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August 2000 Non-Manufacturing Report On Business®

FOR RELEASE: September 6, 2000

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

Business Activity, New Orders, Order Backlogs, Export Orders, and Employment Increase at Faster Rates

(Tempe, Arizona) — Business in the non-manufacturing sector grew more rapidly in August 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 August, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend and indicated a faster rate of growth than in July," Kauffman said. "New Orders, Backlog of Orders, Export Orders, and Employment all increased at faster rates in August than in July, while Imports and Inventories increased at the same rate as in July, and Prices increased at a slower rate than in July. Supplier Deliveries were slightly slower in August than in July, with an increased rate of slowing. The Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives felt a lesser degree of discomfort with the level of inventories in August than they did in July," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 60 percent in August, 4.5 percentage points higher than in July, indicating faster growth in non-manufacturing economic activity. Comments from purchasing executives were mostly positive on business activity in August. Increased business activity in August was reported by 32 percent of purchasers, an increase of 6 percentage points from the 26 percent reporting more activity in July. Of the industry groups reporting in the August NAPM non-manufacturing survey, 14 indicated increased activity, 1 indicated decreased activity, and 2 reported no change from July. In July, 9 industry groups reported increased activity, 2 reported decreased activity, and 5 reported no change in activity level," said Kauffman.

This month our members reported a continuing low rate of increase in their inventories and a drop in the rate of increase in prices they pay for their purchases. A number of members indicate they are increasing inventories to meet current and expected future sales. Other members indicated they have inventory reduction programs in place. The Prices Index reached its lowest level since December 1999 as it continued a downtrend that began in April. The percentage of members reporting higher prices dropped to 23 percent in August from 29 percent in July.

"Overall in August, non-manufacturing industries continued their long-term growth trend at an increased rate of growth compared to July. This month the Business Activity Index, the New Orders Index, New Export Orders, and the Backlog of Orders Index all increased from their July levels. Non-manufacturing inventories and imports grew at the same rate as in July. Employment rose at a slightly faster rate of increase, and Prices increased at a slower rate of increase in August," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series August
Indexes
July
Indexes
August vs. July
Index Change
Direction and
Rate of Change
Business Activity 60.0 55.5 +4.5 Increasing Faster
New Orders 59.5 57.0 +2.5 Increasing Faster
Backlog of Orders 52.0 50.5 +1.5 Increasing Faster
New Export Orders 56.0 53.0 +3.0 Increasing Faster
Inventory Change 51.0 51.0 0 Increasing at Same Rate
Inventory Sentiment 61.5 68.0 -6.5 Decreased Feeling of "too high"
Imports 54.5 54.5 0 Increasing at Same Rate
Prices 59.0 61.5 -2.5 Increasing Slower
Employment 54.0 53.5 +0.5 Increasing Faster
Supplier Deliveries 55.0 54.5 +0.5 Slowing at a Faster Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries grew but production in manufacturing industries declined in August. New orders also increased for non-manufacturing but decreased in the manufacturing sector. Backlog of orders followed the same pattern and increased for non-manufacturing and decreased in manufacturing. Prices increased in August for both areas but rose faster for non-manufacturing. Employment in August increased for non-manufacturing and decreased for the manufacturing sector. 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 August was reported to be slower by both sectors but with a higher rate of slowness in non-manufacturing. Use of Imports was up in both sectors but increased at a faster rate in non-manufacturing during the month.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 60.0 Production 48.7
New Orders 59.5 New Orders 49.7
Backlog of Orders 52.0 Backlog of Orders 49.0
New Export Orders 56.0 New Export Orders 50.7
Inventory Change 51.0 Inventories 47.8
Inventory Sentiment 61.5    
Imports 54.5 Imports 51.9
Prices 59.0 Prices 56.2
Employment 54.0 Employment 48.2
Supplier Deliveries 55.0 Supplier Deliveries 53.1

* 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 August increased to 60 percent, indicating increased business activity at a faster rate of increase than in July (55.5 percent). Purchasing executives' comments in August continued to be mostly positive. The percent of members reporting increased activity increased from 26 percent in July to 32 percent in August. Members reporting decreased activity dropped from 15 percent in July to 12 percent in August. Those reporting no change in activity in August totaled 56 percent, a decrease of 3 percentage points from July's 59 percent.

The industries reporting the highest rates of growth of business activity in August were: Communication; Utilities; Transportation; Public Administration; and Health Services.

Business
Activity
% Higher % Same % Lower Index
August 2000 32 56 12 60.0
July 2000 26 59 15 55.5
June 2000 37 54 9 64.0
May 2000 35 53 12 61.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 59.5 percent in August from 57 percent in July. Comments from members included: "Increased business," "Higher business activity," "More capital projects," and "Increased market share."

The industries reporting the highest rates of growth of new orders in August were: Legal Services; Communication; Entertainment; Business Services; and Utilities.

New Orders % Higher % Same % Lower Index
August 2000 33 53 14 59.5
July 2000 29 56 15 57.0
June 2000 39 49 12 63.5
May 2000 38 51 11 63.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated increased backlogs for the seventh consecutive month by registering 52 percent in August. This is an increase of 1.5 percentage points from July's 50.5 percent, indicating an increased rate of growth in order backlogs in August. Purchasing executives' comments on backlogs of orders included: "Requests for new products increased backlog," "More new customers," "Driven by new business, order activity," and "Longer lead times due to product demand." Of the total respondents in August, 26 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in August were: Transportation; Communication; Business Services; Mining; and Real Estate.

Backlog
of Orders
% Higher % Same % Lower Index
August 2000 19 66 15 52.0
July 2000 18 65 17 50.5
June 2000 24 65 11 56.5
May 2000 20 67 13 53.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a slightly faster rate in August than in July. NAPM's Non-Manufacturing Supplier Deliveries Index for August was 55 percent compared to 54.5 percent in July. Comments from purchasing executives included: "Transportation problems," "Quality and staffing problems," "Low inventory levels," and "High demand for state-of-the-art telecom equipment."

The industries that reported the highest rates of slowness of supplier deliveries in August were: Wholesale Trade; Communication; Utilities; Agriculture; and Insurance.

Supplier
Deliveries
% Higher % Same % Lower Index
August 2000 3 84 13 55.0
July 2000 4 83 13 54.5
June 2000 4 85 11 53.5
May 2000 2 82 16 57.0

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 August for the sixth consecutive month. The rate of increase in August was faster than in July as NAPM's Non-Manufacturing New Export Orders Index rose to 56 percent from July's 53 percent. Of the total respondents in August, 77 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 August were: Mining; Health Services; *Other Services; Communication; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
August 2000 18 76 6 56.0
July 2000 17 72 11 53.0
June 2000 28 58 14 57.0
May 2000 31 62 7 62.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased for the sixth consecutive month in August. NAPM's Non-Manufacturing Imports Index for August was 54.5 percent (the same as in July) indicating the same rate of increase in the use of imports for both months. In August, 71 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 August were: Wholesale Trade and *Other Services.

Imports % Higher % Same % Lower Index
August 2000 14 81 5 54.5
July 2000 17 75 8 54.5
June 2000 18 70 12 53.0
May 2000 19 74 7 56.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in August for the fifth time in six months. NAPM's Non-Manufacturing Inventories Index registered 51 percent in August, the same as in July. Of the total respondents in August, 22 percent indicated they do not have inventories. Comments from member purchasers included: "Increased business," "Sales were strong," "New store openings," and "Using existing inventory."

Industries reporting increased inventory in August were: Legal Services; Transportation; Construction; Insurance; Public Administration; and Business Services.

Inventory
Change
% Higher % Same % Lower Index
August 2000 19 64 17 51.0
July 2000 19 64 17 51.0
June 2000 27 54 19 54.0
May 2000 20 59 21 49.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in August registered 61.5 percent compared to 68 percent for July. August's index was the lowest since March 2000 (60.5 percent). This drop in the index level indicates that non-manufacturing purchasing executives felt a lesser degree of discomfort with current levels of inventory in August than they did during July. In August, 28 percent of members felt their inventories were too high (40 percent in July). Also in August, 5 percent indicated their inventories were too low (4 percent in July), and 67 percent said that their inventories were about right (56 percent in July).

The industries that reported the highest rates of feeling that their inventories were "too high" in August were: Legal Services; Mining; Utilities; Transportation; and Public Administration.

Inventory
Sentiment
% Higher % Same % Lower Index
August 2000 28 67 5 61.5
July 2000 40 56 4 68.0
June 2000 38 57 5 66.5
May 2000 32 62 6 63.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the 18th consecutive month but at a lower rate of increase than in July. NAPM's Non-Manufacturing Price Index for August declined to 59 percent from 61.5 percent in July. August's index was the lowest since December 1999 (56 percent).

The industries that reported the highest rate of increase in prices paid in August were: Legal Services; Insurance; Utilities; Wholesale Trade; and Retail Trade.

Prices % Higher % Same % Lower Index
August 2000 23 72 5 59.0
July 2000 29 65 6 61.5
June 2000 35 62 3 66.0
May 2000 34 63 3 65.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at a slightly faster rate in August than in July. NAPM's Non-Manufacturing Employment Index for August was 54 percent compared to 53.5 percent in July. Comments from purchasers included: "Support increased business, order activity," "Growth, expansion into new markets," "Increased business," and "New expansion, e-commerce."

The industries reporting the highest rates of growth of employment in August were: Legal Services; Insurance; Communication; Finance and Banking; *Other Services; and Public Administration.

Employment % Higher % Same % Lower Index
August 2000 22 64 14 54.0
July 2000 19 69 12 53.5
June 2000 25 63 12 56.5
May 2000 21 67 12 54.5

*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

Computer Monitors; Labor — 6th month; Labor-Skilled; Laptops — 6th month.

Commodities Reported Up in Price

Asphalt — 2nd month; Cable; Construction Labor; Diesel Fuel — 3rd month; Freight Services; Fuel — 7th month (some reports of price decreases); Fuel Oil; Labor; Paper — 17th month (some reports of price decreases); Paper Products — 3rd month; Temporary Help — 2nd month; Transportation — 6th month.

Commodities Reported Down in Price

Computers — 6th month; Copiers.

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 September 2000 data will be released at 10:00 a.m. (ET) on October 4, 2000.


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