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July 2000 Non-Manufacturing Report On Business®

FOR RELEASE: August 3, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS AT A SLOWER RATE IN JULY 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 July 2000.

Business Activity, New Orders, Order Backlogs, Export Orders, Inventories, Employment, and Prices Increase at Slower Rates

(Tempe, Arizona) — Business in the non-manufacturing sector grew more slowly in July 2000 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 July, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend but indicated a slower rate of growth than in recent months," Kauffman said. "New Orders, Backlog of Orders, Export Orders, Inventories, Employment, and Prices all increased at slower rates in July than in June, while Imports increased more rapidly. Supplier Deliveries were slower in July than in June, with an increased 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 July than they did in June," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 55.5 percent in July, 8.5 percentage points lower than in June, indicating slower growth in non-manufacturing economic activity. Comments from purchasing executives were mostly positive on business activity in July despite the slower rate of growth. Increased business activity in July was reported by 26 percent of purchasers, a decrease of 11 percentage points from the 37 percent reporting more activity in June. Of the industry groups reporting in the July NAPM non-manufacturing survey, 9 indicated increased activity, 2 indicated decreased activity, and 5 reported no change from June. In June, 13 industry groups reported increased activity, 1 reported decreased activity, and 2 reported no change in activity level," said Kauffman.

This month our members reported a lower rate of increase in their inventories and a drop in the rate of increase in prices they pay for their purchases. Some indicate they are increasing inventories to meet current and expected future sales. Many other members indicated they have inventory reduction programs in place. The Prices Index reached its lowest level since January 2000 as it resumed a downtrend that began in April. The percentage of members reporting higher prices dropped to 29 percent in July from 35 percent in June.

"Overall in July, non-manufacturing industries continued their long-term growth trend at a reduced rate of growth compared to June. This month the Business Activity Index, the New Orders Index, and the Backlog of Orders Index all decreased from their June levels. Non-manufacturing inventories, employment, and prices rose at slower rates of increase in July," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series July
Indexes
June
Indexes
July vs. June
Index Change
Direction &
Rate of Change
Business Activity 55.5 64.0 -8.5 Increasing Slower
New Orders 57.0 63.5 -6.5 Increasing Slower
Backlog of Orders 50.5 56.5 -6.0 Increasing Slower
New Export Orders 53.0 57.0 -4.0 Increasing Slower
Inventory Change 51.0 54.0 -3.0 Increasing Slower
Inventory Sentiment 68.0 66.5 +1.5 Increased Feeling of "too high"
Imports 54.5 53.0 +1.5 Increasing Faster
Prices 61.5 66.0 -4.5 Increasing Slower
Employment 53.5 56.5 -3.0 Increasing Slower
Supplier Deliveries 54.5 53.5 +1.0 Slowing at a Faster Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in July with a faster rate of growth in non-manufacturing business activity. New orders increased for non-manufacturing but decreased in the manufacturing sector. Backlog of orders also increased for non-manufacturing and decreased in manufacturing. Prices increased in July for both areas but rose slightly faster for manufacturing. Employment in July 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 July was reported to be slower by both sectors but with a slightly higher rate of slowness in non-manufacturing. Use of Imports was up in non-manufacturing and down in manufacturing in July.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 55.5 Production 53.4
New Orders 57.0 New Orders 49.9
Backlog of Orders 50.5 Backlog of Orders 45.0
New Export Orders 53.0 New Export Orders 51.5
Inventory Change 51.0 Inventories 48.4
Inventory Sentiment 68.0    
Imports 54.5 Imports 49.8
Prices 61.5 Prices 61.9
Employment 53.5 Employment 52.7
Supplier Deliveries 54.5 Supplier Deliveries 54.2

* 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 July decreased to 55.5 percent, indicating increased business activity at a slower rate of increase than in June (64 percent). July's Business Activity Index was the lowest since January 2000 (52.5 percent). Purchasing executives' comments in July continued to be mostly positive. The percent of members reporting increased activity declined from 37 percent in June to 26 percent in July. Members reporting decreased activity increased from 9 percent in June to 15 percent in July. Those reporting no change in activity in July totaled 59 percent, an increase of 5 percentage points from June's 54 percent.

The industries reporting the highest rates of growth of business activity in July were:
Transportation; Communication; Construction; Insurance; Retail Trade; and *Other Services.

Business
Activity
% Higher % Same % Lower Index
July 2000 26 59 15 55.5
June 2000 37 54 9 64.0
May 2000 35 53 12 61.5
April 2000 37 56 7 65.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index decreased to 57 percent in July from 63.5 percent in June. July's New Orders Index was the lowest since February 2000 (59 percent). Comments from members included: "Improved sales," "Higher construction activity," "Summer slowdown," and "Fewer orders."

The industries reporting the highest rates of growth of new orders in July were: Transportation; Communication; Construction; Insurance; and Retail Trade.

New Orders % Higher % Same % Lower Index
July 2000 29 56 15 57.0
June 2000 39 49 12 63.5
May 2000 38 51 11 63.5
April 2000 38 54 8 65.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated increased backlogs for the sixth consecutive month by registering 50.5 percent in July. This is a decrease of 6 percentage points from June's 56.5 percent, indicating a decreased rate of growth in order backlogs in July. July's Index is the lowest since January 2000 (48.5 percent). Purchasing executives' comments on backlogs of orders included: "Catching up after expansion push is settling down," "Backlog has returned to normal," "Higher product demand," and "Continued shortage of finished products due to growth." Of the total respondents in July, 25.8 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in July were: Construction; Retail Trade; Communication; Insurance; Real Estate; and Public Administration.

Backlog
of Orders
% Higher % Same % Lower Index
July 2000 18 65 17 50.5
June 2000 24 65 11 56.5
May 2000 20 67 13 53.5
April 2000 18 75 7 55.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a faster rate in July than in June. NAPM's Non-Manufacturing Supplier Deliveries Index for July was 54.5 percent compared to 53.5 percent in June. Comments from purchasing executives included: "Rail delays," "High product demand," "Low inventories," and "Too much business for vendors, can't handle with existing personnel."

The industries that reported the highest rates of slowness of supplier deliveries in July were: Transportation; Construction; Retail Trade; Insurance; Utilities; and Agriculture.

Supplier
Deliveries
% Higher % Same % Lower Index
July 2000 4 83 13 54.5
June 2000 4 85 11 53.5
May 2000 2 82 16 57.0
April 2000 4 82 14 55.0

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 July for the fifth consecutive month. The rate of increase in July was slower than in June as NAPM's Non-Manufacturing New Export Orders Index dropped to 53 percent from June's 57 percent. The July New Export Orders Index was the lowest since February 2000 (47.5 percent). Of the total respondents in July, 75 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 July were: Health Services; Wholesale Trade; Retail Trade; and Mining.

New Export
Orders
% Higher % Same % Lower Index
July 2000 17 72 11 53.0
June 2000 28 58 14 57.0
May 2000 31 62 7 62.0
April 2000 19 80 1 59.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased for the fifth consecutive month in July. NAPM's Non-Manufacturing Imports Index for July was 54.5 percent compared to 53 percent in June. In July, 69 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 July were: Real Estate; Mining; Communication; *Other Services; and Wholesale Trade.

Imports % Higher % Same % Lower Index
July 2000 17 75 8 54.5
June 2000 18 70 12 53.0
May 2000 19 74 7 56.0
April 2000 16 79 5 55.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased, although at a slower rate, in July for the fourth time in five months. NAPM's Non-Manufacturing Inventories Index registered 51 percent in July, compared to 54 percent in June. Of the total respondents in July, 25.3 percent indicated they do not have inventories. Comments from member purchasers included: "Declining demand has lead to leaning out of inventory," "Restocking for new school year," "Inventory reduction program," (multiple similar comments) and "Products (additional) for expansion."

Industries reporting the highest rates of inventory increase in July were: Transportation; Agriculture; Construction; Real Estate; and Public Administration.

Inventory
Change
% Higher % Same % Lower Index
July 2000 19 64 17 51.0
June 2000 27 54 19 54.0
May 2000 20 59 21 49.5
April 2000 25 57 18 53.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in July registered 68 percent compared to 66.5 percent for June. July's index was the highest since June 1998 (69 percent). This increased index level indicates that non-manufacturing purchasing executives felt a greater degree of discomfort with current levels of inventory in July than they did during June. In July, 40 percent of members felt their inventories were too high (38 percent in June). Also in July, 4 percent indicated their inventories were too low (5 percent in June), and 56 percent said that their inventories were about right (57 percent in June).

The industries that reported the highest rates of feeling that their inventories were "too high" in July were: Transportation; Wholesale Trade; Utilities; Mining; and Agriculture.

Inventory
Sentiment
% Higher % Same % Lower Index
July 2000 40 56 4 68.0
June 2000 38 57 5 66.5
May 2000 32 62 6 63.0
April 2000 31 66 3 64.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in July for the 17th consecutive month and at a lower rate of increase than in June. NAPM's Non-Manufacturing Price Index for July declined to 61.5 percent, compared to 66 percent in June. July's index was the lowest since January 2000 (61.5 percent).

The industries that reported the highest rate of increase in prices paid in July were: Utilities; Wholesale Trade; Public Administration; Retail Trade; and Health Services.

Prices % Higher % Same % Lower Index
July 2000 29 65 6 61.5
June 2000 35 62 3 66.0
May 2000 34 63 3 65.5
April 2000 47 48 5 71.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at a slower rate in July than in June. NAPM's Non-Manufacturing Employment Index for July was 53.5 percent compared to 56.5 percent in June. July's index was the lowest since February 2000 (50 percent). Comments from purchasers included: "Expanding into new businesses," "Increase in future orders," "Increased volume," and "Restructuring."

The industries reporting the highest rates of growth of employment in July were: Communication; Insurance; Real Estate; Agriculture; and Mining.

Employment % Higher % Same % Lower Index
July 2000 19 69 12 53.5
June 2000 25 63 12 56.5
May 2000 21 67 12 54.5
April 2000 21 70 9 56.0

Commodities Reported in Short Supply:

Computer Servers; Electronics and Electronic Components — 3rd month; Labor — 5th month; Laptops — 5th month; Polyethylene Gas Pipe Fittings; Temporary Help — 3rd month.

Commodities Reported Up in Price:

Asphalt; Caustic Soda; Chemicals — 2nd month; Construction; Corrugated — 6th month; Diesel Fuel — 2nd month; Fuel — 6th month (some reports of price decreases); Gasoline — 17th month (some reports of price decreases); Memory — 2nd month; Paper — 16th month (some reports of price decreases); Paper Products — 2nd month; Petroleum-based Products — 7th month; Petroleum Products — 3rd month; Pharmaceuticals; Plastic — 2nd month; Plastics — 5th month; PVC; Steel; Temporary Help; Transportation — 5th month; Travel.

Commodities Reported Down in Price:

Computers — 5th month.

*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.

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 August 2000 data will be released at 10:00 a.m. (ET) on September 6, 2000.



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