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September 2002 Non-Manufacturing ISM Report On Business®

FOR RELEASE: October 3, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 53.9%

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 September 2002.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in September 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 September, non-manufacturing business activity increased at a faster rate than in August. The reported growth represents the eighth consecutive month of expansion in non-manufacturing business activity, and the first month of increased expansion after three months of slower rates of expansion," Kauffman said. He added, "Also in September, New Orders grew at a faster rate than in August, and the Backlog of Orders Index indicated the first increase in order backlogs in four months."

Reports from purchasing and supply executives indicate 10 industry groups grew in September and four groups contracted. Increased business activity in September was reported by 32 percent of members, compared to August's 24 percent. Reduced activity was reported by 19 percent of members compared to 24 percent in August. In September, the remaining 49 percent of members indicated no change in business activity compared to 52 percent in August. The indication of greater numbers of members reporting increased activity and smaller numbers reporting reduced activity provides some basis for optimism for business growth in the next few months. This is further supported by other results from this month's survey; e.g., fewer industries reporting reduced activity (four in September versus six in August), an increase in the New Orders Index and the first increase in order backlogs in four months. The overall sense of how members currently assess the business climate is mixed, with comments such as "Our customers continue to be very cautious in their purchasing decisions which continues to impact our revenue"; "Cautious optimism prevails"; "Budgets are opening up"; "Capital expenditures are down"; and "Business is improving with increased orders for October and November."

In addition, Inventories decreased for the second month, and Prices increased for the seventh month but more slowly than in August. New Export Orders increased significantly and Imports decreased, while Employment shrank for the 19th consecutive month. The Inventory Sentiment Index increased, indicating more discomfort with inventory levels. Supplier Deliveries indicated slower performance for the 13th consecutive month.

Significant reports of commodities in short supply or up or down in price in September indicate there were no items in short supply. Price increases are reported for corrugated; drywall; paper; produce; steel; and steel products. Price decreases are reported for beef; consulting services; copper, including fittings and tube; gasoline; office supplies; and railroad cars and equipment.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing


Index

September
Index %

August
Index %
Index
Change from
August
Direction
& Rate of
Change

September
Index %

August
Index %
Index
Change from
August
Business Activity/ Production 53.9 50.9 +3.0 Increasing faster 50.9 55.6 -4.7
New Orders 52.3 51.6 +0.7 Increasing faster 50.2 49.7 +0.5
Employment 46.6 47.3 -0.7 Decreasing faster 44.9 45.8 -0.9
Supplier Deliveries 52.5 53.0 -0.5 Slowing slower 55.7 53.4 +2.3
Inventories 44.5 46.0 -1.5 Decreasing faster 43.6 45.2 -1.6
Prices 52.5 53.5 -1.0 Increasing slower 62.5 61.5 +1.0
Backlog of Orders 51.0 48.0 +3.0 Increasing from decreasing 44.5 45.0 -0.5
New Export Orders 57.5 46.0 +11.5 Increasing from decreasing 51.8 52.7 -0.9
Imports 44.7 48.3 -3.6 Decreasing faster 54.7 51.9 +2.8
Inventory Sentiment 66.0 62.0 +4.0 Greater feeling of "too high" N/A    
Customers' Inventories N/A       40.5 42.5 -2.0

* 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 September rose 3 percentage points on a seasonally adjusted basis to 53.9 percent from August's 50.9 percent. September's Index indicates an increase in the rate of growth after three months of slower growth rates. In September, 10 sectors reported increased business activity, four sectors reported decreased activity, and two reported no change in activity compared to August.

The industries reporting the highest rates of growth of business activity in September are: Transportation; Entertainment; Finance & Banking; Retail Trade; and Business Services. The industries reporting contraction of business activity in September are: Construction; Agriculture; Real Estate; and Mining.

Business
Activity
%
Higher
%
Same
%
Lower

Index
September 2002 32 49 19 53.9
August 2002 24 52 24 50.9
July 2002 25 54 21 53.1
June 2002 35 50 15 57.2

New Orders

ISM's Non-Manufacturing New Orders Index increased to 52.3 percent in September from 51.6 percent in August. Comments from members include: "Slowdown in construction activity"; "Customers are placing more orders, but smaller than normal"; "Conditions and confidence improving"; and "We are accelerating new store openings for the holidays."

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

New
Orders
%
Higher
%
Same
%
Lower

Index
September 2002 28 53 19 52.3
August 2002 24 54 22 51.6
July 2002 21 58 21 52.6
June 2002 36 49 15 56.9

Employment

Employment in the non-manufacturing sector contracted in September for the 19th consecutive month. ISM's Non-Manufacturing Employment Index for September is 46.6 percent compared to 47.3 percent in August. September's Index indicates a faster rate of decrease after two months of slower decreases. Comments from respondents include: "Revenue reductions have resulted in staff reductions, or rather not filling open positions"; "Positions replaced due to attrition"; and "Layoffs to reduce expenses."

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


Employment
%
Higher
%
Same
%
Lower

Index
September 2002 13 65 22 46.6
August 2002 10 74 16 47.3
July 2002 13 71 16 45.8
June 2002 13 66 21 44.3

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 13th consecutive month in September. The Index registered 52.5 percent, 0.5 percentage point lower than August's 53 percent. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in September include: "For the past month or two, delivery lead times have increased. In winter/spring deliveries were faster, quicker than standard times"; "No supplier inventory"; "Lack of backlog and excess capacity seem to be the reasons for the slightly quicker response"; and "Key vendor now on longer lead time."

The industries that reported the highest rates of slowing in supplier deliveries in September are: Entertainment; Agriculture; Real Estate; Wholesale Trade; Utilities; and Communication. Industries reporting faster supplier deliveries in September are: Mining; Business Services; and Construction.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Index
September 2002 9 87 4 52.5
August 2002 10 86 4 53.0
July 2002 9 87 4 52.5
June 2002 10 87 3 53.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 44.5 percent in September, a decrease of 1.5 percentage points from the 46 percent reported in August. September's Index means that material inventories maintained by non-manufacturing organizations decreased for the second consecutive month. Of the total respondents in September, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: "Reducing inventory to make additional funds available"; "Using more VMI (vendor-managed inventory)"; "Concentrated effort to lower inventory"; "The inventory budget has been decreased in preparation for seasonally slower period"; and "Build-up of winter goods inventory."

The industries reporting inventory increases in September are: Agriculture; Utilities; and Wholesale Trade. Industries reporting the highest rates of inventory decrease in September are: Real Estate; Other Services*; Public Administration; Finance & Banking; and Communication.

Inventory
Change
%
Higher
%
Same
%
Lower

Index
September 2002 14 61 25 44.5
August 2002 18 56 26 46.0
July 2002 23 58 19 52.0
June 2002 19 57 24 47.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased for the seventh consecutive month in September after eight months of lower or unchanged prices prior to March 2002. ISM's Non-Manufacturing Prices Index for September is 52.5 percent, a decrease of 1 percentage point from August's 53.5 percent. In September, the percentage of members reporting higher prices dropped 2 percentage points to 15 percent from 17 percent in August, the proportion indicating no change rose 2 percentage points to 75 percent, and the number who noted lower prices remained the same as in August at 10 percent.

The industries reporting the highest rates of increase in prices paid in September are: Agriculture; Construction; Real Estate; Utilities; and Wholesale Trade. The industries reporting price decreases in September are: Transportation; Public Administration; Communication; Finance & Banking; and Other Services*.


Prices
%
Higher
%
Same
%
Lower

Index
September 2002 15 75 10 52.5
August 2002 17 73 10 53.5
July 2002 26 66 8 59.0
June 2002 18 72 10 54.0

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 51 percent in September. This is the first increase in order backlogs in four months and only the second increase in 21 months. The September index is an increase of 3 percentage points from August's 48 percent. Of the total respondents in September, 38 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "New contracts are finally becoming active"; "More contracts being advertised"; "Still have unused capacity"; and "Production and stock down due to economy."

The industries reporting growth of backlog of orders in September are: Entertainment; Real Estate; Health Services; Utilities; Business Services; and Wholesale Trade. The industries reporting decline of order backlogs in September are: Construction; Mining; Other Services*; and Public Administration.

Backlog
of Orders
%
Higher
%
Same
%
Lower

Index
September 2002 15 72 13 51.0
August 2002 15 66 19 48.0
July 2002 12 63 25 43.5
June 2002 13 72 15 49.0

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 increased in September after a drop in August. The New Export Orders Index for September is 57.5 percent compared to August's 46 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 increases in new export orders in September are: Wholesale Trade; Communication; Other Services*; Business Services; and Retail Trade. The industries reporting decreases in new export orders in September are Finance & Banking; and Construction.

New Export
Orders
%
Higher
%
Same
%
Lower

Index
September 2002 24 67 9 57.5
August 2002 11 70 19 46.0
July 2002 24 71 5 59.5
June 2002 24 67 9 57.5

Imports

In September, use of imported materials by non-manufacturing industries decreased for the second month after four months of increases. ISM's Non-Manufacturing Imports Index for September is 44.7 percent, a decrease of 3.6 percentage points from the 48.3 percent reported in August. In September, 67 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 September are Business Services and Wholesale Trade. The industries reporting decreased use of imports in September are: Public Administration; Mining; Other Services*; and Retail Trade.


Imports
%
Higher
%
Same
%
Lower

Index
September 2002 8 80 12 44.7
August 2002 9 80 11 48.3
July 2002 13 82 5 52.6
June 2002 19 72 9 55.2

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in September registered 66 percent, 4 percentage points more than the 62 percent reported for August. This indicates that non-manufacturing purchasing and supply executives felt a greater degree of discomfort with current levels of inventory in September than they did during August. In September, 38 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 56 percent said that their inventories were about right.

The industries that reported the highest rates of feeling that their inventories were too high in September are: Agriculture; Wholesale Trade; Communication; Business Services; and Insurance. No industry reported that its inventories were too low in September.

Inventory
Sentiment
% Too
High
% About
Right
% Too
Low

Index
September 2002 38 56 6 66.0
August 2002 30 64 6 62.0
July 2002 35 62 3 66.0
June 2002 35 62 3 66.0

*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

No commodities were reported in short supply.

Commodities Reported Up in Price

Corrugated — 3rd month; Drywall; Paper — 5th month; Produce; Steel — 8th month; Steel Products — 2nd month.

Commodities Reported Down in Price

Beef; Consulting Services; Copper, including fittings and tube; Gasoline; Office Supplies — 2nd month; Railroad cars and equipment.

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 October 2002 data will be released at 10:00 a.m. (ET) on November 5, 2002.



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