FOR RELEASE: June 5, 2001

Contact:	Kristen Kioa
	NAPM, Media Relations
	Tempe, Arizona
	(800) 888-6276, Ext. 3015

NON-MANUFACTURING BUSINESS ACTIVITY CONTRACTS 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 2001.

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

(Tempe, Arizona) — Business in the non-manufacturing sector declined in May 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 May, NAPM's Non-Manufacturing Business Activity Index indicated reduced activity in the non-manufacturing economy compared to April," Kauffman said. "New Orders and Order Backlogs shrank in May, but decreased more slowly than in April. Exports decreased after increasing in April, and Imports dropped for the fourth month. Employment was reduced and Inventories continued to decline. Supplier Deliveries continued to be slower in May. Prices increased at the same rate as in April, and 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 46.6 percent in May, 0.5 percentage point lower than in April, indicating slightly more rapid contraction in non-manufacturing economic activity. Many of the comments from purchasing executives are indicative of the slowness of business activity in May. Increased business activity in May was reported by 26 percent of purchasers, compared to 22 percent in April. Of the industry groups reporting in the May NAPM non-manufacturing survey, 8 indicated increased activity, 7 indicated decreased activity, and 1 reported no change in activity compared to April. In April, 8 industry groups reported increased activity, 7 reported decreased activity, and 2 reported no change in activity level," said Kauffman.

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

"Overall in May, non-manufacturing industries' business continued to contract with both business activity and the volume of new orders declining. Also this month, the Backlog of Orders Index indicated continued reduction of the number of orders not yet filled, non-manufacturing inventories decreased more slowly than in April, employment declined for the third consecutive month, and prices increased at the same rate as in March and April," Kauffman commented. "On a positive note, both new orders and order backlogs decreased at a slower rate in May than in April," Kauffman added.

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	46.6	47.1	-.5	Decreasing Faster
New Orders	48.6	45.9	+2.7	Decreasing Slower
Backlog of Orders	46.5	44.0	+2.5	Decreasing Slower
New Export Orders	48.5	55.5	-7.0	Decreasing from Increasing
Inventory Change	47.5	45.5	+2.0	Decreasing Slower
Inventory Sentiment	63.5	64.0	-.5	Decreased Feeling of "too high"
Imports	48.5	49.3	-.8	Decreasing Faster
Prices	59.5	59.5	0	Increasing at Same Rate
Employment	46.6	46.7	-.1	Decreasing Faster
Supplier Deliveries	52.0	51.0	+1.0	Slowing Faster

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS

	Non-Manufacturing			Manufacturing
Survey Question	May Index %	Index Change from Apr	Direction & Rate of Change	May Index	Index Change from Apr	Direction & Rate of Change
Business Activity/ Production	46.6	-.5	Decreasing Faster	42.7	-.2	Decreasing Faster
New Orders	48.6	+2.7	Decreasing Slower	45.5	-.4	Decreasing Faster
Backlog of Orders	46.5	+2.5	Decreasing Slower	40.0	-3.5	Decreasing Faster
New Export Orders	48.5	-7.0	Decreasing from Increasing	45.6	-1.7	Decreasing Faster
Inventories	47.5	+2.0	Decreasing Slower	38.7	-.9	Decreasing Faster
Inventory Sentiment	63.5	-.5	Decreased Feeling of "too high"	N/A
Imports	48.5	-.8	Decreasing Faster	46.6	-.6	Decreasing Faster
Prices	59.5	0	Increasing at Same Rate	45.2	-3.7	Decreasing Faster
Employment	46.6	- .1	Decreasing Faster	35.0	-3.1	Decreasing Faster
Supplier Deliveries	52.0	+1.0	Slowing Faster	45.7	- 1.7	Faster Faster

The Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. The 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 May decreased .5 percentage points to 46.6 percent from April's 47.1 percent. This indicates the second monthly reduction in business activity and a new overall low in the Business Activity Index. Purchasing executives' comments in May reflected slower economic activity. The percent of members reporting increased activity in May is 26 percent compared to 22 percent in April. Members reporting decreased activity was 28 percent in May, up from 20 percent in April. Those reporting no change in activity in May totaled 46 percent, a decrease of 12 percentage points from April's 58 percent.

The industries reporting the highest rates of growth of business activity in May were:
Insurance; Real Estate; Mining; Entertainment; Public Administration; and Health Services. The industries reporting the highest rates of decrease in business activity in May were: Communication; Finance and Banking; Construction; Transportation; and Business Services.

Business Activity	% Higher	% Same	% Lower	Index
May 2001	26	46	28	46.6
April 2001	22	58	20	47.1
March 2001	26	54	20	50.3
February 2001	26	51	23	51.7

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index rose to 48.6 percent in May from 45.9 percent in April. The May Index is the second consecutive month of reduction in new orders for non-manufacturing industries. Comments from members included: "Cutting back on spending"; "Fiscal year close"; "Temporary budget hold on new spending"; and "Slower economy, less shipments."

The industries reporting the highest rates of growth of new orders in May were: Real Estate; Mining; Entertainment; Health Services; Utilities; and Agriculture. The industries reporting the highest rates of decrease of new orders in May were: Communication; Construction; Business Services; Wholesale Trade; and Finance and Banking.

New Orders	% Higher	% Same	% Lower	Index
May 2001	27	49	24	48.6
April 2001	20	59	21	45.9
March 2001	28	52	20	52.2
February 2001	25	53	22	51.3

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 46.5 percent in May. This is the fifth consecutive monthly decline in order backlogs and the sixth decrease in seven months. The May index is an increase of 2.5 percentage points from April's 44 percent. Purchasing executives' comments on backlogs of orders included: "Higher inventory is reducing backlog," "Working off backlog"; "More product available"; and "Less requests, less backlogs." Of the total respondents in May, 29 percent indicated they do not measure backlog of orders.

The industries reporting highest rates of growth of backlog of orders in May were: Mining; Real Estate; Utilities; Transportation; and *Other Services. The industries reporting the highest rates of decline of order backlogs in May were: Agriculture; Wholesale Trade; Insurance; Business Services; and Entertainment.

Backlog of Orders	% Higher	% Same	% Lower	Index
May 2001	16	61	23	46.5
April 2001	10	68	22	44.0
March 2001	12	71	17	47.5
February 2001	12	67	21	45.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a faster rate in May, registering an index value of 52 percent. This is 1 percentage point above April's 51 percent. Comments from purchasing executives included: "Rail delivery slow due to Mississippi River floods"; "Vendors unable to manufacture fast enough"; "Loss of production, closed plants, layoff"; and "Supplier lead times are creeping out."

The industries that reported the highest rates of slowness of supplier deliveries in May were: Utilities; Business Services; Insurance; Retail Trade; and Public Administration.

Supplier Deliveries	% Higher	% Same	% Lower	Index
May 2001	3	90	7	52.0
April 2001	6	86	8	51.0
March 2001	8	83	9	50.5
February 2001	5	87	8	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 decreased in May after rising in April. The New Export Orders Index for May is 48.5 percent compared to April's 55.5 percent. Of the total respondents in May, 75 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 May were: Utilities; Agriculture; Retail Trade; and Business Services. Industries reporting decreases in new export orders in May were: Transportation; Communication; Entertainment; Wholesale Trade; and *Other Services.

New Export Orders	% Higher	% Same	% Lower	Index
May 2001	15	67	18	48.5
April 2001	22	67	11	55.5
March 2001	15	69	16	49.5
February 2001	15	77	8	53.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased in May at a faster rate. NAPM's Non-Manufacturing Imports Index for May is 48.5 percent, a decrease of 0.8 percentage point from the 49.3 percent reported in April. In May, 70 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 May were: Retail Trade; Business Services; and Wholesale Trade. Industries reporting decreased use of imports in May were: Entertainment; Communication; and *Other Services.

Imports	% Higher	% Same	% Lower	Index
May 2001	8	84	8	48.5
April 2001	12	77	11	49.3
March 2001	13	77	10	48.1
February 2001	7	79	14	46.8

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in May for the seventh consecutive month. NAPM's Non-Manufacturing Inventories Index registered 47.5 percent in May, an increase of 2 percentage points from the 45.5 percent reported in April. Of the total respondents in May, 24 percent indicated they do not have inventories. Comments from member purchasers included: "Working off inventory," "JIT production initiatives," "Slowly using old stock," and "Our customers are purchasing less."

The industries reporting inventory increases in May were: Real Estate; Insurance; Agriculture; and Health Services. Industries reporting the highest rates of inventory decrease in May were: Business Services; Communication; Finance and Banking; Construction; and Public Administration.

Inventory Change	% Higher	% Same	% Lower	Index
May 2001	18	59	23	47.5
April 2001	17	57	26	45.5
March 2001	20	58	22	49.0
February 2001	17	60	23	47.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in May registered 63.5 percent compared to 64 percent for April. This decrease in the 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, 35 percent of members felt their inventories were too high (32 percent in April). Also in May, 8 percent indicated their inventories were too low (4 percent in April), and 57 percent said that their inventories were about right (64 percent in April).

The industries that reported the highest rates of feeling that their inventories were "too high" in May were: Mining; Wholesale Trade; Communication; Utilities; and Insurance.

Inventory Sentiment	% Higher	% Same	% Lower	Index
May 2001	35	57	8	63.5
April 2001	32	64	4	64.0
March 2001	43	52	5	69.0
February 2001	37	56	7	65.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 27th consecutive month and at the same rate of increase as in March and April. NAPM's Non-Manufacturing Prices Index for all three months — March, April, and May — is 59.5 percent. The percentage of members reporting higher prices dropped 2 percentage points to 26 percent in May, the proportion indicating no change rose 4 percentage points to 67 percent, and the number who noted lower prices also dropped 2 percentage points to 7 percent.

The industries that reported the highest rates of increase in prices paid in May were: Entertainment; Transportation; Retail Trade; Public Administration; Real Estate; and Agriculture.

Prices	% Higher	% Same	% Lower	Index
May 2001	26	67	7	59.5
April 2001	28	63	9	59.5
March 2001	28	63	9	59.5
February 2001	29	63	8	60.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in May for the third consecutive month. NAPM's Non-Manufacturing Employment Index for May is 46.6 percent compared to 46.7 percent in April. May's Index was also the lowest value recorded since inception of NAPM's non-manufacturing business survey in July 1997. Comments from purchasers included: "Attrition without replacement," "Heightened recruitment. Nurses in high demand (RNs)," "Reduction in temporary employees," and "Layoffs and downsizing."

Industries reporting growth in employment in May were: Insurance; Real Estate; Mining; and Public Administration. Industries reporting the highest rates of reduction in employment in May were: Transportation; Business Services; Communication; *Other Services; Utilities; and Retail Trade.

Employment	% Higher	% Same	% Lower	Index
May 2001	15	65	20	46.6
April 2001	13	70	17	46.7
March 2001	16	69	15	49.4
February 2001	14	68	18	50.3

*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 — 2nd month; Gasoline; Natural Gas — 2nd month.

Commodities Reported Up in Price

Asphalt; Beef — 3rd month; Diesel Fuel — 4th month; Electricity — 5th month; Energy — 6th month; Food; Fuel — 16th month; Gasoline — 4th month; Labor — 3rd month; Meat; Oil-based Products; Paper — 26th month (some reports of price decreases); Paper Products; Petroleum Products — 2nd month; Plastics — 4th month; Plywood; Pork — 2nd month; Soy Bean Meal; Toner; Transportation; Travel; Utilities.

Commodities Reported Down in Price

Computers (PCs) — 15th month; Copper — 3rd month; Corrugated; Memory — 2nd month; Natural Gas (a few reports of price increases).

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

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