June 2000 Non-Manufacturing Report On Business®

FOR RELEASE: July 3, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTINUES TO GROW IN JUNE 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 June 2000.

Business Activity, Order Backlogs, Employment, and Prices Increase at Faster Rates

(Tempe, Arizona) — Business in the non-manufacturing sector grew in June 2000 say the nation's purchasing executives in the latest Non-Manufacturing 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 June, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend. The Business Activity Index reversed last month's slower growth and indicated a faster rate of business increase in June than in May," Kauffman said. "Backlog of Orders, Employment, and Prices increased at faster rates in June, while New Orders increased at the same rate as in May. Members reported that at least some of the faster increases were due to high seasonal activity. Inventories also increased in June. Countering the faster rates of increase, New Export Orders and usage of Imports both increased at slower rates. Supplier Deliveries were slower than in May, with a decreased rate of slowing. The Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a greater degree of discomfort with the level of inventories in June than they did in May," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 64 percent in June, 2.5 percentage points higher than in May, indicating faster growth in non-manufacturing economic activity. Comments from purchasing executives were very positive on business activity in June. Increased business activity in June was reported by 37 percent of purchasers, an increase of 2 percentage points from the 35 percent reporting more activity in May. Of the industry groups reporting in the June NAPM non-manufacturing survey, 13 indicated increased activity, 1 indicated decreased activity, and 2 reported no change from May. In May, 14 industry groups reported increased activity, 1 reported decreased activity, and 2 reported no change in activity level," said Kauffman.

This month our members reported an increase in their inventories after indicating a decrease in May. Comments from members indicate that many are increasing inventories to meet current and expected future sales. However, many others indicated they have inventory reduction programs in place. The percentages of members reporting increases and decreases moved from almost an even split in May (20 percent increased and 21 percent decreased) to 27 percent reporting increases and 19 percent reporting decreases in June (remaining members in both months indicated no change).

"Overall in June, non-manufacturing industries continued their long-term growth trend, and at a somewhat higher rate of growth than in May. This month the Business Activity Index increased and the New Orders Index was unchanged from its May level. Non-manufacturing employment rose at a faster rate of increase in June, and the Prices Index indicated a slight increase in the rate of price increase compared to May," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series June
Indexes
May
Indexes
June vs. May
Index Change
Direction and
Rate of Change
Business Activity 64.0 61.5 +2.5 Increasing Faster
New Orders 63.5 63.5 0.0 Increasing at Same Rate
Backlog of Orders 56.5 53.5 +3.0 Increasing Faster
New Export Orders 57.0 62.0 -5.0 Increasing Slower
Inventory Change 54.0 49.5 +4.5 Increasing from Decreasing
Inventory Sentiment 66.5 63.0 +3.5 Increased Feeling of "too high"
Imports 53.0 56.0 -3.0 Increasing Slower
Prices 66.0 65.5 +0.5 Increasing Faster
Employment 56.5 54.5 +2.0 Increasing Faster
Supplier Deliveries 53.5 57.0 -3.5 Slowing at a Slower Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in June 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 June for both areas but rose faster for non-manufacturing. Employment in June increased for both sectors and grew faster for non-manufacturing. Inventories decreased for manufacturing but increased for non-manufacturing. New export orders increased for both manufacturing and non-manufacturing with a faster rate of increase for non-manufacturing. Supplier delivery performance in June was reported to be slower by both sectors but with a higher rate of slowness in manufacturing. Use of Imports was up in both manufacturing and non-manufacturing in June with manufacturing reporting a higher rate of increase.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 64.0 Production 53.6
New Orders 63.5 New Orders 50.6
Backlog of Orders 56.5 Backlog of Orders 48.5
New Export Orders 57.0 New Export Orders 53.2
Inventory Change 54.0 Inventories 47.4
Inventory Sentiment 66.5    
Imports 53.0 Imports 56.0
Prices 66.0 Prices 61.2
Employment 56.5 Employment 50.8
Supplier Deliveries 53.5 Supplier Deliveries 55.1

* 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 June increased to 64 percent, indicating increased business activity at a faster rate of increase than in May (61.5 percent). Purchasing executives' comments in June were very positive. The percent of members reporting increased activity rose from 35 percent in May to 37 percent in June. Members reporting decreased activity dropped from 12 percent in May to 9 percent in June. Those reporting no change in activity in June totaled 54 percent, an increase of 1 percentage point from May's 53 percent.

The industries reporting the highest rates of growth of business activity in June were:
Utilities; Entertainment; Finance and Banking; Communication; Health Services; Transportation; *Other Services; and Wholesale Trade.

Business
Activity
% Higher % Same % Lower Index
June 2000 37 54 9 64.0
May 2000 35 53 12 61.5
April 2000 37 56 7 65.0
March 2000 39 50 11 64.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index remained constant at 63.5 percent in June, the same level as in May, indicating the same rate of increase for both months for new orders to non-manufacturers. Comments from members included: "Increasing Internet sales, strong demand for information products," "Summer projects," and "(product) promotions."

The industries reporting the highest rates of growth of new orders in June were: Finance and banking; Entertainment; Utilities; Communication; and *Other Services.

New Orders % Higher % Same % Lower Index
June 2000 39 49 12 63.5
May 2000 38 51 11 63.5
April 2000 38 54 8 65.0
March 2000 37 54 9 64.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated increased backlogs for the fifth consecutive month by registering 56.5 percent in June. This is an increase of 3 percentage points from May's 53.5 percent, indicating an increased rate of growth in order backlogs in June. June's Index is also the highest since August 1998, also 56.5 percent. Purchasing executives' comments on backlogs of orders included: "Delivery issues from main vendor-partner," "Backlog increases as we book more orders," "Suppliers cannot keep up," and "Proposal wins add to backlog." Of the total respondents in June, 26.1 percent indicated they do not measure backlog of orders.

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

Backlog
of Orders
% Higher % Same % Lower Index
June 2000 24 65 11 56.5
May 2000 20 67 13 53.5
April 2000 18 75 7 55.5
March 2000 17 72 11 53.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slower rate in June than in May. NAPM's Non-Manufacturing Supplier Deliveries Index for June was 53.5 percent compared to 57 percent in May. Comments from purchasing executives included: "Production delays in Japan, Europe," "Suppliers slowing delivery to cut costs," "Freight line performance (lack of)," and "Furniture manufacturers not meeting deliveries."

The industries that reported the highest rates of slowness of supplier deliveries in June were: Communication; Retail Trade; Insurance; Wholesale Trade; Health Services; and Finance and Banking.

Supplier
Deliveries
% Higher % Same % Lower Index
June 2000 4 85 11 53.5
May 2000 2 82 16 57.0
April 2000 4 82 14 55.0
March 2000 7 81 12 52.5

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 increased in June for the fourth consecutive month. The rate of increase in June was slower than in May as NAPM's Non-Manufacturing New Export Orders Index dropped to 57 percent from May's 62 percent. Of the total respondents in June, 76 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 June were: Transportation; Finance and Banking; Communication; Business Services; Construction; Retail Trade; and *Other Services.

New Export
Orders
% Higher % Same % Lower Index
June 2000 28 58 14 57.0
May 2000 31 62 7 62.0
April 2000 19 80 1 59.0
March 2000 15 81 4 55.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased, but at a lower rate of increase, for the fourth consecutive month in June. NAPM's Non-Manufacturing Imports Index for June was 53 percent compared to 56 percent in May. In June, 65.3 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 June were: Insurance; Transportation; Construction; Business Services; and Communication.

Imports % Higher % Same % Lower Index
June 2000 18 70 12 53.0
May 2000 19 74 7 56.0
April 2000 16 79 5 55.5
March 2000 21 74 5 58.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in June after decreasing in May. NAPM's Non-Manufacturing Inventories Index registered 54 percent in June, compared to 49.5 percent in May. June's Inventory Index was the highest since September 1997 (also 54 percent). Of the total respondents in June, 22.6 percent indicated they do not have inventories. Comments from member purchasers included: "Longer lead times from Europe and Japan, customers requesting increases in on-hand stock," "Stock to support webhosting activity," "Inventory reduction program" (multiple similar comments), and "Building stocks for next year" (seasonal).

Industries reporting the highest rates of inventory increase in June were: Real Estate; Communication; Agriculture; Public Administration; Entertainment; and Wholesale Trade.

Inventory
Change
% Higher % Same % Lower Index
June 2000 27 54 19 54.0
May 2000 20 59 21 49.5
April 2000 25 57 18 53.5
March 2000 22 59 19 51.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in June registered 66.5 percent compared to 63 percent for May. This increased index level indicates that non-manufacturing purchasing executives felt a greater degree of discomfort with current levels of inventory in June than they did during May. In June, 38 percent of members felt their inventories were too high (32 percent in May). Also in June, 5 percent indicated their inventories were too low (6 percent in May), and 57 percent said that their inventories were about right (62 percent in May).

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

Inventory
Sentiment
% Higher % Same % Lower Index
June 2000 38 57 5 66.5
May 2000 32 62 6 63.0
April 2000 31 66 3 64.0
March 2000 29 63 8 60.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in June for the 16th consecutive month and at a slightly higher rate of increase than in May. NAPM's Non-Manufacturing Price Index for June edged up to 66 percent, compared to 65.5 percent in May.

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

Prices % Higher % Same % Lower Index
June 2000 35 62 3 66.0
May 2000 34 63 3 65.5
April 2000 47 48 5 71.0
March 2000 50 44 6 72.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at faster rate in June than in May. NAPM's Non-Manufacturing Employment Index for June was 56.5 percent compared to 54.5 percent in May. Comments from purchasers included: "Hard to find engineers," "More work," "High turnover," and "Seasonal increases" (numerous comments on seasonal increases).

The industries reporting the highest rates of growth of employment in June were: Insurance; Communication; Transportation; Real Estate; and *Other Services.

Employment % Higher % Same % Lower Index
June 2000 25 63 12 56.5
May 2000 21 67 12 54.5
April 2000 21 70 9 56.0
March 2000 22 68 10 56.0

*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:

Aircraft Parts; Computer Hardware; Computers; Electronics and Electronic Components — 2nd month; Gasoline; Labor — 4th month; Laptops — 4th month; Plastics; Temporary Help — 2nd month.

Commodities Reported Up in Price:

Air Fares; Chemicals; Corrugated — 5th month; Cut Sheet Paper; Diesel Fuel; Fittings; Fuel — 5th month; Fuel Oil; Gasoline — 16th month; Lumber; Memory; Paper — 15th month; Paper Products; Petroleum-based Products — 6th month; Petroleum Products — 2nd month; Plastic; Plastics — 4th month; Pork; Resins; Stainless Steel — 3rd month; Transportation — 4th month.

Commodities Reported Down in Price:

Computers — 4th 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 181 affiliates with more than 45,000 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 July 2000 data will be released at 10:00 a.m. (ET) on August 3, 2000.



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