July 2003 Non-Manufacturing ISM Report On Business®

FOR RELEASE: August 5, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 65.1%

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 July 2003.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in July 2003, 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 fourth consecutive month in July," Kauffman said. He added, "Also in July, New Orders, Order Backlogs, Employment, Prices, and Imports increased."

Purchasing and supply executives in July report the highest monthly Business Activity Index since the inception of the ISM Non-Manufacturing Business Survey in July 1997. July's Business Activity Index of 65.1 percent was higher than the previous high of 63.2 percent in October 1997. In the non-manufacturing sector, 14 industry groups grew in July, while one group contracted and two reported no change from June. Increased business activity in July was reported by 38 percent of members, compared to June's 41 percent. Reduced activity was reported by 12 percent of members compared to 14 percent in June. In July, the remaining 50 percent of members indicated no change in business activity compared to 45 percent in June. The Backlog of Orders Index rose by 3 percentage points to 54.5 percent, indicating growth in order backlogs for the third consecutive month and for the eighth time since August 2002. The July New Orders Index increased from 57.5 percent in June to 66.9 percent in July. This reflects a significantly faster rate of increase of new orders in July compared to June. Members reported that the prices they pay increased in July for the second consecutive month. July's Prices Index is 50.6 percent, down slightly from 51.4 percent in June. This month, eight industry groups reported paying higher prices compared to June, four reported paying the same, and five industry groups reported paying lower prices in July. Members' general comments on business in July continue to indicate more optimism than in the early months of 2003. Particular comments include: "Things are getting better"; "Better local economy; new, smaller businesses seem to be doing better"; "Business is picking up at a steady pace exceeding figures for same period 2002. The outlook for the upcoming three months is looking positive"; and "Sales are still projected flat for the last six months of the year, but they are trending up."

In addition, Inventories decreased for the second consecutive month. With regard to Inventory Sentiment, members reported the lowest level of concern that inventories are too high since October 1999. New Export Orders decreased for the third consecutive month, Imports increased for the third consecutive month, and Employment increased for the second time in six months. Supplier Deliveries indicated slower performance for the 23rd consecutive month.

Significant reports of commodities in short supply or up or down in price in July indicate that no commodities are in short supply. Price increases are reported for bacon; beef; building materials; copper; dairy products; #2 diesel fuel; electricity; fuel; gasoline; medical supplies; natural gas; office furniture; pork and pork products; poultry and poultry products; and produce. Computer equipment and peripherals; freight; office supplies; printing; steel; and technology products were reported down in price. #2 diesel fuel, fuel, and gasoline had reports of lower prices in addition to reports of higher prices.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index July
Index %
June
Index %
Index Change
from June
Direction &
Rate of Change
July
Index %
June
Index %
Index Change
from June
Business Activity / Production 65.1 60.6 +4.5 Increasing faster 53.3 52.9 +0.4
New Orders 66.9 57.5 +9.4 Increasing faster 56.6 52.2 +4.4
Employment 50.7 50.3 +0.4 Increasing faster 46.1 46.2 -0.1
Supplier Deliveries 53.5 51.5 +2.0 Slowing faster 51.1 50.0 +1.1
Inventories 49.5 47.0 +2.5 Decreasing slower 45.9 41.3 +4.6
Prices 50.6 51.4 -0.8 Increasing slower 53.0 56.5 -3.5
Backlog of Orders 54.5 51.5 +3.0 Increasing faster 51.0 50.0 +1.0
New Export Orders 47.5 49.5 -2.0 Decreasing faster 53.8 54.4 -0.6
Imports 54.0 50.5 +3.5 Increasing faster 56.0 56.4 -0.4
Inventory Sentiment 60.0 62.0 -2.0 Lesser feeling of "too high" N/A    
Customers' Inventories N/A       42.5 45.5 -3.0

* 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 July increased 4.5 percentage points on a seasonally adjusted basis to 65.1 percent from June's 60.6 percent. July's index continues the uptrend begun in April 2003 following March's dip into contraction territory (below an index value of 50). July's index is the highest since the inception of ISM's Non-Manufacturing Business Survey in July 1997. The previous high was 63.2 percent in October 1997. With the exception of March 2003, growth in business activity has been reported by ISM members every month beginning with February 2002. Fourteen sectors reported increased business activity, one sector reported decreased activity, and two reported no change in activity compared to June.

The industries reporting the highest rates of growth of business activity in July are: Construction; Agriculture; Finance & Banking; Retail Trade; and Communication. The only industry reporting contraction of business activity in July is Health Services.

Business
Activity
% Higher % Same % Lower Index
July 2003 38 50 12 65.1
June 2003 41 45 14 60.6
May 2003 31 51 18 54.5
April 2003 28 53 19 50.7

New Orders

ISM's Non-Manufacturing New Orders Index increased to 66.9 percent in July from 57.5 percent in June. This was the highest New Orders Index since the inception of ISM's Non-Manufacturing Business Survey in July 1997. The previous New Orders Index high was 61.6 percent in October 1999. Comments from members include: "Increased sales"; "New capital investment"; "Increased economic activity"; and "New accounts/customers."

The industries reporting the highest rates of growth of new orders in July are: Agriculture; Communication; Finance & Banking; Construction; and Utilities. There are no industries reporting contraction of new orders in July.

New Orders % Higher % Same % Lower Index
July 2003 35 55 10 66.9
June 2003 38 46 16 57.5
May 2003 30 56 14 54.7
April 2003 25 57 18 50.6

Employment

Employment in the non-manufacturing sector in July increased for the second consecutive month after four consecutive months of decline. ISM's Non-Manufacturing Employment Index for July is 50.7 percent compared to 50.3 percent in June. Comments from respondents include: "Increase in hiring IT contractors"; "Increased sales force"; "Need additional employees due to company expansion"; and "Not replacing open positions."

The industries reporting the highest rates of growth in employment in July are: Insurance; Construction; Finance & Banking; Retail Trade; and Communication. Industries reporting reduction in employment in July are: Entertainment; Public Administration; Health Services; and Wholesale Trade.

Employment % Higher % Same % Lower Index
July 2003 21 64 15 50.7
June 2003 17 69 14 50.3
May 2003 17 66 17 48.7
April 2003 17 66 17 48.2

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 23rd consecutive month in July. The index registered 53.5 percent, an increase of 2 percentage points from the 51.5 percent reported in June. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in July include: "Suppliers have not increased capacity"; "Manufacturing back orders"; "Ordered material shipping slower than in past months"; and "Order requests higher than inventories available at distribution or at manufacturers."

The industries reporting the highest rates of slowing in supplier deliveries in July are: Entertainment; Utilities; Wholesale Trade; Finance & Banking; Public Administration; and Retail Trade. There are no industries reporting faster supplier deliveries in July.

Supplier
Deliveries
% Slower % Same % Faster Index
July 2003 8 91 1 53.5
June 2003 6 91 3 51.5
May 2003 6 92 2 52.0
April 2003 5 91 4 50.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 49.5 percent in July, 2.5 percentage points higher than the 47 percent reported in June. July's index reflects the second consecutive month of decrease after two consecutive months in which material inventories maintained by non-manufacturing organizations increased. Of the total respondents in July, 31 percent indicate they do not have inventories or do not measure them. Comments from members include: "Trying to go to Just-in-Time purchasing"; "Added inventory for new stores"; "Planned [inventory] reduction program"; and "Processed material inventory reduction by attrition."

The industries reporting inventory increases in July are: Legal Services; Real Estate; Communication; Insurance; and Retail Trade. The industries reporting the highest rates of inventory decreases in July are: Agriculture; Business Services; Finance & Banking; Public Administration; and Utilities.

Inventory
Change
% Higher % Same % Lower Index
July 2003 20 59 21 49.5
June 2003 19 56 25 47.0
May 2003 24 57 19 52.5
April 2003 26 50 24 51.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in July for the second consecutive month. ISM's Non-Manufacturing Prices Index for July is 50.6 percent, a decrease of 0.8 percentage point from the 51.4 percent registered for June. In July, the percentage of members reporting higher prices decreased 4 percentage points to 14 percent from 18 percent in June, the proportion indicating no change rose 3 percentage points to 73 percent, and the number who noted lower prices increased 1 percentage point to 13 percent.

The industries reporting the highest rates of increase in prices paid in July are: Agriculture; Entertainment; Communication; Construction; Retail Trade; and Other Services*. The industries reporting price decreases in July are: Real Estate; Finance & Banking; Insurance; Business Services; and Public Administration.

Prices % Higher % Same % Lower Index
July 2003 14 73 13 50.6
June 2003 18 70 12 51.4
May 2003 16 72 12 49.6
April 2003 30 63 7 56.7

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 54.5 percent in July. This is an increase of 3 percentage points over June's 51.5 percent and represents the third consecutive month of growth in order backlogs. Of the total respondents in July, 42 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Bidding activity increasing"; "Volume exceeding expectations"; and "Working out of existing inventories."

The industries reporting the highest rates of growth in backlog of orders in July are: Construction; Other Services*; Communication; Business Services; and Public Administration. The industries reporting decline of order backlogs in July are: Entertainment; Real Estate; Wholesale Trade; and Utilities.

Backlog
of Orders
% Higher % Same % Lower Index
July 2003 18 73 9 54.5
June 2003 19 65 16 51.5
May 2003 12 78 10 51.0
April 2003 11 70 19 46.0

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 decreased for the third consecutive month in July after rising in April. The New Export Orders Index for July is 47.5 percent compared to June's 49.5 percent. Of the total respondents in July, 78 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 are: Entertainment; Communication; and Business Services. The industries reporting decreases in new export orders in July are: Mining and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
July 2003 12 71 17 47.5
June 2003 17 65 18 49.5
May 2003 14 70 16 49.0
April 2003 16 73 11 52.5

Imports

In July, the ISM Imports Index registered 54 percent, up from 50.5 percent in June. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in July than in June. July's index marks the third consecutive month of import growth after April's index value of 50 percent indicated no change in imports compared to March. Prior to April there were six consecutive months of growth in imports. In July, 69 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting increases in use of imports in July are: Communication; Retail Trade; Business Services; and Wholesale Trade. The industries reporting decreased use of imports in July are: Public Administration and Other Services*.

Imports % Higher % Same % Lower Index
July 2003 15 78 7 54.0
June 2003 10 81 9 50.5
May 2003 20 77 3 58.5
April 2003 15 70 15 50.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in July registered 60 percent, 2 percentage points lower than the 62 percent reported for June. This indicates that non-manufacturing purchasing and supply executives feel a lesser degree of discomfort with current levels of inventory in July than they did during June. Respondents currently feel less discomfort concerning their inventory levels than at any time since October 1999. Inventory Sentiment in October 1999 registered 58 percent. In July, 30 percent of respondents felt their inventories were too high, 10 percent indicated their inventories were too low, and 60 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories were too high in July are: Legal Services; Construction; Mining; Wholesale Trade; Entertainment; and Agriculture. There are no industries reporting that their inventories are too low in July.

Inventory
Sentiment
% Too High % About Right % Too Low Index
July 2003 30 60 10 60.0
June 2003 29 66 5 62.0
May 2003 31 64 5 63.0
April 2003 31 63 6 62.5

*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 were reported in short supply in July.

Commodities Reported Up in Price

Bacon — 4th month; Beef — 7th month; Building Materials; Copper; Dairy Products; #2 Diesel Fuel* — 10th month; Electricity; Fuel* — 7th month; Gasoline*; Medical Supplies; Natural Gas; Office Furniture; Pork and Pork Products — 3rd month; Poultry and Poultry Products; Produce.

Commodities Reported Down in Price

Computer Equipment and Peripherals — 3rd month; #2 Diesel Fuel*; Freight; Fuel* — 4th month; Gasoline* — 4th month; Office Supplies; Printing; Steel — 2nd month; Technology Products.

*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 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 August 2003 data will be released at 10:00 a.m. (ET) on September 4, 2003.



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