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June 2004 Non-Manufacturing ISM Report On Business®

FOR RELEASE: July 6, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 59.9%

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 2004.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in June 2004, 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. "Non-manufacturing Business Activity increased for the 15th consecutive month in June," Kauffman said. He added, "Also in June, New Orders, Order Backlogs, Employment, Imports, Prices, Exports, and Inventories increased."

Purchasing and supply executives report that business activity continued to increase in June in the non-manufacturing sector, but the rate of increase was slower than in May. The Business Activity Index for June is 59.9 percent, down 5.3 percentage points from May's 65.2 percent. June's index indicates continued growth across most non-manufacturing industries. In June, 13 industry groups reported growth, one indicated contraction, and three reported business unchanged from May. Increased business activity in June was reported by 39 percent of members, compared to 40 percent in May. Reduced activity was reported by 11 percent of members, compared to 9 percent in May. In June, the remaining 50 percent of members indicated no change in business activity, compared to 51 percent that reported no change in May.

The Backlog of Orders Index decreased by 1 percentage point to 55.5 percent, indicating growth in order backlogs for the 14th consecutive month but at a slightly slower rate of increase than in May. The June New Orders Index increased from 61.3 percent in May to 62.4 percent in June. This indicates a faster rate of increase of new orders in June compared to May. Members reported that the prices they pay increased in June for the 27th consecutive month, with a slightly faster rate of increase than in May. June's Prices Index is 74.6 percent, a rise of 0.2 percentage point from the 74.4 percent reported in May. This month, 52 percent of all respondents and 16 of 17 non-manufacturing industries reported paying higher prices compared to May. Many of members' comments concerning business in June indicate continued positive business conditions but with continued concern about inflationary pressures. Specific comments include: "General business conditions improving"; "Price increases in petroleum-related products and fuel continue to disrupt budgets"; "Economy continues to improve, lingering caution over interest rates"; "Prices of raw materials and gasoline are causing higher prices"; and "Good sales growth over prior year."

In addition, Inventories increased for the fourth consecutive month. With regard to Inventory Sentiment for June, members reported a slightly higher level of concern than in May that inventories are too high. New Export Orders increased for the 11th consecutive month, Imports increased for the 14th consecutive month, and Employment increased for the ninth consecutive month. Supplier Deliveries indicated slower performance for the 34th consecutive month.

Significant reports of commodities in short supply or up or down in price in June indicate that aluminum cable; cement; concrete; steel; steel pipe; steel plate; and steel products are in short supply. Price increases are reported for airfares; air freight; aluminum; asphalt; asphalt products; beef; building materials and supplies; cement and cement products; chemicals and chemical products; chicken; construction; copper (some reports of price decreases); copper products (variety); corrugated; dairy products; #2 diesel fuel; electrical supplies; food and food products; freight and shipping including transportation; fuel; gasoline (some reports of price decreases); milk and milk products; natural gas; paper; paper products; personal computers (some reports of price decreases); petroleum-based products; petroleum products; plastic; plastic bags; plastic products (large variety); plastic film; plastic resins; polybags; polyethylene films and products; pork and pork products; printed materials; PVC/PVC products; roof shingles; roofing materials; stainless steel; steel; steel products (large variety); steel-related products; transportation; travel; unleaded gasoline; valves; and wood. Price decreases are reported for butter; cheese; computers and peripherals (some reports of price increases); copper (some reports of price increases); gasoline (some reports of price increases); produce; and soy oil.

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 59.9 65.2 -5.3 Increasing slower 63.2 64.8 -1.6
New Orders 62.4 61.3 +1.1 Increasing faster 60.0 62.8 -2.8
Employment 57.4 56.3 +1.1 Increasing faster 59.7 61.9 -2.2
Supplier Deliveries 57.5 56.0 +1.5 Slowing faster 68.1 69.4 -1.3
Inventories 57.5 54.0 +3.5 Increasing faster 51.1 49.3 +1.8
Prices 74.6 74.4 +0.2 Increasing faster 81.0 86.0 -5.0
Backlog of Orders 55.5 56.5 -1.0 Increasing slower 58.5 63.0 -4.5
New Export Orders 59.5 52.0 +7.5 Increasing faster 56.7 60.6 -3.9
Imports 56.5 59.5 -3.0 Increasing slower 57.6 59.8 -2.2
Inventory Sentiment 60.5 60.0 +0.5 Greater feeling of "too high" N/A N/A N/A
Customers' Inventories N/A N/A N/A   39.0 37.0 +2.0

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

Business Activity

ISM's Non-Manufacturing Business Activity Index in June declined to 59.9 percent from May's 65.2 percent, indicating a slower rate of growth of activity in June. With the exception of March 2003, growth in business activity has been reported by ISM members every month beginning with February 2002. This month, 13 sectors reported increased business activity, one reported decreased activity, and three reported unchanged activity compared to May.

The industries reporting the highest rates of growth of business activity in June are: Transportation; Utilities; Agriculture; Real Estate; and Business Services. The one industry reporting contraction of business activity in June is Wholesale Trade.

Business
Activity
% Higher % Same % Lower Index
June 2004 39 50 11 59.9
May 2004 40 51 9 65.2
April 2004 46 46 8 68.4
March 2004 42 48 10 65.8

New Orders

ISM's Non-Manufacturing New Orders Index increased to 62.4 percent in June from 61.3 percent in May. This indicates continued expansion of new orders at a faster rate of growth than in May. Comments from members include: "Increased investment in infrastructure"; "More requests for construction and maintenance"; "More orders received"; and "Meeting increased customer demand."

Industries reporting the highest rates of growth of new orders in June are: Transportation; Agriculture; Utilities; Real Estate; and Other Services*. The one industry reporting contraction of new orders in June is Communication.

New Orders % Higher % Same % Lower Index
June 2004 40 52 8 62.4
May 2004 37 52 11 61.3
April 2004 42 49 9 65.6
March 2004 36 54 10 62.8

Employment

Employment in the non-manufacturing sector in June expanded for the ninth consecutive month. ISM's Non-Manufacturing Employment Index for June is 57.4, a 1.1 percent increase over the 56.3 percent reported in May. June's index reflects the highest rating since the inception of this report in July 1997. June's Employment Index indicates that non-manufacturing employment expanded at a faster rate in June than in May. Comments from respondents include: "Hiring to fill open positions"; "End of hiring freeze"; "Increased business"; "Senior management more comfortable filling vacant positions"; and "Economic upturn has enabled hiring into frozen positions."

The industries reporting the highest rates of growth in employment in June are: Transportation; Legal Services; Real Estate; Business Services; and Utilities. The industries reporting reduction in employment in June are: Communication; Finance & Banking; and Agriculture.

Employment % Higher % Same % Lower Index
June 2004 27 64 9 57.4
May 2004 23 68 9 56.3
April 2004 21 70 9 54.5
March 2004 17 75 8 53.9

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 34th consecutive month in June. The index registered 57.5 percent, 1.5 percentage points higher than in May. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in June include: "Shortage of steel"; "Longer leadtime on heavy equipment"; "Leadtimes stretching on engineered goods and wire"; and "New trucking regulations have increased leadtimes and trucks are in short supply."

The industries reporting the highest rates of slowing in supplier deliveries in June are: Wholesale Trade; Legal Services; Communication; Utilities; Mining; and Transportation. No industry reported faster supplier deliveries in June.

Supplier
Deliveries
% Slower % Same % Faster Index
June 2004 17 81 2 57.5
May 2004 15 82 3 56.0
April 2004 19 78 3 58.0
March 2004 14 82 4 55.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 57.5 percent in June, 3.5 percentage points higher than the 54 percent reported in May. June's index indicates the fourth monthly increase in material inventories maintained by non-manufacturing organizations. It is also the highest this index has registered since this report originated. An index of 55 percent in October 2000 is the next highest rating. Of the total respondents in June, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "[Increasing inventory] to meet increased activity"; "[Increasing inventory] to accommodate increased workload"; "Increasing inventory in anticipation of higher seasonal consumer activity"; and "Bringing more items into inventory."

The industries reporting the highest rate of inventory increases in June are: Legal Services; Wholesale Trade; Retail Trade; Real Estate; and Other Services*. The industries reporting inventory decreases in June are: Business Services and Public Administration.

Inventory
Change
% Higher % Same % Lower Index
June 2004 28 59 13 57.5
May 2004 25 58 17 54.0
April 2004 28 57 15 56.5
March 2004 19 65 16 51.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in June for the 27th consecutive month and at a slightly faster rate of increase than in May. ISM's Non-Manufacturing Prices Index for June edged up to 74.6 percent, up 0.2 percentage point from the 74.4 percent registered for May. June's reading of 74.4 percent is the highest since this report began in July 1997. In June, the percentage of members reporting higher prices decreased 3 percentage points to 52 percent from 55 percent in May, the proportion indicating no change rose 3 percentage points to 45 percent, and the number who noted lower prices remained at 3 percent.

The industries reporting the highest rates of increase in prices paid in June are: Construction; Utilities; Public Administration; Agriculture; and Wholesale Trade. No industry is reporting price decreases in June.

Prices % Higher % Same % Lower Index
June 2004 52 45 3 74.6
May 2004 55 42 3 74.4
April 2004 53 44 3 68.6
March 2004 43 54 3 65.7

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 55.5 percent in June. This is a decrease of 1 percentage point from May's 56.5 percent and represents the 14th consecutive month of growth in order backlogs. Of the total respondents in June, 40 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Telephony modems slow in delivery"; "Warmer season requires additional materials and supplies"; "Effect of steel shortage on ability to ship product to customers"; and "New plant on line, filling backorders rapidly."

The industries reporting the highest rates of growth in backlog of orders in June are: Agriculture; Transportation; Communication; Retail Trade; and Construction. The industries reporting a decline of order backlogs in June are: Health Services and Business Services.

Backlog
of Orders
% Higher % Same % Lower Index
June 2004 18 75 7 55.5
May 2004 21 71 8 56.5
April 2004 20 67 13 53.5
March 2004 18 69 13 52.5

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 11th consecutive month in June. The New Export Orders Index for June is 59.5 percent compared to May's 52 percent, indicating a dramatically higher rate of growth in June compared to May. Of the total respondents in June, 80 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: Construction; Entertainment; Finance & Banking; Other Services*; Communication; Business Services; and Retail Trade. The industries reporting decreases in new export orders in June are: Public Administration and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
June 2004 29 61 10 59.5
May 2004 15 74 11 52.0
April 2004 27 70 3 62.0
March 2004 16 71 13 51.5

Imports

In June, the ISM Imports Index registered 56.5 percent, 3 percentage points lower than the 59.5 percent reported in May. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in June than in May. June's index marks the 14th consecutive month of import growth. In June, 70 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting increases in the use of imports in June are: Construction; Communication; Wholesale Trade; Business Services; and Retail Trade. The industries reporting decreased use of imports in June are: Public Administration and Entertainment.

Imports % Higher % Same % Lower Index
June 2004 22 69 9 56.5
May 2004 27 65 8 59.5
April 2004 25 71 4 60.5
March 2004 27 67 6 60.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in June registered 60.5 percent, a 0.5 percentage point increase from 60 percent reported in May. This indicates that non-manufacturing purchasing and supply executives feel a bit more discomfort with current levels of inventory in June than they did during May. In June, 28 percent of respondents felt their inventories were too high, 7 percent indicated their inventories were too low, and 65 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in June are: Legal Services; Construction; Communication; Other Services*; and Entertainment. No industry is reporting that its inventories are too low in June.

Inventory
Sentiment
% Too High % About Right % Too Low Index
June 2004 28 65 7 60.5
May 2004 30 60 10 60.0
April 2004 26 64 10 58.0
March 2004 26 69 5 60.5

*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

Aluminum Cable; Cement — 2nd month; Concrete; Steel — 5th month; Steel Pipe; Steel Plate; Steel Products — 4th month.

Commodities Reported Up in Price

Air Fares — 3rd month; Air Freight; Aluminum — 6th month; Asphalt; Asphalt Products — 2nd month; Beef — 3rd month; Building Materials and Supplies; Cement; Cement Products; Chemicals/Chemical Products; Chicken — 3rd month; Construction; Copper* — 10th month; Copper Products (variety); Corrugated — 2nd month; Dairy Products — 3rd month; #2 Diesel Fuel — 7th month; Electrical Supplies; Food and Food Products — 2nd month; Freight/Shipping — 2nd month; Fuel — 7th month; Gasoline* — 7th month; Milk/Milk Products — 2nd month; Natural Gas — 2nd month; Paper — 5th month; Paper Products — 4th month; Personal Computers*; Petroleum-Based Products — 3rd month; Petroleum Products; Plastic — 6th month; Plastic Bags — 4th month; Plastic Products (large variety); Plastic Film; Plastic Resins; Polybags; Polyethylene Films/Products; Pork/Pork Products — 3rd month; Printed Materials; PVC/PVC Products — 4th month; Roof Shingles — 2nd month; Roofing Materials; Stainless Steel; Steel — 8th month; Steel Products (large variety) — 4th month; Steel-Related Products — 3rd month; Transportation — 2nd month; Travel; Unleaded Gasoline — 6th month; Valves; Wood.

Commodities Reported Down in Price

Butter; Cheese; Computers and Peripherals* — 2nd month Copper*; Gasoline*; Produce; Soy Oil.

*Reported as both up and down in price.

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, Prices, 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 data presented herein is obtained from a survey of non-manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision making.

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 2004 data will be released at 10:00 a.m. (ET) on August 4, 2004.



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