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October 2001 Non-Manufacturing NAPM Report on Business®

FOR RELEASE: November 5, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY DROPS IN OCTOBER SAY PURCHASING AND SUPPLY EXCUTIVES IN LATEST NON-MANUFACTURING NAPM REPORT ON BUSINESS®

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing and supply 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 October 2001.

New Orders, Order Backlogs, Inventories, Employment, Prices, Exports, and Imports Decrease
Supplier Deliveries Slower

(Tempe, Arizona) — Business activity in the non-manufacturing sector contracted sharply in October 2001 say the nation's purchasing and supply 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 October, NAPM's Non-Manufacturing Business Activity Index indicated a very abrupt decrease in activity in the non-manufacturing economy compared to September," Kauffman said. He also added, "Members report severe slowing of October business activity resulting from the aftermath of the September 11th terrorist events which aggravated already weak business conditions. The events of September 11th, by increasing the level of uncertainty in the economy, also had the apparent effect of solidifying earlier tentative decisions to reduce business commitments and employment. The results of these actions are strongly reflected throughout this month's report with declines noted by eight of the Report's 10 indexes. Of the 10 indexes, six are primarily activity-oriented: Business Activity, New Orders, Backlog of Orders, Export Orders, Imports, and Employment. Five of these registered new lows in October. The exception was Imports which decreased but did not reach a new low. The indexes that increased were Inventory Sentiment, which rose to a near record high indicating that members have more inventory than they would like to have, and Supplier Deliveries, which indicated slower performance, mainly due to the effects of September 11th on the transportation system. The Transportation sector also had the highest rate of decline in New Orders for the second consecutive month."

"NAPM's Non-Manufacturing Business Activity Index registered 40.6 percent in October, 9.6 percentage points lower than in September, indicating a sharp contraction in non-manufacturing economic activity. Reports from purchasing and supply executives indicate 15 industry groups contracted or had no change from September, while only one sector (Health Services) indicated growth in October. Increased business activity in October was reported by 17 percent of members, compared to 26 percent in September. Reduced activity was reported by 37 percent of members compared to 23 percent in

September. In October the remaining 46 percent of members indicated no change in business activity. This compares to 51 percent that reported no change in September," said Kauffman.

"Overall in October, non-manufacturing industries experienced the most dramatic slowdown in business activity since inception of NAPM's Non-Manufacturing Report On Business® in July 1997. All indexes of activity recorded reductions in October, with five indexes reaching record lows. One bright spot was the Prices Index which also reached a record low, indicating very little inflationary pressure on non-manufacturing industries at the present time," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index Oct.
Index %
Sept.
Index %
Index
Change
from Sept.
Direction
& Rate of
Change
Oct.
Index %
Sept.
Index %
Index
Change
from Sept.
Business Activity/ Production 40.6 50.2 -9.6 Decreasing from Increasing 40.9 51.3 -10.4
New Orders 40.4 49.8 -9.4 Decreasing Faster 38.3 50.3 -12.0
Backlog of Orders 40.5 48.5 -8.0 Decreasing Faster 36.0 43.0 -7.0
New Export Orders 44.5 53.5 -9.0 Decreasing from Increasing 45.0 45.9 -0.9
Inventories 48.0 44.5 +3.5 Decreasing Slower 36.8 38.9 -2.1
Inventory Sentiment 68.5 64.0 +4.5 Increased Feeling of "too high" N/A    
Imports 49.8 55.0 -5.2 Decreasing from Increasing 46.3 50.3 -4.0
Prices 41.5 49.0 -7.5 Decreasing Faster 32.5 36.3 -3.8
Employment 43.5 46.7 -3.2 Decreasing Faster 35.1 41.2 -6.1
Supplier Deliveries 53.5 51.0 +2.5 Slowing Faster 49.2 46.5 +2.7

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

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in October dropped 9.6 percentage points to 40.6 percent from September's 50.2 percent. October's Index reached a new low (the previous low was 45.5 percent in August 2001) and reflected the dramatic effects of the events of September 11th in addition to an already slowing economy. In October, only one sector (Health Services) reported increased business activity, 14 sectors reported decreased activity, and one sector (Mining) indicated no change in activity from September. The percent of members reporting increased activity in October is 17 percent compared to 26 percent in September. Members reporting decreased activity was 37 percent in October, compared to 23 percent in September. Those reporting no change in activity in October totaled 46 percent, a decrease of 5 percentage points from September's 51 percent.

The only industry reporting growth of business activity in October was: Health Services. The industries reporting the highest rates of contraction of business activity in October were: Communication; Wholesale Trade; Agriculture; Transportation; and Construction.

Business
Activity
%
Higher
%
Same
%
Lower

Index
October 2001 17 46 37 40.6
September 2001 26 51 23 50.2
August, 2001 18 56 26 45.5
July 2001 21 53 26 48.9

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index dropped to 40.4 percent in October from 49.8 percent in September. The October Index was the lowest since inception of NAPM's non-manufacturing business survey in July 1997. The previous low for the New Orders Index was 45.9 percent in both April and August 2001. Comments from members included: "Lack of new truck sales," "Decrease in travel (and) conventions, new construction halted due to banks not loaning," "Sales for products lower," and "Increase in security business."

The industries reporting growth of new orders in October were: Health Services and Retail Trade. The industries reporting the highest rates of contraction of new orders in October were: Transportation; Communication; Wholesale Trade; Entertainment; and Agriculture.

New
Orders
%
Higher
%
Same
%
Lower

Index
October 2001 17 46 37 40.4
September 2001 24 54 22 49.8
August 2001 19 54 27 45.9
July 2001 20 52 28 48.6

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 40.5 percent in October. This is the 10th consecutive monthly decline in order backlogs. The October index is a decrease of 8 percentage points from September's 48.5 percent, and a new low for the index. The previous low was 41.5 percent in August 2001. Purchasing and supply executives' comments on backlogs of orders included: "Manufacturing seems to have plenty on shelf for shipment," "Number of prospects for future business has declined," "Cancelled training programs," and "Sales activity is low." Of the total respondents in October, 29 percent indicated they do not measure backlog of orders.

The only industry reporting growth of backlog of orders in October was: Insurance. The industries reporting the highest rates of decline of order backlogs in October were: Wholesale Trade; Business Services; Communication; *Other Services; Utilities; and Retail Trade.

Backlog
of Orders
%
Higher
%
Same
%
Lower

Index
October 2001 7 67 26 40.5
September 2001 13 71 16 48.5
August 2001 10 63 27 41.5
July 2001 9 67 24 42.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower in October than in September, registering an index value of 53.5 percent. Comments from purchasing and supply executives concerning supplier deliveries indicated both increased supplier abilities to deliver and effects of September 11th: "No problems in delivery," "More available stock," "Air and truck deliveries delayed — 9/11 problem," and "9-11 temporary slowdown and shutdowns."

The industries that reported the highest rates of slowness of supplier deliveries in October were: Entertainment; Insurance; Agriculture; Retail Trade; and Real Estate. The industries that reported faster supplier deliveries in October were: Business Services and Public Administration.

Supplier
Deliveries
%
Higher
%
Same
%
Lower

Index
October 2001 5 83 12 53.5
September 2001 5 88 7 51.0
August 2001 10 84 6 48.0
July 2001 5 89 6 50.5

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 decreased in October after increasing in September. The New Export Orders Index for October is 44.5 percent compared to September's 53.5 percent. The October result was a new low for this index. The previous low for New Export Orders was 45 percent in November 1998. Of the total respondents in October, 73 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 October were: Utilities and Wholesale Trade. Industries reporting decreases in new export orders in October were: Transportation; *Other Services; Communication; Retail Trade; and Business Services.

New Export
Orders
%
Higher
%
Same
%
Lower

Index
October 2001 13 63 24 44.5
September 2001 16 75 9 53.5
August 2001 13 69 18 47.5
July 2001 18 70 12 53.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased in October for the seventh time in 10 months. NAPM's Non-Manufacturing Imports Index for October was 49.8 percent, a decrease of 5.2 percentage points from the 55 percent reported in September. In October, 72 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 October were: Utilities; Communication; and Wholesale Trade. Industries reporting decreased use of imports in October were: Transportation; Business Services; Entertainment; *Other Services; and Retail Trade.


Imports
%
Higher
%
Same
%
Lower

Index
October 2001 11 77 12 49.8
September 2001 17 79 4 55.0
August 2001 15 77 8 53.8
July 2001 11 81 8 49.9

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in October for the 12th consecutive month but at a slower rate than in September. NAPM's Non-Manufacturing Inventories Index registered 48 percent in October, an increase of 3.5 percentage points from the 44.5 percent reported in September. Of the total respondents in October, 24 percent indicated they do not have inventories. Comments from members included: "Reduced new purchases and working off inventory," "Inventory reduction program," "Reducing inventory levels across the board," and "Driving inventory lower due to poor sales."

The industries reporting inventory the highest rates of inventory increase in October were: Real Estate; Entertainment; Retail Trade; Insurance; and *Other Services. Industries reporting the highest rates of inventory decrease in October were: Agriculture; Communication; Mining; Public Administration; and Wholesale Trade.

Inventory
Change
%
Higher
%
Same
%
Lower

Index
October 2001 23 50 27 48.0
September 2001 16 57 27 44.5
August 2001 13 61 26 43.5
July 2001 20 52 28 46.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in October registered 68.5 percent compared to 64 percent for September. This increase in the index level to a near-record high indicates that non-manufacturing purchasing and supply executives felt a significantly greater degree of discomfort with current levels of inventory in October than they did during September. This month's Index value of 68.5 percent is only .5 percent below the highest posting of this index, 69 percent in both June 1998 and March 2001. In October, 40 percent of members felt their inventories were too high (35 percent in September). Also in October, 3 percent indicated their inventories were too low (7 percent in September), and 57 percent said that their inventories were about right (58 percent in September).

The industries that reported the highest rates of feeling that their inventories were "too high" in October were: Wholesale Trade; Insurance; Transportation; Utilities; and Communication.


Inventory
Sentiment
%
Too
High
%
About
Right
%
Too
Low


Index
October 2001 40 57 3 68.5
September 2001 35 58 7 64.0
August 2001 38 55 7 65.5
July 2001 32 59 9 61.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services dropped in October for the fourth consecutive month, indicating continued downward pressure on prices. NAPM's Non-Manufacturing Prices Index for October is 41.5 percent, 7.5 percentage points lower than September's 49 percent, and the lowest reading since inception of NAPM's non-manufacturing business survey (the previous low was 44.5 percent in September 1998). The percentage of members reporting higher prices decreased 5 percentage points to 7 percent in October, the proportion indicating no change dropped 5 percentage points to 69 percent, and the number who noted lower prices increased 10 percentage points to 24 percent.

The only industry that reported an increase in prices paid in October was: Health Services. The industries that reported the highest rates of price decreases in October were: Communication; Finance and Banking; Wholesale Trade; Retail Trade; and Insurance.


Prices
%
Higher
%
Same
%
Lower

Index
October 2001 7 69 24 41.5
September 2001 12 74 14 49.0
August 2001 10 76 14 48.0
July 2001 10 78 12 49.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in October for the eighth consecutive month. NAPM's Non-Manufacturing Employment Index for October was 43.5 percent compared to 46.7 percent in September. This index also reached a new low, 1.6 percentage points below its previous low of 45.1 percent in June 2001. Comments from members included: "Reductions in payroll, higher regional unemployment," "Workforce is being reduced through attrition," "Layoffs due to slow sales volume," and "Lower revenues, downsize."

The industries reporting growth in employment in October were: Mining; Retail Trade; Insurance; and Health Services. Industries reporting the highest rates of reduction in employment in October were: Wholesale Trade; Business Services; Communication; Finance and Banking; and Transportation.


Employment
%
Higher
%
Same
%
Lower

Index
October 2001 9 68 23 43.5
September 2001 12 66 22 46.7
August 2001 10 71 19 45.9
July 2001 14 70 16 46.4

*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 to report in short supply for October.

Commodities Reported Up in Price

Concrete and Ready Mix; Dairy; Steel Products (some).

Commodities Reported Down in Price

Computers (PCs) — 20th month; Copper and Copper Products; Corrugated; Diesel Fuel; Fuel; Furniture; Gasoline; Lumber; Natural Gas — 3rd month; Office Supplies; Petroleum; Plastics — 2nd month; PVC and PVC Pipe Products; Resins.

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 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. The Business Activity, New Orders, Imports, and Employment Indexes are seasonally adjusted.

A weighted composite index similar to the 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, 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 supply management research and education organization in the United States. In May 2001 the membership of the National Association of Purchasing Management voted to change the association's name to the Institute for Supply Management™. The association, established in 1915, is the world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, organizations, and government. This change

reflects recognition of the increasing strategic and global significance of supply management, and becomes effective January 1, 2002. For further information, see NAPM's Web site at www.ism.ws.

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 November 2001 data will be released at 10:00 a.m. (ET) on December 5, 2001.



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