August 2002 Non-Manufacturing ISM Report On Business®

FOR RELEASE: September 5, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 50.9%

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 August 2002.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in August 2002, 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. "In August, non-manufacturing business activity increased at a slower rate than in July. The reported growth represents the seventh consecutive month of expansion in non-manufacturing business activity, but the third month of reduced rates of expansion," Kauffman said. He added, "Also in August, New Orders grew at a slower rate than in July, and the Backlog of Orders Index indicated smaller backlogs than in July."

Reports from purchasing and supply executives indicate 10 industry groups grew in August and six groups contracted. Increased business activity in August was reported by 24 percent of members, compared to July's 25 percent. Reduced activity was reported by 24 percent of members compared to 21 percent in July. In August, the remaining 52 percent of members indicated no change in business activity compared to 54 percent in July. The overall sense of how members currently assess the business climate is reflected by the Business Activity index. The August Index of 50.9 confirms that more (but only a few more) members are reporting growth than contraction, but the drop in the Index from 53.1 percent in July means that August's rate of growth was less substantial and bordered on no growth at all. Comments from some members cited negative effects of the recent stock market decline on their businesses, but other members indicated that business was either holding its own or increasing.

Also this month, Inventories decreased after July's increase, and Prices increased for the sixth month but more slowly than in July. New Export Orders and Imports decreased after several months of increases, while Employment shrank for the 18th consecutive month. The Inventory Sentiment Index dropped, indicating less discomfort with inventory levels and perhaps reflecting the results of inventory reductions in three of the past four months. Supplier Deliveries indicated slower performance for the 12th consecutive month.

Significant reports of commodities in short supply or up or down in price in August indicate only technology personnel/consultants in short supply. Price increases are reported for beef; carbon flat roll (steel); copper; corrugated; diesel fuel (#2); fuel; gasoline (some reports of price decreases); paper; petroleum based products; pipe fittings; polyester/films; polyethylene; PVC; PVC pipe; services; stainless steel products (fittings, pipe, steel); steel; steel pipe; and steel products. Price decreases are reported for auto fuel; butter; cheese; chicken; cold rolled steel/coil; office products/supplies; PCs; and produce.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index August
Index %
July
Index %
Index Change
from July
Direction &
Rate of Change
August
Index %
July
Index %
Index Change
from July
Business Activity / Production 50.9 53.1 -2.2 Increasing Slower 55.6 55.7 -0.1
New Orders 51.6 52.6 -1.0 Increasing slower 49.7 50.4 - 0.7
Employment 47.3 45.8 +1.5 Decreasing Slower 45.8 45.0 +0.8
Supplier Deliveries 53.0 52.5 +0.5 Slowing faster 53.4 54.9 -1.5
Inventories 46.0 52.0 -6.0 Decreasing from increasing 45.2 41.8 +3.4
Prices 53.5 59.0 -5.5 Increasing slower 61.5 68.3 -6.8
Backlog of Orders 48.0 43.5 +4.5 Decreasing slower 45.0 45.5 -0.5
New Export Orders 46.0 59.5 -13.5 Decreasing from increasing 52.7 52.2 +0.5
Imports 48.3 52.6 -4.3 Decreasing from Increasing 51.9 54.2 -2.3
Inventory Sentiment 62.0 66.0 -4.0 Less feeling of "too high" N/A    
Customer Inventories N/A       42.5 42.5 0

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders and Customer Inventories.

Business Activity

ISM's Non-Manufacturing Business Activity Index in August declined 2.2 percentage points on a seasonally adjusted basis to 50.9 percent from July's 53.1 percent. August's Index indicates a slowing in the rate of growth for the third consecutive month and was the lowest since January 2002 (49.6 percent). In August, 10 sectors reported increased business activity, and six sectors reported decreased activity compared to July.

The industries reporting the highest rates of growth of business activity in August are: Entertainment; Utilities; Real Estate; Retail Trade; and Finance and Banking. The industries reporting contraction of business activity in August are: Communication; Transportation; Construction; Mining; Agriculture; and Wholesale Trade.

Business
Activity
% Higher % Same % Lower Index
August 2002 24 52 24 50.9
July 2002 25 54 21 53.1
June 2002 35 50 15 57.2
May 2002 34 55 11 60.1

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 51.6 percent in August from 52.6 percent in July. August's New Orders Index is the lowest since January 2002 (49.4 percent). Comments from members include: "Summer activity is slower"; "Work is slow – demand is much less"; "Higher volumes but no new contracts"; and "More inquiries and projects."

The industries reporting the highest rates of growth of new orders in August are: Retail Trade; Utilities; Entertainment; Health Services; Insurance; and Other Services*. The industries reporting the highest rates of contraction of new orders in August are: Communication; Mining; Agriculture; Wholesale Trade; and Construction.

New Orders % Higher % Same % Lower Index
August 2002 24 54 22 51.6
July 2002 21 58 21 52.6
June 2002 36 49 15 56.9
May 2002 32 55 13 56.8

Employment

Employment in the non-manufacturing sector contracted in August for the 18th consecutive month. ISM's Non-Manufacturing Employment Index for August is 47.3 percent compared to 45.8 percent in July. August's Index indicates a slower rate of decrease for the second consecutive month. Comments from respondents include: "Small reduction in force; "Company is growing and therefore hiring additional personnel"; and "Office closings/corporate downsizing."

The industries reporting growth in employment in August are Retail Trade and Health Services. Industries reporting the highest rates of reduction in employment in August are: Utilities; Mining; Agriculture; Communication; Insurance; Construction; and Wholesale Trade.

Employment % Higher % Same % Lower Index
August 2002 10 74 16 47.3
July 2002 13 71 16 45.8
June 2002 13 66 21 44.3
May 2002 15 70 15 49.5

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 12th consecutive month in August, registering an index value of 53 percent, 0.5 percentage point higher than July's 52.5 percent. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in August include: "Slow payment of invoices impact slow deliveries" and "Little or no inventory at manufacturer."

The industries that reported the highest rates of slowing in supplier deliveries in August are: Utilities; Wholesale Trade; Communication; Construction; Entertainment; and Real Estate. Industries reporting faster supplier deliveries in August are Transportation and Public Administration.

Supplier
Deliveries
% Slower % Same % Faster Index
August 2002 10 86 4 53.0
July 2002 9 87 4 52.5
June 2002 10 87 3 53.5
May 2002 6 92 2 52.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 46 percent in August, a decrease of 6 percentage points from the 52 percent reported in July. August's Index means that material inventories maintained by non-manufacturing organizations decreased in August after increasing in July. Of the total respondents in August, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: "Trying to reduce inventory; "Working on decreasing inventory level"; "Less fleet and office materials"; Using up engineering material items"; and "Continued effort to streamline inventory."

The industries reporting inventory increases in August are: Wholesale Trade; Construction; and Public Administration. Industries reporting the highest rates of inventory decrease in August are: Utilities; Business Services; Communication; Entertainment; and Other Services*.

Inventory
Change
% Higher % Same % Lower Index
August 2002 18 56 26 46.0
July 2002 23 58 19 52.0
June 2002 19 57 24 47.5
May 2002 19 59 22 48.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the sixth month in August after eight months of lower or unchanged prices prior to March 2002. ISM's Non-Manufacturing Prices Index for August is 53.5 percent, a decrease of 5.5 percentage points from July's 59 percent. In August, the percentage of members reporting higher prices dropped 9 percentage points to 17 percent from 26 percent in July, the proportion indicating no change rose 7 percentage points to 73 percent, and the number who noted lower prices increased 2 percentage points to 10 percent.

The industries reporting the highest rates of increase in prices paid in August are: Agriculture; Wholesale Trade; Construction; Entertainment; and Mining. The industries reporting price decreases in August are: Real Estate; Business Services; Finance and Banking; Utilities; and Retail Trade.

Prices % Higher % Same % Lower Index
August 2002 17 73 10 53.5
July 2002 26 66 8 59.0
June 2002 18 72 10 54.0
May 2002 20 71 9 55.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 48 percent in August. This is the third consecutive month indicating contraction in order backlogs. These three months of decrease follow May's backlog increase, the first growth indicated by this Index in 17 months. The August index is an increase of 4.5 percentage points from July's 43.5 percent. Purchasing and supply executives' comments on backlogs of orders include: "Some suppliers unable to fill orders"; "Part delays, processing delays"; "Number of projects that we are working on is down"; and "National backorder of sterile water." Of the total respondents in August, 39 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in August are Real Estate; Utilities; Health Services; Wholesale Trade; and Public Administration. The industries reporting the highest rates of decline of order backlogs in August are: Agriculture; Communication; Finance and Banking; Construction; and Mining.

Backlog
of Orders
% Higher % Same % Lower Index
August 2002 15 66 19 48.0
July 2002 12 63 25 43.5
June 2002 13 72 15 49.0
May 2002 15 77 8 53.5

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 decreased in August after four months of increases. The New Export Orders Index for August is 46 percent compared to July's 59.5 percent. Of the total respondents in August, 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 August are Insurance and Public Administration. The industries reporting decreases in new export orders in August are: Agriculture; Communication; Business Services; Other Services*; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
August 2002 11 70 19 46.0
July 2002 24 71 5 59.5
June 2002 24 67 9 57.5
May 2002 30 63 7 61.5

Imports

In August, use of imported materials by non-manufacturing industries decreased after four months of increases. ISM's Non-Manufacturing Imports Index for August is 48.3 percent, a decrease of 4.3 percentage points from the 52.6 percent reported in July. In August, 72 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting an increase in use of imports in August are: Health Services; Communication; Retail Trade; and Wholesale Trade. The industries reporting decreased use of imports in August are: Mining; Construction; Business Services; and Other Services*.

Imports % Higher % Same % Lower Index
August 2002 9 80 11 48.3
July 2002 13 82 5 52.6
June 2002 19 72 9 55.2
May 2002 18 75 7 54.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in August registered 62 percent, 4 percentage points less than the 66 percent reported for July. This indicates that non-manufacturing purchasing and supply executives felt a lesser degree of discomfort with current levels of inventory in August as they did during July. In August, 30 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 64 percent said that their inventories were about right.

The industries that reported the highest rates of feeling that their inventories were too high in August are: Wholesale Trade; Construction; Transportation; Insurance; Agriculture; and Mining. No industry reported that its inventories were too low in August.

Inventory
Sentiment
% Too High % About Right % Too Low Index
August 2002 30 64 6 62.0
July 2002 35 62 3 66.0
June 2002 35 62 3 66.0
May 2002 32 66 2 65.0

*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

Technology personnel/consultants.

Commodities Reported Up in Price

Beef — 4th month; Carbon Flat Roll (steel) — 2nd month; Copper — 6th month; Corrugated — 2nd month; Diesel Fuel (#2); Fuel — 6th month; Gasoline (some reports of price decreases); Paper — 4th month; Petroleum Based Products; Pipe Fittings; Polyester/Films; Polyethylene — 2nd month; PVC; PVC Pipe; Services; Stainless Steel Products (fittings, pipe, steel) — 2nd month; Steel — 7th month; Steel Pipe; Steel Products.

Commodities Reported Down in Price

Auto Fuel; Butter; Cheese — 3rd month; Chicken; Cold Rolled Steel/coil; Office Products/Supplies; PCs — 4th month; Produce — 2nd month.

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, Imports, 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 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 September 2002 data will be released at 10:00 a.m. (ET) on October 3, 2002.


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