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September 2000 Non-Manufacturing Report On Business®

FOR RELEASE: October 4, 2000

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

Business Activity, New Orders, Order Backlogs, Inventories, and Prices Increase at Faster Rates

(Tempe, Arizona) — Business in the non-manufacturing sector grew more rapidly in September 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 September, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend and indicated a faster rate of growth than in August," Kauffman said. "New Orders, Backlog of Orders, Inventories, and Prices all increased at faster rates in September than in August, while New Export Orders and Employment increased at slower rates. Use of Imports decreased in September compared to August. Supplier Deliveries continued its trend of slowness in September, but at a decreased 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 September than they did in August," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 62 percent in September, 2 percentage points higher than in August, indicating faster growth in non-manufacturing economic activity. Comments from purchasing executives were mostly positive on business activity in September. Increased business activity in September was reported by 37 percent of purchasers, an increase of 5 percentage points from the 32 percent reporting more activity in August. Of the industry groups reporting in the September NAPM non-manufacturing survey, 11 indicated increased activity, 2 indicated decreased activity, and 4 reported no change from August. In August, 14 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 somewhat higher rate of increase in their inventories and a more rapid rate of increase in the prices they pay for their purchases. Members indicate they are increasing inventories to meet the needs of increased business and technological change. A few members still report some Y2K carryover inventory, and other members indicated they have inventory reduction programs in place. While the Prices Index increased in September, it still appears to be continuing the overall downtrend that began in April. The percentage of members reporting higher prices increased to 27 percent in September from 23 percent in August but remained below the 29 percent reported in July.

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

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series September
Indexes
August
Indexes
September
Index
Change vs. August
Direction and
Rate of Change
Business Activity 62.0 60.0 +2.0 Increasing Faster
New Orders 61.0 59.5 +1.5 Increasing Faster
Backlog of Orders 56.5 52.0 +4.5 Increasing Faster
New Export Orders 51.5 56.0 -4.5 Increasing Slower
Inventory Change 53.5 51.0 +2.5 Increasing Faster
Inventory Sentiment 65.0 61.5 +3.5 Increased Feeling of "too high"
Imports 49.0 54.5 -5.5 Decreasing from Increasing
Prices 60.5 59.0 +1.5 Increasing Faster
Employment 52.0 54.0 -2.0 Increasing Slower
Supplier Deliveries 53.0 55.0 -2.0 Slowing at a Slower Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in September with non-manufacturing activity growing faster. New orders 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 September for both areas but rose faster for non-manufacturing. Employment in September increased for both areas but rose more rapidly in the non-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 September was reported to be slower in non-manufacturing and faster in manufacturing. Use of Imports was up in manufacturing and down in non-manufacturing during the month.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 62.0 Production 52.1
New Orders 61.0 New Orders 49.1
Backlog of Orders 56.5 Backlog of Orders 47.0
New Export Orders 51.5 New Export Orders 50.3
Inventory Change 53.5 Inventories 45.9
Inventory Sentiment 65.0    
Imports 49.0 Imports 50.5
Prices 60.5 Prices 58.1
Employment 52.0 Employment 50.9
Supplier Deliveries 53.0 Supplier Deliveries 49.3

* 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 September increased to 62 percent, indicating increased business activity at a faster rate of increase than in August (60 percent). Purchasing executives' comments in September continued to be very positive. The percent of members reporting increased activity rose from 32 percent in August to 37 percent in September. Members reporting decreased activity also increased from 12 percent in August to 13 percent in September. Those reporting no change in activity in September totaled 50 percent, a decrease of 6 percentage points from August's 56 percent.

The industries reporting the highest rates of growth of business activity in September were:
Utilities; Communication; Health Services; Wholesale Trade; and Mining.

Business
Activity
%
Higher
%
Same
%
Lower

Index
September 2000 37 50 13 62.0
August 2000 32 56 12 60.0
July 2000 26 59 15 55.5
June 2000 37 54 9 64.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 61 percent in September from 59.5 percent in August. Comments from members included: "More analysis work," "Acquisition, growth, relocation," "Higher volume of business from our same customers," and "Increased patient census."

The industries reporting the highest rates of growth of new orders in September were: Legal Services; Utilities; Communication; Health Services; Mining; and *Other Services.

New
Orders
%
Higher
%
Same
%
Lower

Index
September 2000 35 52 13 61.0
August 2000 33 53 14 59.5
July 2000 29 56 15 57.0
June 2000 39 49 12 63.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated increased backlogs for the eighth consecutive month by registering 56.5 percent in September. This is an increase of 4.5 percentage points from August's 52 percent, indicating an increased rate of growth in order backlogs in September. Purchasing executives' comments on backlogs of orders included: "Delay of supplies," "Supplier deliveries and lead times," "Backlog for next season on new contracts," and "Some back orders exist for hydraulic oils." Of the total respondents in September, 34 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in September were: Legal Services; Agriculture; Mining; Wholesale Trade; Utilities; and Construction.

Backlog
of Orders
%
Higher
%
Same
%
Lower

Index
September 2000 22 69 9 56.5
August 2000 19 66 15 52.0
July 2000 18 65 17 50.5
June 2000 24 65 11 56.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations slowed at a somewhat slower rate in September than in August. NAPM's Non-Manufacturing Supplier Deliveries Index for September was 53 percent compared to 55 percent in August. Comments from purchasing executives included: "Suppliers are backlogged," "Factories are loaded," "Faster railroad service," and "Longer lead time for manufactured goods."

The industries that reported the highest rates of slowness of supplier deliveries in September were: Business Services; Health Services; Retail Trade; Entertainment; Communication; Construction; and Public Administration.

Supplier
Deliveries
%
Higher
%
Same
%
Lower

Index
September 2000 6 82 12 53.0
August 2000 3 84 13 55.0
July 2000 4 83 13 54.5
June 2000 4 85 11 53.5

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 September for the seventh consecutive month. The rate of increase in September was slower than in August as NAPM's Non-Manufacturing New Export Orders Index dropped to 51.5 percent from August's 56 percent. The September Index was the lowest since February 2000 (47.5 percent). Of the total respondents in September, 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 September were: Communication and Retail Trade.

New Export
Orders
%
Higher
%
Same
%
Lower

Index
September 2000 16 71 13 51.5
August 2000 18 76 6 56.0
July 2000 17 72 11 53.0
June 2000 28 58 14 57.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries declined in September after increasing for six consecutive months. NAPM's Non-Manufacturing Imports Index for September was 49 percent compared to 54.5 percent in August. The September Index was the lowest since December 1999 (49 percent). In September, 71 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting decreased use of imports in September were: Entertainment; Construction; and Wholesale Trade. The only industry that reported increased use of imports in September was Communication.


Imports
%
Higher
%
Same
%
Lower

Index
September 2000 6 86 8 49.0
August 2000 14 81 5 54.5
July 2000 17 75 8 54.5
June 2000 18 70 12 53.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in September for the sixth time in seven months. NAPM's Non-Manufacturing Inventories Index registered 53.5 percent in September, an increase of 2.5 percentage points from the 51 percent reported in both July and August. Of the total respondents in September, 27 percent indicated they do not have inventories. Comments from member purchasers included: "Business has picked up faster than expected," "Increased number of skus driven by technological change," "Y2K carryover," and "Stocking up before price increase takes effect."

Industries reporting increased inventory in September were: Legal Services; Retail Trade; Utilities; Transportation; and Business Services.

Inventory
Change
%
Higher
%
Same
%
Lower

Index
September 2000 24 59 17 53.5
August 2000 19 64 17 51.0
July 2000 19 64 17 51.0
June 2000 27 54 19 54.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in September registered 65 percent compared to 61.5 percent for August. This rise in the index level indicates that non-manufacturing purchasing executives felt a greater degree of discomfort with current levels of inventory in September than they did during August. In September, 40 percent of members felt their inventories were too high (28 percent in August). Also in September, 10 percent indicated their inventories were too low (5 percent in August), and 50 percent said that their inventories were about right (67 percent in August).

The industries that reported the highest rates of feeling that their inventories were "too high" in September were: Legal Services; Agriculture; Business Services; Retail Trade; and Wholesale Trade.

Inventory
Sentiment
%
Higher
%
Same
%
Lower

Index
September 2000 40 50 10 65.0
August 2000 28 67 5 61.5
July 2000 40 56 4 68.0
June 2000 38 57 5 66.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in September for the 19th consecutive month and at a higher rate of increase than in August. NAPM's Non-Manufacturing Price Index for September rose to 60.5 percent from 59 percent in August.

The industries that reported the highest rate of increase in prices paid in September were: Legal Services; Agriculture; Mining; Transportation; and Public Administration.


Prices
%
Higher
%
Same
%
Lower

Index
September 2000 27 67 6 60.5
August 2000 23 72 5 59.0
July 2000 29 65 6 61.5
June 2000 35 62 3 66.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector grew at a slower rate in September than in August. NAPM's Non-Manufacturing Employment Index for September was 52 percent compared to 54 percent in August. Comments from purchasers included: "Continued growth," "More construction projects," "Difficulty in replacing departing staff," and "Not hiring, even to replace."

The industries reporting the highest rates of growth of employment in September were: Legal Services; Communication; Transportation; Construction; and Insurance.


Employment
%
Higher
%
Same
%
Lower

Index
September 2000 20 64 16 52.0
August 2000 22 64 14 54.0
Junt 2000 19 69 12 53.5
June 2000 25 63 12 56.5

*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

Electronic Components; Flu Vaccine; Fuel; Furniture; Laptops — 7th month; Personnel; Skilled Technical Labor; Stainless Steel; Temporary Help.

Commodities Reported Up in Price

Airline Tickets; Asphalt — 3rd month; Contract Labor; Copper; Diesel Fuel — 4th month; Electricity; Freight Services — 2nd month; Fuel — 8th month; Fuel Surcharges; Gasoline; Labor — 2nd month; Lumber; Natural Gas; Paper — 18th month (some reports of price decreases); Petroleum Based Products; Petroleum Products; Plastics; Poultry; Produce; Temporary Help — 3rd month; Transportation — 7th month.

Commodities Reported Down in Price

Computers — 7th month; Plastic Pipe; Plywood; Stainless Steel Sheet, Plate, Angle, Square Tube, Flat Bar.

Special Question — Benefits to Supply Management From the Application of Technology

A special question was asked this month with regard to supply chain management and technology. The following question was submitted to our survey members: "Based on your operations and the efficiency of your supply chain, with 100 percent being perfection and 0 being the lower limit, what number value represents your achievement of potential benefits from the application of technology to supply management?"

  • 11% indicated 0-20%
  • 13% indicated 21-40%
  • 34% indicated 41-60%
  • 32% indicated 61-80%
  • 7% indicated 81-90%
  • 3% indicated 91-100%
  • Average = 57%

The data suggest that a majority of respondents (58% reported 60% or less achievement of potential) still feel that they can gain significantly from the application of technology to supply chain management.

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 October 2000 data will be released at 10:00 a.m. (ET) on November 3, 2000.



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