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July 2001 Non-Manufacturing NAPM Report On Business®

FOR RELEASE: August 3, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTRACTS IN JULY SAY PURCHASING AND SUPPLY 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 2001.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector shrank in July 2001 say the nation's purchasing and supply 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 indicated decreased activity in the non-manufacturing economy compared to June," Kauffman said. "New Orders decreased and Order Backlogs shrank more rapidly in July than in June. Exports increased while Imports decreased for the sixth month in July. Employment was reduced and Inventories continued to decline. Supplier Deliveries continued to be slower in July. Prices decreased in July for the first time since February 1999, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing and supply executives felt a somewhat lesser 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 48.9 percent in July, 3.2 percentage points lower than in June, indicating contraction in non-manufacturing economic activity and reversing June's indication of expansion. Comments from purchasing and supply executives indicate some industries are continuing to contract while others indicate growth in July. Increased business activity in July was reported by 21 percent of purchasers, compared to 30 percent in June. Of the industry groups reporting in the July NAPM non-manufacturing survey, 6 indicated increased activity, 7 indicated decreased activity, and 4 reported no change in activity compared to June. In June, 10 industry groups reported increased activity, 4 reported decreased activity, and 3 reported no change in activity level," said Kauffman.

"Overall in July, non-manufacturing industries reverted to their recent trend and reported contraction in both business activity and new orders compared to June. Also this month, the Backlog of Orders Index indicated continued reduction of the number of orders not yet filled, non-manufacturing inventories decreased for the ninth consecutive month and more rapidly than in June, employment declined for the fifth consecutive month, and prices paid by non-manufacturers decreased for the first time in over two years," 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 48.9 52.1 -3.2 Decreasing from Increasing
New Orders 48.6 53.1 -4.5 Decreasing from Increasing
Backlog of Orders 42.5 49.0 -6.5 Decreasing Faster
New Export Orders 53.0 49.5 +3.5 Increasing from Decreasing
Inventory Change 46.0 48.5 -2.5 Decreasing Faster
Inventory Sentiment 61.5 65.0 -3.5 Decreased Feeling of "too high"
Imports 49.9 48.6 +1.3 Decreasing Slower
Prices 49.0 55.5 -6.5 Decreasing from Increasing
Employment 46.4 45.1 +1.3 Decreasing Slower
Supplier Deliveries 50.5 51.0 - .5 Slowing Slower

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS
  Non-Manufacturing Manufacturing
Survey
Question
July
Index %
Index Change
from June
Direction &
Rate of Change
July
Index
Index Change
from June
Direction &
Rate of Change
Business Activity / Production 48.9 -3.2 Decreasing from Increasing 46.4 +0.2 Decreasing Slower
New Orders 48.6 -4.5 Decreasing from Increasing 46.3 -2.3 Decreasing Faster
Backlog of Orders 42.5 -6.5 Decreasing Faster 42.5 +0.5 Decreasing Slower
New Export Orders 53.0 +3.5 Increasing from Decreasing 48.2 +2.7 Decreasing Slower
Inventories 46.0 -2.5 Decreasing Faster 35.8 -5.0 Decreasing Faster
Inventory Sentiment 61.5 -3.5 Decreased Feeling of "too high" N/A    
Imports 49.9 +1.3 Decreasing Slower 47.3 -0.7 Decreasing Faster
Prices 49.0 -6.5 Decreasing from Increasing 38.7 -3.6 Decreasing Faster
Employment 46.4 +1.3 Decreasing Slower 37.2 +0.9 Decreasing Slower
Supplier Deliveries 50.5 -0.5 Slowing Slower 47.4 -0.6 Faster Faster

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 July decreased 3.2 percentage points to 48.9 percent from June's 52.1 percent. July's Index indicated a reversion to the trend of contraction in business activity indicated in April and May of this year, and away from the growth indicated in June. However, purchasing and supply executives' comments in July reflected increased economic activity in some sectors and continued slow conditions in other areas. The percent of members reporting increased activity in July is 21 percent compared to 30 percent in June. Members reporting decreased activity was 26 percent in July, up from 20 percent in June. Those reporting no change in activity in July totaled 53 percent, an increase of 3 percentage points from June's 50 percent.

The industries reporting the highest rates of growth of business activity in July were: Finance and Banking; Health Services; Real Estate; Public Administration; and *Other Services. The industries reporting the highest rates of contraction of business activity in July were: Wholesale Trade; Entertainment; Agriculture; Insurance; and Construction.

Business
Activity
% Higher % Same % Lower Index
July 2001 21 53 26 48.9
June 2001 30 50 20 52.1
May 2001 26 46 28 46.6
April 2001 22 58 20 47.1

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index dropped to 48.6 percent in July from 53.1 percent in June. Comments from members included: "Less work to bid on," "Fewer requests submitted," "Slowing economy in manufacturing," and "New fiscal year projects."

The industries reporting growth of new orders in July were: Public Administration; Health Services; Real Estate; Business Services; Mining; and *Other Services. The industries reporting the highest rates of contraction of new orders in July were: Entertainment; Wholesale Trade; Communication; Agriculture; and Insurance.

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

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 42.5 percent in July. This is the seventh consecutive monthly decline in order backlogs and ties (with January 2001) for the lowest Backlog of Orders Index since inception of NAPM's nonmanufacturing business survey in July 1997. The July index is a decrease of 6.5 percentage points from June's 49 percent. Purchasing and supply executives' comments on backlogs of orders included: "Working off backlog," "Getting caught up with no replacement work," "Lower order activity equals lower backorders," and "Managing the load better due to decreased activity and better supplier inventories." Of the total respondents in July, 29 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in July were: Mining; Real Estate; Finance and Banking; and Public Administration. The industries reporting the highest rates of decline of order backlogs in July were: Insurance; Entertainment; Wholesale Trade; *Other Services; and Business Services.

Backlog
of Orders
% Higher % Same % Lower Index
July 2001 9 67 24 42.5
June 2001 13 72 15 49.0
May 2001 16 61 23 46.5
April 2001 10 68 22 44.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slower rate in July, registering an index value of 50.5 percent. This is one-half percentage point below June's 51 percent. Comments from purchasing and supply executives included: "Improved speed on rail delivery," "Suppliers still reporting their business is slow," "Simply put, business has slowed down," and " We are purchasing fewer units and suppliers inventory is able to respond quicker."

The industries that reported the highest rates of slowness of supplier deliveries in July were: Legal Services; Health Services; Real Estate; Retail Trade; and Business Services.

Supplier
Deliveries
% Higher % Same % Lower Index
July 2001 5 89 6 50.5
June 2001 5 88 7 51.0
May 2001 3 90 7 52.0
April 2001 6 86 8 51.0

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 after decreasing in May and June. The New Export Orders Index for July is 53 percent compared to June's 49.5 percent. Of the total respondents in July, 77 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 July were: Transportation; Business Services; Communication; and Retail Trade. Industries reporting decreases in new export orders in July were: Entertainment and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
July 2001 18 70 12 53.0
June 2001 16 67 17 49.5
May 2001 15 67 18 48.5
April 2001 22 67 11 55.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased in July at a slower rate. NAPM's Non-Manufacturing Imports Index for July was 49.9 percent, an increase of 1.3 percentage points from the 48.6 percent reported in June. In July, 70 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 July were: Wholesale Trade and Business Services. Industries reporting decreased use of imports in July were: Construction; Health Services; Entertainment; Communication; and Retail Trade.

Imports % Higher % Same % Lower Index
July 2001 11 81 8 49.9
June 2001 14 72 14 48.6
May 2001 8 84 8 48.5
April 2001 12 77 11 49.3

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in July for the ninth consecutive month at a faster rate than in June. NAPM's Non-Manufacturing Inventories Index registered 46 percent in July, a decrease of 2.5 percentage points from the 48.5 percent reported in June. Of the total respondents in July, 27 percent indicated they do not have inventories. Comments from members included: "Reduced inventory levels due to lack of demand," "Inventory reduction initiatives and warehouse consolidation," "Lowering inventories to reflect lower sales," and "Using material in stock."

The industries reporting inventory increase in July were: Legal Services; Mining; Insurance; Utilities; and Public Administration. Industries reporting the highest rates of inventory decrease in July were: Transportation; Entertainment; Finance and Banking; Business Services; and Real Estate.

Inventory
Change
% Higher % Same % Lower Index
July 2001 20 52 28 46.0
June 2001 20 57 23 48.5
May 2001 18 59 23 47.5
April 2001 17 57 26 45.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in July registered 61.5 percent compared to 65 percent for June. This decrease in the index level indicates that non-manufacturing purchasing and supply executives felt a lesser degree of discomfort with current levels of inventory in July than they did during June. In July, 32 percent of members felt their inventories were too high (36 percent in June). Also in July, 9 percent indicated their inventories were too low (6 percent in June), and 59 percent said that their inventories were about right (58 percent in June).

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

Inventory
Sentiment
% Higher % Same % Lower Index
July 2001 32 59 9 61.5
June 2001 36 58 6 65.0
May 2001 35 57 8 63.5
April 2001 32 64 4 64.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services decreased in July for the first time since February 1999, turning the corner from a trend of slower price increases that began in April 2000. NAPM's Non-Manufacturing Prices Index for July is 49 percent, 6.5 percentage points lower than June's 55.5 percent. The percentage of members reporting higher prices dropped 10 percentage points to 10 percent in July, the proportion indicating no change rose 7 percentage points to 78 percent, and the number who noted lower prices rose 3 percentage points to 12 percent.

The industries that reported increases in prices paid in July were: Agriculture; Insurance; Utilities; and Health Services. The industries that reported the highest rates of price decreases in July were: Finance and Banking; Transportation; Business Services; Wholesale Trade; and Public Administration.

Prices % Higher % Same % Lower Index
July 2001 10 78 12 49.0
June 2001 20 71 9 55.5
May 2001 26 67 7 59.5
April 2001 28 63 9 59.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in July for the fifth consecutive month. NAPM's Non-Manufacturing Employment Index for July was 46.4 percent compared to 45.1 percent in June. July's index value was the first month to month increase in the Employment Index since November 2000. Comments from purchasers included: "Reducing staff due to low business activity," "Continued downsizing," and "Continued reductions due to business levels."

Industries reporting the highest rates of growth in employment in July were: Retail Trade; Mining; Real Estate; Health Services; and *Other Services. Industries reporting the highest rates of reduction in employment in July were: Communication; Wholesale Trade; Agriculture; Business Services; and Entertainment.

Employment % Higher % Same % Lower Index
July 2001 14 70 16 46.4
June 2001 14 67 19 45.1
May 2001 15 65 20 46.6
April 2001 13 70 17 46.7

*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

Pharmaceuticals/Pharmacy Products.

Commodities Reported Up in Price

Beef; Cheese — 2nd month; Corn; Dairy — 2nd month; Electricity — 7th month; Furniture; Natural Gas (equal reports of price decreases) — 2nd month; Petroleum Products — 3rd month; Pork — 4th month; Soy Bean Meal; Utilities.

Commodities Reported Down in Price

Aluminum Products (Cable, Scrap, Wire); Coffee; Computer Memory; Computers (PCs) — 17th month; Diesel Fuel; Energy (some reports of price increases); Fuel (some reports of price increases); Gasoline; Paper; Propane; PVC Pipe/Fittings; Unleaded Gasoline.

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 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. 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 48,000 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 2001 data will be released at 10:00 a.m. (ET) on September 6, 2001.



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