June 2002 Non-Manufacturing ISM Report On Business®

FOR RELEASE: July 3, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 57.2%

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 June 2002.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in June 2002, 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. "In June, non-manufacturing business activity increased at a slower rate than in May. The reported growth represents the fifth consecutive month of significant expansion in non-manufacturing business activity," Kauffman said. He added, "Also in June, New Orders grew at a slightly faster rate than in May, and the Backlog of Orders Index moved below 50 percent, indicating smaller backlogs than in May."

Reports from purchasing and supply executives indicate 13 industry groups grew in June, two groups contracted, and two groups indicated no change. Increased business activity in June was reported by 35 percent of members, compared to May's 34 percent. Reduced activity was reported by 15 percent of members compared to 11 percent in May. In June, the remaining 50 percent of members indicated no change in business activity compared to 55 percent in May. The overall sense of how members currently assess the business climate is reflected in one member's statement that their business outlook is "cautiously optimistic." Other comments ranged from "New orders have slowed to nothing," to "Outlook good, business up."

Also this month, Inventories decreased for the second consecutive month and Prices increased for the fourth month. New Export Orders and Imports continued to increase in June, while Employment shrank for the 16th consecutive month. The Inventory Sentiment Index increased, indicating greater discomfort with current inventory levels. Supplier Deliveries indicated slower performance for the 10th consecutive month.

"Overall in June, non-manufacturing industries reported weaker growth, with business activity increasing at a slower rate than in May. In addition, new orders grew at a slightly higher rate than in May. Order backlogs decreased, export and import activity increased, and inventories decreased. Employment decreased faster than in May, and prices increased at a slower rate than in May," Kauffman commented.

Significant reports of commodities in short supply or up or down in price in June indicate none are in short supply. Price increases are reported for auto fuel; beef; copper; drywall; fuel; paper; plastic bags; polyethylene film; PVC pipe and fittings; roofing shingles; soybean meal; stainless steel; stainless steel pipe; steel; steel pipe; and steel products. Price decreases are reported for cheese; computers; diesel fuel; fuel; gasoline; medical supplies; PCs; and pork.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index June
Index %
May
Index %
Index Change
from May
Direction &
Rate of Change
June
Index %
May
Index %
Index Change
from May
Business Activity / Production 57.2 60.1 -2.9 Increasing Slower 61.4 58.5 +2.9
New Orders 56.9 56.8 +0.1 Increasing faster 60.8 63.1 -2.3
Employment 44.3 49.5 -5.2 Decreasing Faster 49.7 47.3 +2.4
Supplier Deliveries 53.5 52.0 +1.5 Slowing faster 55.2 53.9 +1.3
Inventories 47.5 48.5 -1.0 Decreasing faster 43.7 45.6 -1.9
Prices 54.0 55.5 -1.5 Increasing Slower 65.5 63.0 +2.5
Backlog of Orders 49.0 53.5 -4.5 Decreasing from Increasing 53.5 56.5 -3.0
New Export Orders 57.5 61.5 -4.0 Increasing slower 54.5 53.3 +1.2
Imports 55.2 54.0 +1.2 Increasing faster 55.1 53.6 +1.5
Inventory Sentiment 66.0 65.0 +1.0 Increased feeling of "too high" N/A    
Customer Inventories N/A       44.5 39.0 +5.5

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders and Customer Inventories.

Business Activity

ISM's Non-Manufacturing Business Activity Index in June declined 2.9 percentage points on a seasonally adjusted basis to 57.2 percent from May's 60.1 percent. June's Index indicates a slowing in the rate of growth following May's result which was the highest Business Activity measure since 60.8 percent was recorded in August 2000. In June, 13 sectors reported increased business activity, two sectors reported decreased activity, and two were unchanged, compared to May. The percent of members reporting increased activity in June was 35 percent, an increase of 1 percentage point from May's 34 percent. Decreased activity was reported by 15 percent of members in June, compared to 11 percent in May. Those reporting no change in activity in June totaled 50 percent, compared to 55 percent in May.

The industries reporting the highest rates of growth of business activity in June are: Legal Services; Wholesale Trade; Real Estate; Utilities; Entertainment; Other Services*; and Public Administration. The industries reporting contraction of business activity in June are: Agriculture and Communication.

Business
Activity
% Higher % Same % Lower Index
June 2002 35 50 15 57.2
May 2002 34 55 11 60.1
April 2002 31 56 13 55.3
March 2002 32 57 11 57.3

New Orders

ISM's Non-Manufacturing New Orders Index increased very slightly to 56.9 percent in June from 56.8 percent in May. Except for the 57.3 percent Index in February 2002, June's New Orders Index is the highest since November 2000 (57.9 percent). Comments from members include: "Economy recovering"; "Increased activity in our branches"; "Increase in proposal work"; and "Not performing capital purchases."

The industries reporting the highest rates of growth of new orders in June are: Legal Services; Wholesale Trade; Real Estate; Utilities; Entertainment; and Mining. The industries reporting contraction of new orders in June are: Agriculture and Insurance.

New Orders % Higher % Same % Lower Index
June 2002 36 49 15 56.9
May 2002 32 55 13 56.8
April 2002 33 55 12 56.4
March 2002 28 59 13 54.9

Employment

Employment in the non-manufacturing sector contracted in June for the 16th consecutive month. ISM's Non-Manufacturing Employment Index for June is 44.3 percent compared to 49.5 percent in May. June's Index indicates a faster rate of decrease after three months of slower decreases. Comments from respondents include: "Downsizing by 4% - 5%"; "Reduced staff by 10% in last two months"; "Outsourcing"; and "Combination of retirements and hiring restrictions."

The industries reporting growth in employment in June are: Health Services; Real Estate; Business Services; Retail Trade; and Utilities. Industries reporting the highest rates of reduction in employment in June are: Communication; Mining; Entertainment; Construction; and Transportation.

Employment % Higher % Same % Lower Index
June 2002 13 66 21 44.3
May 2002 15 70 15 49.5
April 2002 12 75 13 48.9
March 2002 11 71 18 45.5

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 10th consecutive month in June, registering an index value of 53.5 percent, 1.5 percentage points higher than May's 52.0 percent. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in June include: "Slower than previous months because the business activity levels of our key suppliers have increased from earlier in the year"; "Materials not available"; "Inventory reduction at distributors"; and "Steel supply is a big problem."

The industries that reported the highest rates of slowing in supplier deliveries in June are: Legal Services; Utilities; Entertainment; Wholesale Trade; Insurance; and Real Estate. Industries reporting faster supplier deliveries in June are: Finance and Banking and Communication.

Supplier
Deliveries
% Slower % Same % Faster Index
June 2002 10 87 3 53.5
May 2002 6 92 2 52.0
April 2002 6 91 3 51.5
March 2002 6 92 2 52.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 47.5 percent in June, a decrease of 1 percentage point from the 48.5 percent reported in May. June's Index means that material inventories maintained by non-manufacturing organizations decreased in June for the second consecutive month after three months of either unchanged or increased inventories. Of the total respondents in June, 29 percent indicate they do not have inventories. Comments from members include: "Sales volume dropped"; "Inventory reduction program"; "Sign of the times. Adjusting down due to economy"; and "Better inventory management."

The industries reporting inventory increases in June are: Legal Services; Transportation; Communication; Business Services; and Utilities. Industries reporting the highest rates of inventory decrease in June are: Insurance; Entertainment; Mining; Other Services*; and Finance and Banking.

Inventory
Change
% Higher % Same % Lower Index
June 2002 19 57 24 47.5
May 2002 19 59 22 48.5
April 2002 21 63 16 52.5
March 2002 19 62 19 50.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the fourth month in June after eight months of lower or unchanged prices prior to March 2002. ISM's Non-Manufacturing Prices Index for June is 54.0 percent, a drop of 1.5 percentage points from May's 55.5 percent. In June, the percentage of members reporting higher prices declined to 18 percent from 20 percent in May, the proportion indicating no change increased 1 percentage point to 72 percent, and the number who noted lower prices increased 1 percentage point to 10 percent.

The industries reporting the highest rates of increase in prices paid in June are: Agriculture; Wholesale Trade; Construction; Insurance; and Real Estate. The industries that reported price decreases in June are: Transportation; Utilities; Finance and Banking; Retail Trade; and Health Services.

Prices % Higher % Same % Lower Index
June 2002 18 72 10 54.0
May 2002 20 71 9 55.5
April 2002 26 67 7 59.5
March 2002 16 74 10 53.0

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 49 percent in June. This indication of contraction in order backlogs follows May's backlog increase which was the first growth indicated by this Index in 17 months. The June index is a decrease of 4.5 percentage points from May's 53.5 percent. Purchasing and supply executives' comments on backlogs of orders include: "Backlog cleared as volume dropped"; "Decreased project activity"; "Fewer orders"; and "Approaching slower season." Of the total respondents in June, 40 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in June are: Legal Services; Real Estate; Utilities; Wholesale Trade; and Public Administration. The industries reporting the highest rates of decline of order backlogs in June are: Insurance; Communication; Transportation; Business Services; and Retail Trade.

Backlog
of Orders
% Higher % Same % Lower Index
June 2002 13 72 15 49.0
May 2002 15 77 8 53.5
April 2002 10 77 13 48.5
March 2002 15 69 16 49.5

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 third month in June after a slight dip in March. The New Export Orders Index for June is 57.5 percent compared to May's 61.5 percent. Of the total respondents in June, 79 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 are: Public Administration; Communication; Wholesale Trade; Business Services; and Other Services*. The only industry reporting a decrease in new export orders in June is Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
June 2002 24 67 9 57.5
May 2002 30 63 7 61.5
June 2002 10 85 5 52.5
March 2002 15 69 16 49.5

Imports

In June, use of imported materials by non-manufacturing industries increased for the third month after a decrease in March. ISM's Non-Manufacturing Imports Index for June is 55.2 percent, an increase of 1.2 percentage points from the 54 percent reported in May. In June, 73 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting an increase in use of imports in June are: Health Services; Communication; and Wholesale Trade. The industries reporting decreased use of imports in June are Public Administration; Other Services*; and Retail Trade.

Imports % Higher % Same % Lower Index
June 2002 19 72 9 55.2
May 2002 18 75 7 54.0
April 2002 16 82 2 56.2
March 2002 13 78 9 48.9

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in June registered 66 percent compared to 65 percent for May. This increase indicates that non-manufacturing purchasing and supply executives felt a somewhat greater degree of discomfort with current levels of inventory in June than they did during May. In June, 35 percent of respondents felt their inventories were too high (32 percent in May). Also in June, 3 percent indicated their inventories were too low (2 percent in May), and 62 percent said that their inventories were about right (66 percent in May).

The industries that reported the highest rates of feeling that their inventories were too high in June are: Legal Services; Mining; Communication; Health Services; and Real Estate. No industry reported that its inventories were too low in June.

Inventory
Sentiment
% Too High % About Right % Too Low Index
June 2002 35 62 3 66.0
May 2002 32 66 2 65.0
April 2002 33 60 7 63.0
March 2002 35 61 4 65.5

*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

No commodities reported in short supply.

Commodities Reported Up in Price

Auto Fuel — 2nd month; Beef — 2nd month; Copper — 4th month; Drywall (Gypsum Board) — 3rd month; Fuel — 4th month; Paper — 2nd month; Plastic Bags; Polyethylene Film; PVC Pipe and Fittings — 4th month; Roofing Shingles — 2nd month; Soybean Meal; Stainless Steel; Stainless Steel Pipe; Steel — 5th month; Steel Pipe; Steel Products — 5th month.

Commodities Reported Down in Price

Cheese; Computers; Diesel Fuel; Fuel; Gasoline; Medical Supplies; PCs — 2nd month; Pork.

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, Imports, 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 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 July 2002 data will be released at 10:00 a.m. (ET) on August 5, 2002.



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