September 2004 Non-Manufacturing ISM Report On Business®

FOR RELEASE: October 5, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Business Activity at 56.7%

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 2004.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in September 2004, 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 18th consecutive month in September," Kauffman said. He added, "Also in September, New Orders, Employment, Order Backlogs, Imports, Prices, Exports and Inventories increased."

Purchasing and supply executives report that business activity continued to increase in September in the non-manufacturing sector, but the rate of increase was slower than in August. The Business Activity Index for September is 56.7 percent, down 1.5 percentage points from August's 58.2 percent. September's index indicates continued growth across most non-manufacturing industries. In September, 13 industry groups reported growth, two indicated contraction, and two reported business unchanged from August. Increased business activity in September was reported by 35 percent of members, compared to 32 percent in August. Reduced activity was reported by 16 percent of members, compared to 18 percent in August. In September, the remaining 49 percent of members indicated no change in business activity, compared to 50 percent that reported no change in August.

The Backlog of Orders Index decreased by 0.5 percentage point to 52.5 percent, indicating growth in order backlogs for the 17th consecutive month but at a slightly slower rate of increase than in August. The September New Orders Index decreased from 58.6 percent in August to 58.5 percent in September. This indicates a slightly slower rate of increase of new orders in September compared to August. Members reported that the prices they pay increased in September for the 30th consecutive month, with a somewhat slower rate of increase than in August. September's Prices Index is 67.1 percent, a decline of 2.9 percentage points from the 70.0 percent reported in August. This month, 35 percent of all respondents and 14 of 17 non-manufacturing industries reported paying higher prices compared to August. Many of members' comments regarding business in September indicate continued positive business conditions but with concern for slowing growth rates and continued concern about inflationary pressures. Specific comments include: "Business stable but high energy costs bucking growth and profits"; "Sales continue strong against last year"; "There is a significant shortage in over-the-road truck transportation which is causing concerns. If a product is available from manufacturers it may not be shipped to arrive on a schedule that meets demand"; "High fuel prices and fuel surcharges are a concern"; and "Business is steady, however in market segments, particularly in the southern US and particularly in Florida, business is off about 30 percent due to hurricanes."

In addition, Inventories increased for the seventh consecutive month. With regard to Inventory Sentiment for September, members reported a lower level of concern than in August that inventories are too high. New Export Orders increased for the 14th consecutive month and Imports increased for the 17th consecutive month. Employment increased for the 2nd consecutive month. Supplier Deliveries indicated slower performance for the 37th consecutive month.

Significant reports of commodities in short supply or up or down in price in September indicate that cement/concrete; #2 diesel fuel; ethanol/ethyl alcohol; gasoline; steel; steel products; and steel filler metals are in short supply. Price increases are reported for acrylics/acrylic sheet; adhesives; airfares; aluminum; antifreeze; building materials and supplies; chemical products; chemicals; conduit and fittings; copper; corrugated; #2 diesel fuel; electric utility hardware; energy; ethanol/ethyl alcohol; fertilizer; fuel; fuel surcharges; gasoline; #2 heating oil; janitorial supplies; lumber/lumber products; metals; natural gas; paper; paper — laserjet; paper — white; paper products; plastic bags; plastic products; plastics; polybags; resin-based products; roof felt; roofing materials; steel; steel drums; steel products (various forms); steel scrap; transportation/freight; and #10 window envelopes. Price decreases are reported for beef; chicken; copper products (various forms); dairy; PC hardware and related products; PC memory; pork; PVC pipe and fittings; and unleaded gasoline.

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 56.7 58.2 -1.5 Increasing slower 61.6 59.5 +2.1
New Orders 58.5 58.6 -0.1 Increasing slower 58.1 61.2 -3.1
Employment 54.6 52.5 +2.1 Increasing faster 58.1 55.7 +2.4
Supplier Deliveries 55.5 57.0 -1.5 Slowing slower 59.6 63.2 -3.6
Inventories 51.5 53.0 -1.5 Increasing slower 51.0 51.7 -0.7
Prices 67.1 70.0 -2.9 Increasing slower 76.0 81.5 -5.5
Backlog of Orders 52.5 53.0 -0.5 Increasing slower 55.0 55.0 0.0
New Export Orders 55.5 55.0 +0.5 Increasing faster 51.8 54.2 -2.4
Imports 56.0 63.5 -7.5 Increasing slower 55.8 59.2 -3.4
Inventory Sentiment 61.5 62.5 -1.0 Lesser feeling of "too high" N/A N/A N/A
Customers' Inventories N/A N/A N/A   41.5 45.5 -4.0

* 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 September eased to 56.7 percent from August's 58.2 percent, indicating a slower rate of growth of activity in September. This month, 13 sectors reported increased business activity, two reported decreased activity, and two reported unchanged activity compared to August.

The industries reporting the highest rates of growth of business activity in September are: Legal Services; Other Services*; Construction; Health Services; and Communication. The industries reporting contraction of business activity in September are Agriculture and Transportation.

Business Activity % Higher % Same % Lower Index
September 2004 35 49 16 56.7
August 2004 32 50 18 58.2
July 2004 38 52 10 64.8
June 2004 39 50 11 59.9

New Orders

ISM's Non-Manufacturing New Orders Index decreased slightly to 58.5 percent in September from 58.6 percent in August. This indicates continued expansion of new orders but at a slower rate of growth than in August. Comments from members include: "Seasonal increase over last year in personal services"; "Company growth and expansion"; "Bidding on projects is slowing down"; and "Business is improving."

Industries reporting the highest rates of growth of new orders in September are: Legal Services; Health Services; Other Services*; Communication; and Business Services. Industries reporting contraction of new orders in September are: Agriculture; Real Estate; and Transportation.

New Orders % Higher % Same % Lower Index
September 2004 34 50 16 58.5
August 2004 32 52 16 58.6
July 2004 39 51 10 66.4
June 2004 40 52 8 62.4

Employment

Employment activity in the non-manufacturing sector increased in September compared to August. This was the second consecutive monthly increase after experiencing no change in July compared to June. July's unchanged report came after nine consecutive months of non-manufacturing employment expansion. ISM's Non-Manufacturing Employment Index for September is 54.6 percent, a rise of 2.1 percentage points from August's 52.5 percent. Eight industries reported increased employment, seven reported decreases, and two indicated employment was unchanged from August. Comments from respondents include: "Hiring more temporary staff to meet demand"; "Increased business"; "Employment freeze removed"; "Added new service positions"; and "Demand has increased our employment level by 4 percent."

The industries reporting the highest rates of growth in employment in September are: Transportation; Construction; Health Services; Wholesale Trade; and Business Services. The industries reporting the highest rates of reduction in employment in September are: Legal Services; Agriculture; Insurance; Real Estate; and Communication.

Employment % Higher % Same % Lower Index
September 2004 19 69 12 54.6
August 2004 18 69 13 52.5
July 2004 18 68 14 50.0
June 2004 27 64 9 57.4

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 37th consecutive month in September. The index registered 55.5 percent, 1.5 percentage points lower than in August. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in September include: "OEMs backlogged"; "Backlog of computer servers at factory, one month leadtime"; "Shipments are being diverted to Florida"; and "Lack of trucks/truckers."

The industries reporting the highest rates of slowing in supplier deliveries in September are: Legal Services; Wholesale Trade; Entertainment; Construction; and Communication. Industries reporting faster supplier deliveries in September are Health Services and Public Administration.

Supplier Deliveries % Slower % Same % Faster Index
September 2004 15 81 4 55.5
August 2004 16 82 2 57.0
July 2004 20 76 4 58.0
June 2004 17 81 2 57.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 51.5 percent in September, 1.5 percentage points lower than the 53 percent reported in August. September's index indicates the seventh consecutive monthly increase in material inventories maintained by non-manufacturing organizations. Of the total respondents in September, 28 percent indicate they do not have inventories or do not measure them. Comments from members include: "Increased demand"; "Higher stock levels in order to support new stores"; "Increased business activity and residential construction"; and "To accommodate new business needs."

The industries reporting the highest rates of inventory increases in September are: Legal Services; Construction; Business Services; Entertainment; and Wholesale Trade. The industries reporting the highest rates of inventory decreases in September are: Agriculture; Real Estate; Transportation; Communication; and Mining.

Inventory Change % Higher % Same % Lower Index
September 2004 25 53 22 51.5
August 2004 28 50 22 53.0
July 2004 27 54 19 54.0
June 2004 28 59 13 57.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in September for the 30th consecutive month but at a slower rate of increase than in August. ISM's Non-Manufacturing Prices Index for September declined to 67.1 percent, down 2.9 percentage points from the 70 percent registered for August. In September, the percentage of members reporting higher prices decreased 5 percentage points to 35 percent from 40 percent in August, the proportion indicating no change rose 6 percentage points to 62 percent, and the number who noted lower prices decreased 1 percentage point to 3 percent.

The industries reporting the highest rates of increase in prices paid in September are: Mining; Wholesale Trade; Entertainment; Utilities; Construction; and Retail Trade. The only industry reporting price decreases in September is Legal Services.

Prices % Higher % Same % Lower Index
September 2004 35 62 3 67.1
August 2004 40 56 4 70.0
July 2004 45 50 5 73.1
June 2004 52 45 3 74.6

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52.5 percent in September. This is a decrease of 0.5 percentage point from August's 53 percent and represents the 17th consecutive month of growth in order backlogs. Of the total respondents in September, 43 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Shortage of raw materials"; "Capacity shortfall"; "Suppliers' capacity and metal prices"; and "Longer leadtimes and greater competition for production capacity."

The industries reporting the highest rates of growth in backlog of orders in September are: Legal Services; Mining; Wholesale Trade; Communication; and Other Services*. The industries reporting a decline of order backlogs in September are: Insurance; Public Administration; and Retail Trade.

Backlog of Orders % Higher % Same % Lower Index
September 2004 20 65 15 52.5
August 2004 18 70 12 53.0
July 2004 23 64 13 55.0
June 2004 18 75 7 55.5

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 increased for the 14th consecutive month in September. The New Export Orders Index for September is 55.5 percent compared to August's 55 percent, indicating a slightly faster rate of growth in September compared to August. Of the total respondents in September, 76 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting the highest rates of increase in new export orders in September are: Construction; Entertainment; Wholesale Trade; Other Services*; and Retail Trade. The industries reporting decreases in new export orders in September are Public Administration and Communication.

New Export Orders % Higher % Same % Lower Index
September 2004 25 61 14 55.5
August 2004 19 72 9 55.0
July 2004 20 71 9 55.5
June 2004 29 61 10 59.5

Imports

In September, the ISM Imports Index registered 56 percent, 7.5 percentage points lower than the 63.5 percent reported in August. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in September than in August. September's index marks the 17th consecutive month of import growth. In September, 68 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting increases in the use of imports in September are: Construction; Wholesale Trade; Utilities; and Entertainment. Industries reporting decreased use of imports in September are Public Administration and Business Services.

Imports % Higher % Same % Lower Index
September 2004 18 76 6 56.0
August 2004 29 69 2 63.5
July 2004 24 73 3 60.5
June 2004 22 69 9 56.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in September registered 61.5 percent, a 1 percentage point decrease from the 62.5 percent reported in August. This indicates that non-manufacturing purchasing and supply executives feel less discomfort with current levels of inventory in September than they did during August. In September, 31 percent of respondents felt their inventories were too high, 8 percent indicated their inventories were too low, and 61 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in September are: Construction; Communication; Legal Services; Wholesale Trade; and Mining. The one industry reporting that its inventories are too low in September is Public Administration.

Inventory Sentiment % Too High % About Right % Too Low Index
September 2004 31 61 8 61.5
August 2004 34 57 9 62.5
July 2004 36 56 8 64.0
June 2004 28 65 7 60.5

*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

Cement/Concrete — 5th month; #2 Diesel Fuel; Ethanol/Ethyl Alcohol — 2nd month; Gasoline; Steel — 8th month; Steel Products — 7th month; Steel Filler Metals.

Commodities Reported Up in Price

Acrylics/Acrylic Sheet; Adhesives; Airfares — 2nd month; Aluminum — 9th month; Antifreeze; Building Materials and Supplies; Chemical Products; Chemicals; Conduit and Fittings; Copper — 13th month; Corrugated — 5th month; #2 Diesel Fuel — 10th month; Electric Utility Hardware; Energy; Ethanol/Ethyl Alcohol — 2nd month; Fertilizer; Fuel — 10th month; Fuel Surcharges — 3rd month; Gasoline — 10th month; #2 Heating Oil — 3rd month; Janitorial Supplies; Lumber/Lumber Products — 3rd month; Metals — 2nd month; Natural Gas; Paper — 8th month; Paper — Laserjet; Paper — White; Paper Products — 7th month; Plastic Bags — 2nd month; Plastic Products (various forms) — 4th month; Plastics — 9th month; Polybags; Resin-Based Products; Roof Felt; Roofing Materials — 4th month; Steel — 11th month; Steel Drums — 2nd month; Steel Products (various forms) — 7th month; Steel Scrap; Transportation/Freight Charges — 5th month; #10 Window Envelopes.

Commodities Reported Down in Price

Beef — 3rd month; Chicken — 2nd month; Copper Products (various forms); Dairy — 2nd month; PC Hardware and Related Products; PC Memory; Pork; PVC Pipe and Fittings; Unleaded Gasoline.

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 non-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 October 2004 data will be released at 10:00 a.m. (ET) on November 3, 2004.



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