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June 2001 Non-Manufacturing NAPM Report On Business®

FOR RELEASE: July 5, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS 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 2001.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector grew in June 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 June, NAPM's Non-Manufacturing Business Activity Index indicated increased activity in the non-manufacturing economy compared to May," Kauffman said. "New Orders increased and Order Backlogs shrank more slowly in June than in May. Exports decreased more slowly in June, and the Imports Index remained below 50 percent for the fifth month. Employment was reduced and Inventories continued to decline. Supplier Deliveries continued to be slower in June. Prices increased at a slower rate than in May, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a somewhat 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 52.1 percent in June, 5.5 percentage points higher than in May, indicating expansion in non-manufacturing economic activity and reversing the contraction of recent months. Comments from purchasing executives indicate some industries are continuing to contract while others indicate growth in June. Increased business activity in June was reported by 30 percent of purchasers, compared to 26 percent in May. Of the industry groups reporting in the June NAPM non-manufacturing survey, 10 indicated increased activity, 4 indicated decreased activity, and 3 reported no change in activity compared to May. In May, 8 industry groups reported increased activity, 7 reported decreased activity, and 1 reported no change in activity level," said Kauffman.

This month our members reported that their inventories decreased for the eighth consecutive month and also reported a lower rate of increase than in May in the prices they pay for their purchases. The Prices Index dropped to 55.5 percent from 59.5 percent in May. Employment declined for the fourth consecutive month, with the Employment Index reaching its lowest level since inception of NAPM's non-manufacturing business survey in July 1997.

"Overall in June, non-manufacturing industries reversed their recent trend and reported growth in both business activity and new orders compared to May. 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 May, employment declined for the fourth consecutive month, and prices increased at a slower rate than in 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 52.1 46.6 +5.5 Increasing from Decreasing
New Orders 53.1 48.6 +4.5 Increasing from Decreasing
Backlog of Orders 49.0 46.5 +2.5 Decreasing Slower
New Export Orders 49.5 48.5 +1.0 Decreasing Slower
Inventory Change 48.5 47.5 +1.0 Decreasing Slower
Inventory Sentiment 65.0 63.5 +1.5 Increased Feeling of "too high"
Imports 48.6 48.5 + .1 Decreasing Slower
Prices 55.5 59.5 -4.0 Increasing Slower
Employment 45.1 46.6 -1.5 Decreasing Faster
Supplier Deliveries 51.0 52.0 -1.0 Slowing Slower

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Survey
Question
June
Index %
Index Change
from May
Direction &
Rate of
Change
June
Index
Index Change
from May
Direction &
Rate of
Change
Business Activity / Production 52.1 +5.5 Increasing from Decreasing 46.2 +3.5 Decreasing Slower
New Orders 53.1 +4.5 Increasing from Decreasing 48.6 +3.1 Decreasing Slower
Backlog of Orders 49.0 +2.5 Decreasing Slower 42.0 +2.0 Decreasing Slower
New Export Orders 49.5 +1.0 Decreasing Slower 45.5 - .1 Decreasing Faster
Inventories 48.5 +1.0 Decreasing Slower 40.8 +2.1 Decreasing Slower
Inventory Sentiment 65.0 +1.5 Increased Feeling
of "too high"
N/A    
Imports 48.6 + .1 Decreasing Slower 48.0 +1.4 Decreasing Slower
Prices 55.5 -4.0 Increasing Slower 42.3 -2.9 Decreasing Faster
Employment 45.1 -1.5 Decreasing Faster 36.3 +1.3 Decreasing Slower
Supplier Deliveries 51.0 -1.0 Slowing Slower 48.0 +2.3 Faster Slower

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. 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 June increased 5.5 percentage points to 52.1 percent from May's 46.6 percent. June's Index was the highest since December 2000 (61.1 percent). This indicates a turnaround from contraction to expansion in non-manufacturing business activity. Purchasing executives' comments in June reflected increased economic activity in some sectors and continued slow conditions in other areas. The percent of members reporting increased activity in June is 30 percent compared to 26 percent in May. Members reporting decreased activity was 20 percent in June, down from 28 percent in May. Those reporting no change in activity in June totaled 50 percent, an increase of 4 percentage points from May's 46 percent.

The industries reporting the highest rates of growth of business activity in June were:
Legal Services; Public Administration; Insurance; *Other Services; Retail Trade; and Mining.

Business
Activity
% Higher % Same % Lower Index
June 2001 30 50 20 52.1
May 2001 26 46 28 46.6
April 2001 22 58 20 47.1
March 2001 26 54 20 50.3

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index rose to 53.1 percent in June from 48.6 percent in May. The June Index is the highest New Orders report since December 2000 (57 percent). Comments from members included: "Seven new schools to open in July," "Opened two new (retail) units," "Sales for products pick up in May and June," and "More customer inquiries."

The industries reporting the highest rates of growth of new orders in June were: Legal Services; Insurance; Mining; Public Administration; and *Other Services.

New Orders % Higher % Same % Lower Index
June 2001 32 48 20 53.1
May 2001 27 49 24 48.6
April 2001 20 59 21 45.9
March 2001 28 52 20 52.2

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 49.0 percent in June. This is the sixth consecutive monthly decline in order backlogs but the highest Backlog of Orders Index since December 2000 (50.5). The June index is an increase of 2.5 percentage points from May's 46.5 percent. Purchasing executives' comments on backlogs of orders included: "Because new orders are lower," "Not getting new work," "Decrease in activity," and "Manufacturers cutting back on production." Of the total respondents in June, 28 percent indicated they do not measure backlog of orders.

The industries reporting highest rates of growth of backlog of orders in June were: Legal Services; Mining; Public Administration; Real Estate; and Entertainment. The industries reporting the highest rates of decline of order backlogs in June were: Agriculture; Business Services; Construction; Insurance; Finance and Banking; and Transportation.

Backlog
of Orders
% Higher % Same % Lower Index
June 2001 13 72 15 49.0
May 2001 16 61 23 46.5
April 2001 10 68 22 44.0
March 2001 12 71 17 47.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slower rate in June, registering an index value of 51 percent. This is 1 percentage point below May's 52 percent. Comments from purchasing executives included: "Improved rail delivery," "Suppliers generally report that their business is lower than first quarter levels," "Less backorders," and "Due to increased demand for product due to increased activity."

The industries that reported the highest rates of slowness of supplier deliveries in June were: Legal Services; Mining; Communication; Utilities; and Transportation.

Supplier
Deliveries
% Higher % Same % Lower Index
June 2001 5 88 7 51.0
May 2001 3 90 7 52.0
April 2001 6 86 8 51.0
March 2001 8 83 9 50.5

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 for the second month in June. The New Export Orders Index for June is 49.5 percent compared to May's 48.5 percent. Of the total respondents in June, 72 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 June were: *Other Services; Wholesale Trade; and Communication. Industries reporting decreases in new export orders in June were: Construction; Transportation; Entertainment; Business Services; Agriculture; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
June 2001 16 67 17 49.5
May 2001 15 67 18 48.5
April 2001 22 67 11 55.5
March 2001 15 69 16 49.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased in June at a slightly slower rate. NAPM's Non-Manufacturing Imports Index for June was 48.6 percent, an increase of 0.1 percentage point from the 48.5 percent reported in May. In June, 68 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 June were: Insurance; Wholesale Trade; and Business Services. Industries reporting decreased use of imports in June were: Transportation; Construction; Agriculture; and Communication.

Imports % Higher % Same % Lower Index
June 2001 14 72 14 48.6
May 2001 8 84 8 48.5
April 2001 12 77 11 49.3
March 2001 13 77 10 48.1

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in June for the eighth consecutive month at a slightly slower rate. NAPM's Non-Manufacturing Inventories Index registered 48.5 percent in June, an increase of 1 percentage point from the 47.5 percent reported in May. Of the total respondents in June, 24 percent indicated they do not have inventories. Comments from member purchasers included: "Concerted effort to reduce raw material inventories," "Program to reduce inventory," "Selling obsolete inventory," and "Reducing due to sales slowdown."

The industries reporting the highest rates of inventory increase in June were: Legal Services; Real Estate; Retail Trade; Insurance; Public Administration; and Health Services. Industries reporting the highest rates of inventory decrease in June were: Construction; Business Services; Utilities; Transportation; and Mining.

Inventory
Change
% Higher % Same % Lower Index
June 2001 20 57 23 48.5
May 2001 18 59 23 47.5
April 2001 17 57 26 45.5
March 2001 20 58 22 49.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in June registered 65.0 percent compared to 63.5 percent for May. This increase in the 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, 36 percent of members felt their inventories were too high (35 percent in May). Also in June, 6 percent indicated their inventories were too low (8 percent in May), and 58 percent said that their inventories were about right (57 percent in May).

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

Inventory
Sentiment
% Higher % Same % Lower Index
June 2001 36 58 6 65.0
May 2001 35 57 8 63.5
April 2001 32 64 4 64.0
March 2001 43 52 5 69.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in June for the 28th consecutive month but at a slower rate of increase than in May. NAPM's Non-Manufacturing Prices Index for June is 55.5 percent, 4 percentage points lower than May's 59.5 percent. The percentage of members reporting higher prices dropped 6 percentage points to 20 percent in June, the proportion indicating no change rose 4 percentage points to 71 percent, and the number who noted lower prices rose 2 percentage points to 9 percent.

The industries that reported the highest rates of increase in prices paid in June were: Mining; Insurance; Agriculture; Transportation; Public Administration; and Entertainment.

Prices % Higher % Same % Lower Index
June 2001 20 71 9 55.5
May 2001 26 67 7 59.5
April 2001 28 63 9 59.5
March 2001 28 63 9 59.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in June for the fourth consecutive month. NAPM's Non-Manufacturing Employment Index for June was 45.1 percent compared to 46.6 percent in May. June's Index was also the lowest value recorded since inception of NAPM's non-manufacturing business survey in July 1997. Comments from purchasers included: "Hiring freeze, no replacements, vacancies and higher attrition," "Not backfilling for retirements and resignations," and "Both layoffs and people leaving for new jobs."

Industries reporting the highest rates of growth in employment in June were: Legal Services; Insurance; Construction; *Other Services; and Real Estate. Industries reporting the highest rates of reduction in employment in June were: Communication; Business Services; Mining; Agriculture; and Wholesale Trade.

Employment % Higher % Same % Lower Index
June 2001 14 67 19 45.1
May 2001 15 65 20 46.6
April 2001 13 70 17 46.7
March 2001 16 69 15 49.4

*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

Caustic Soda.

Commodities Reported Up in Price

Airfares; Asphalt — 2nd month; Cheese; Dairy; Diesel Fuel — 5th month (some reports of price decreases); Electricity — 6th month; Energy — 7th month; Food — 2nd month; Fuel — 17th month (some reports of price decreases); Gasoline — 5th month (some reports of price decreases); Natural Gas; Oil-based (Petroleum) Products — 2nd month; Paper — 27th month; Paper Products — 2nd month; Petroleum Products — 3rd month; Pharmaceuticals; Pork — 3rd month; Toner — 2nd month.

Commodities Reported Down in Price

Computers (PCs) — 16th month; Corrugated — 2nd month; Hotel Conference Costs; Software.

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 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 July 2001 data will be released at 10:00 a.m. (ET) on August 3, 2001.



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