June 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: July 6, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
Business Activity at 62.2%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. 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 2005.


Exports Index Down 12 Points to 50%
Employment Index Up 4 Points to 57.4%
Backlog of Orders Index Down 4 Points to 52.5%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in June 2005, 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 Supply Chain Management Program, University of Houston-Downtown. "Non-manufacturing business activity increased for the 27th consecutive month in June," Kauffman said. He added, "Business activity increased at a faster rate in June than in May. New Orders and Backlog of Orders increased more slowly, but Employment increased faster in June. The overall indication is continued economic growth in the non-manufacturing sector in June at about the same rate of increase as in May. The Prices Index increased in June, indicating that recent increases in energy are being felt by non-manufacturing industries."

TOP PERFORMING INDUSTRIES

The 14 industries reporting growth in June — listed in order — are: Entertainment; Transportation; Construction; Retail Trade; Real Estate; Public Administration; Other Services*; Communication; Utilities; Insurance; Mining; Business Services; Finance & Banking; and Wholesale Trade. The one industry reporting activity the same as last month is Legal Services. The two industries reporting decreased activity from the prior month are: Health Services and Agriculture.

WHAT RESPONDENTS ARE SAYING ...
  • "High energy costs (oil and natural gas) continue to be a major concern." (Business Services)
  • "Things are picking up with major construction. We are having a record this year." (Construction)
  • "Sales and yield are above projections. Vacation industry is performing above projections." (Entertainment)
  • "Petroleum-based products are presenting a challenge in obtaining 'reasonable' fixed pricing for next contract terms." (Public Administration)
  • "Shortage of truck drivers in our industry (relocation services) is affecting the services we provide. Household goods deliveries are much longer than last year." (Transportation)
  • "Market conditions, including public and private debt, continue to cause significant pressure on new business development." (Finance & Banking)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
JUNE 2005
  Non-Manufacturing Manufacturing
Index Series
Index
June
Series
Index
May
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
June
Series
Index
May
Percent
Point
Change
Business Activity/ Production 62.2 58.5 +3.7 Increasing Faster 27 55.6 54.9 +0.7
New Orders 59.5 59.7 -0.2 Increasing Slower 27 57.2 51.7 +5.5
Employment 57.4 53.4 +4.0 Increasing Faster 21 49.9 48.8 +1.1
Supplier Deliveries 56.5 53.5 +3.0 Slowing Faster 46 53.1 50.5 +2.6
Inventories 52.0 51.5 +0.5 Increasing Faster 5 47.8 47.8 0.0
Prices 59.8 57.9 +1.9 Increasing Faster 25 50.5 58.0 -7.5
Backlog of Orders 52.5 56.5 -4.0 Increasing Slower 5 51.0 51.0 0.0
New Export Orders 50.0 62.0 -12.0 Unchanged From Increasing 1 50.4 54.9 -4.5
Imports 58.5 57.5 +1.0 Increasing Faster 26 54.2 53.9 +0.3
Inventory Sentiment 64.5 63.0 +1.5 "Too High" Greater 97 N/A N/A  
Customers' Inventories N/A N/A         44.0 47.5 -3.5

* 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.

** Number of months moving in current direction.

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Airfares (3); Asphalt/Asphalt Products (4); Building/Construction Materials/Supplies (2); Concrete/Concrete Poles; Construction/Construction Services (2); Copper/Copper Tubing (22); #1 Diesel Fuel (4); #2 Diesel Fuel* (6); Electronic Equipment/Parts; Envelopes; Fabricated Pipe and Steel; Fuel (19); Fuel Oil; Gasoline* (19); Gypsum Board/Products (2); #2 Heating Oil; Hotel Rates (7); Lumber — Pine, Spruce and Treated; Metals; Natural Gas; Nickel Alloys/Products; Oil-Based Products/Materials; Paper/Paper Products (17); Petrochemical and Related Products; Petroleum-Based Products; Pipe/Pipe Fittings; Plastic Bags; Poly/Poly Materials; Roofing Materials/Shingles; and Steel (20).

Commodities Down in Price

Beef; Computers and Peripherals; Corrugated; #2 Diesel Fuel*; Gas/Gasoline* (2); Produce — Seasonal; Polyethylene Films; Steel Products (3); and Unleaded Gasoline (2).

Commodities in Short Supply

Bearings and Steel/Steel Products.

*Reported as both up and down in price
Note: The number of consecutive months the commodity is listed is indicated after each item.


JUNE 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in June increased to 62.2 percent from May's 58.5 percent, indicating a faster rate of growth of activity in June. This month, 14 sectors report increased business activity, two are reporting decreased activity, and one indicates unchanged activity compared to May.

The industries reporting the highest rates of growth of business activity in June are: Entertainment; Transportation; Construction; Retail Trade; and Real Estate. Industries reporting contraction of business activity in June are: Health Services and Agriculture.

Business
Activity
%Higher %Same %Lower Index
June 2005 38 54 8 62.2
May 2005 30 61 9 58.5
Apr 2005 36 55 9 61.7
Mar 2005 37 56 7 63.1

THE LAST 12 MONTHS
Month Business
Activity
Index
  Month Business
Activity
Index
Jun 05 62.2   Dec 04 63.9
May 05 58.5   Nov 04 61.9
Apr 05 61.7   Oct 04 61.5
Mar 05 63.1   Sep 04 58.7
Feb 05 59.8   Aug 04 59.3
Jan 05 59.2   Jul 04 63.4
Average for 12 months – 61.1
High – 63.9
Low – 58.5

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 59.5 percent in June from 59.7 percent in May. This indicates continued expansion of new orders but at a slightly slower rate of growth than in May. Comments from members include: "Advance conference and meeting volumes turning upward"; "Favorable interest rate environment and strong housing markets"; "Retail sales in general are positive over last year"; and "New restaurants opening for business."

Industries reporting the highest rates of growth of new orders in June are: Transportation; Construction; Retail Trade; Real Estate; and Legal Services. The one industry reporting contraction of new orders in June is Health Services.

New Orders %Higher %Same %Lower Index
June 2005 35 55 10 59.5
May 2005 30 62 8 59.7
Apr 2005 32 60 8 58.8
Mar 2005 33 59 8 62.1

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in June compared to May. This was the 21st consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for June is 57.4 percent, a rise of 4 percentage points from May's 53.4 percent. Fifteen industries are reporting increased employment, one reports a decrease, and one indicates employment is unchanged from May. Comments from respondents include: "Temporary workers hired for increased volumes"; "Service demand and facilities expansion"; "Replacement of retirees"; "We are increasing staff at the corporate level"; and "Continued rightsizing."

The industries reporting the highest rates of growth in employment in June are: Transportation; Entertainment; Legal Services; Construction; and Retail Trade. The one industry reporting a reduction in employment in June is Agriculture.

Employment %Higher %Same %Lower Index
June 2005 29 61 10 57.4
May 2005 21 68 11 53.4
Apr 2005 18 74 8 53.3
Mar 2005 24 67 9 57.1

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 46th consecutive month in June. The index registered 56.5 percent, 3 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: "Fuel costs and shortage of raw materials"; "Manufacturing low on stock"; "Suppliers got caught short on inventory due to increase in demand"; and "Railroad derailments and slower transit times."

The industries reporting the highest rates of slowing in supplier deliveries in June are: Mining; Legal Services; Construction; Transportation; and Utilities. The one industry reporting faster supplier deliveries in June is Entertainment.

Supplier
Deliveries
%Slower %Same %Faster Index
June 2005 14 85 1 56.5
May 2005 9 89 2 53.5
Apr 2005 9 88 3 53.0
Mar 2005 11 84 5 53.0

NOTE: A list of commodities in short supply is available on page 3 of this report.

Inventories

ISM's Non-Manufacturing Inventories Index registered 52 percent in June, 0.5 percentage point higher than the 51.5 percent reported in May. This is the fifth consecutive month of higher inventories after a dip in inventory size in January. Of the total respondents in June, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: "Planned seasonal adjustment"; "Gearing up for summer ordering cycle"; and "Continued inventory assessment and reduction."

The industries reporting the highest rates of inventory increases in June are: Real Estate; Utilities; Entertainment; Public Administration; and Finance & Banking. The industries reporting inventory decreases in June are: Transportation; Construction; Communication; Health Services; Other Services*; and Retail Trade.

Inventory
Change
%Higher %Same %Lower Index
June 2005 18 68 14 52.0
May 2005 18 67 15 51.5
Apr 2005 24 61 15 54.5
Mar 2005 23 59 18 52.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in June for the 25th consecutive month and at a faster rate of increase than in May. ISM's Non-Manufacturing Prices Index for June is 59.8 percent, up 1.9 percentage points from the 57.9 percent registered for May. In June, the percentage of members reporting higher prices remained the same as in May at 27 percent, the proportion indicating no change remained the same at 68 percent, and the number noting lower prices was also constant at 5 percent. The change in this month's Prices Index was solely due to a different seasonal adjustment factor for June than for May.

The industries reporting the highest rates of increase in prices paid in June are: Mining; Communication; Construction; Wholesale Trade; Agriculture; and Transportation. Industries reporting price decreases in June are: Legal Services; Real Estate; and Utilities.

Prices %Higher %Same %Lower Index
June 2005 27 68 5 59.8
May 2005 27 68 5 57.9
Apr 2005 41 57 2 61.9
Mar 2005 43 56 1 65.6

NOTE: A list of commodities reported up in price and down in price is available on page 2 of this report.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52.5 percent in June. This is a decrease of 4 percentage points from the 56.5 percent reported for May. June's increase in order backlogs marks 25 out of the last 26 months that an increase has been reported in order backlogs. Of the total respondents in June, 43 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Turn times are being reduced"; "Too little labor on staff to handle orders efficiently"; "Lower sales"; and "Demand outstripping supply for our processed avocado division."

The industries reporting increases in order backlogs in June are: Real Estate; Mining; Other Services*; Communication; and Public Administration. Industries reporting decreases in backlog of orders in June are: Finance & Banking and Wholesale Trade.

Backlog
of Orders
%Higher %Same %Lower Index
June 2005 11 83 6 52.5
May 2005 17 79 4 56.5
Apr 2005 18 72 10 54.0
Mar 2005 17 79 4 56.5

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 were unchanged in June after increasing for 22 consecutive months. The New Export Orders Index for June is 50 percent compared to May's 62 percent. Of the total respondents in June, 74 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The industries reporting increases in new export orders in June are: Insurance; Communication; Mining; Other Services*; and Retail Trade. Industries reporting decreases in new export orders in June are: Public Administration; Finance & Banking; Business Services; and Wholesale Trade.

New Export
Orders
%Higher %Same %Lower Index
June 2005 18 64 18 50.0
May 2005 31 62 7 62.0
April 2005 17 71 12 52.5
Mar 2005 15 73 12 51.5

Imports

In June, the ISM Imports Index registered 58.5 percent, 1 percentage point higher than the 57.5 percent reported in May. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in June than in May. June's index marks the 26th 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 the highest rates of increase in the use of imports in June are: Communication; Utilities; Business Services; Mining; and Retail Trade. The industries reporting decreases in the use of imports in June are: Public Administration and Entertainment.

Imports %Higher %Same %Lower Index
June 2005 25 67 8 58.5
May 2005 22 71 7 57.5
Apr 2005 24 69 7 58.5
Mar 2005 21 76 3 59.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in June registered 64.5 percent, 1.5 percentage points higher than the 63 percent reported in May. This indicates that non-manufacturing purchasing and supply executives feel a greater degree of discomfort with current levels of inventory in June than they did during May. In June, 33 percent of respondents felt their inventories were too high, 4 percent indicated their inventories were too low, and 63 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: Agriculture; Construction; Wholesale Trade; Legal Services; Communication; and Business Services. The one industry reporting that its inventories are too low in June is Retail Trade.

Inventory
Sentiment
%Too High %About Right %Too Low Index
June 2005 33 63 4 64.5
May 2005 30 66 4 63.0
Apr 2005 28 65 7 60.5
Mar 2005 32 65 3 64.5

*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.

About this Report

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.

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 indicates 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 largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

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 2005 data will be released at 10:00 a.m. (ET) on August 3, 2005.



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