 17 72 11 53.0
February 2000 17 70 13 52.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a faster rate in May than in April. NAPM's Non-Manufacturing Supplier Deliveries Index for May was 57 percent compared to 55 percent in April. This reflects the indication that while business activity grew at a slower rate, it still grew, putting added pressure on delivery performance. May's index was the highest since August 1997 (71.5 percent) when deliveries were delayed by a United Parcel Service strike. Comments from purchasing executives included: "Lead times longer on high tech equipment," "Increasing leadtimes," and "Longer lead times in economy."

The industries that reported the highest rates of slowness of supplier deliveries in May were: Wholesale Trade; Utilities; Mining; Construction; and Retail Trade.

Supplier
Deliveries
% Higher % Same % Lower Index
May 2000 2 82 16 57.0
April 2000 4 82 14 55.0
March 2000 7 81 12 52.5
February 2000 3 84 13 55.0

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 May for the third consecutive month. NAPM's Non-Manufacturing New Export Orders Index was 62 percent in May compared to 59 percent in April. May's Index was the highest since September 1999 (62.5 percent). Of the total respondents in May, 75.4 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting growth of new export orders in May were: Insurance; Health Services; Retail Trade; Business Services; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
May 2000 31 62 7 62.0
April 2000 19 80 1 59.0
March 2000 15 81 4 55.5
February 2000 11 73 16 47.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased, and at a slightly higher rate, for the third consecutive month in May. NAPM's Non-Manufacturing Imports Index for May was 56 percent compared to 55.5 percent in April. In May, 65.8 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting higher rates of growth in use of imports in May were: Utilities; Real Estate; Transportation; Communication; and *Other Services.

Imports % Higher % Same % Lower Index
May 2000 19 74 7 56.0
April 2000 16 79 5 55.5
March 2000 21 74 5 58.0
February 2000 14 72 14 50.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in May after increasing for two consecutive months. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in May, compared to 53.5 percent in April. Of the total respondents in May, 22.8 percent indicated they do not have inventories. Comments from member purchasers included: "Need (inventories) to handle extra demand," "Manufacturers shipping on time," "Inventory reduction program," (multiple similar comments) and "Anticipation of sales slowdown."

Industries reporting the highest rates of inventory increase in May were: Insurance; Entertainment; Communication; Real Estate; and Agriculture.

Industries reporting the highest rates of inventory decrease in May were: Transportation; Health Services; Mining; Public Administration; and Utilities.

Inventory
Change
% Higher % Same % Lower Index
May 2000 20 59 21 49.5
April 2000 25 57 18 53.5
March 2000 22 59 19 51.5
February 2000 19 61 20 49.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in May registered 63 percent compared to 64 percent for April. This decreased index level indicates that non-manufacturing purchasing executives felt a lesser degree of discomfort with current levels of inventory in May than they did during April. In May, 32 percent of members felt their inventories were too high (31 percent in April). Also in May, 6 percent indicated their inventories were too low (3 percent in April), and 62 percent said that their inventories were about right (66 percent in April).

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

Inventory
Sentiment
% Higher % Same % Lower Index
May 2000 32 62 6 63.0
April 2000 31 66 3 64.0
March 2000 29 63 8 60.5
February 2000 39 55 6 66.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 15th consecutive month but at a slower rate of increase than in April. NAPM's Non-Manufacturing Price Index for May dropped to 65.5 percent, compared to 71 percent in April. The May Price Index was the lowest since January 2000 (61.5 percent).

The industries that reported the highest rate of increase in prices paid in May were: Agriculture; Retail Trade; Mining; Transportation; Business Services; and Wholesale Trade.

Prices % Higher % Same % Lower Index
May 2000 34 63 3 65.5
April 2000 47 48 5 71.0
March 2000 50 44 6 72.0
February 2000 39 59 2 68.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at slower rate in May than in April. NAPM's Non-Manufacturing Employment Index for May was 54.5 percent compared to 56 percent in April. Comments from purchasers included: "Expanding business opportunities," "Continued growth," "More projects running," and "Increased business."

The industries reporting the highest rates of growth of employment in May were: Communication; Real Estate; Agriculture; Finance and Banking; and Insurance.

Employment % Higher % Same % Lower Index
May 2000 21 67 12 54.5
April 2000 21 70 9 56.0
March 2000 22 68 10 56.0
February 2000 14 72 14 50.0

*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:

Electrical Safety Products — 2nd month; Electronic Components; Labor — 3rd month; Laptops — 3rd month; PVC Pipe — 4th month; Steel Beams — 2nd month; Temporary Help.

Commodities Reported Up in Price:

Beef — 2nd month; Carpet; Construction Labor; Construction Materials; Corrugated — 4th month; Dairy; Freight Service — 3rd month; Fuel — 4th month (some reports of price decreases); Furniture; Gasoline — 15th month (some reports of price decreases); Paper — 14th month; Petroleum-based Products — 5th month; Petroleum Products; Plastic Products; Plastics — 3rd month; Polybags; Polyethylene Products — 2nd month; Printing — 2nd month; PVC Pipe — 4th month; Roofing Products; Stainless Steel — 2nd month; Steel Pipe — 2nd month; Steel Products — 2nd month; Transportation — 3rd month.

Commodities Reported Down in Price:

Computers and Accessories — 3rd month for computers; Drywall; PCs — 2nd month; Plywood; Software — 2nd month.

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 182 affiliates with more than 45,000 members in the United States and Puerto Rico.

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 June 2000 data will be released at 10:00 a.m. (ET) on July 5, 2000.



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