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October 2004 Non-Manufacturing ISM Report On Business®

FOR RELEASE: November 3, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
Business Activity at 59.8%

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 October 2004.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in October 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 19th consecutive month in October," Kauffman said. He added, "Also in October, New Orders, Employment, Order Backlogs, Imports, Prices, and Exports increased."

Purchasing and supply executives report that business activity continued to increase in October in the non-manufacturing sector, with the fastest rate of increase since July. The Business Activity Index for October is 59.8 percent, up 3.1 percentage points from September's 56.7 percent. October's index indicates continued growth across most non-manufacturing industries. In October, 12 industry groups reported growth, one indicated contraction, and four reported business unchanged from September. Increased business activity in October was reported by 34 percent of members, compared to 35 percent in September. Reduced activity was reported by 15 percent of members, compared to 16 percent in September. In October, the remaining 51 percent of members indicated no change in business activity, compared to 49 percent that reported no change in September.

The Backlog of Orders Index remained steady at 52.5 percent, indicating growth in order backlogs for the 18th consecutive month at the same rate of increase as in September. The October New Orders Index increased from 58.5 percent in September to 60.5 percent in October. This indicates a faster rate of increase of new orders in October compared to September. Members reported that the prices they pay increased in October for the 31st consecutive month, with a faster rate of increase than in September. October's Prices Index is 74.1 percent, a rise of 7 percentage points from the 67.1 percent reported in September. This month, 44 percent of all respondents and 15 of 17 non-manufacturing industries reported paying higher prices compared to September. Many of members' comments regarding business in October indicate continued positive business conditions but with continued concern for inflationary pressures. Specific comments include: "Incremental growth in new business"; "Oil prices and increasing labor strikes globally are starting to increase business activity expenses"; "Overall, financial results are slowly progressing. Growth is being seen in all areas, and credit quality is improving"; "Business is continuing at a better pace than in 2003. Some shortages in unleaded [gasoline] and [higher] steel prices continue to cause increases in cost"; and "Our annual business cycle is picking up. Sales for September were better than forecast, and better than for the same month last year."

In addition, Inventories were unchanged after seven months of increase. With regard to Inventory Sentiment for October, members reported a lower level of concern than in September that inventories are too high. New Export Orders increased for the 15th consecutive month and Imports increased for the 18th consecutive month. Employment increased for the third consecutive month. Supplier Deliveries indicated slower performance for the 38th consecutive month.

Significant reports of commodities in short supply or up or down in price in October indicate that concrete; flu vaccine; paper; rail cars; rubber goods steel; and steel products are in short supply. Price increases are reported for airfares; aluminum; asphalt; concrete; construction materials; copper; corrugated; cut paper; #2 diesel fuel; food/food products; fuel; fuel surcharges; gasoline; grease/lubricants; #2 heating oil; metal-related products; metals; natural gas; oil/oil-related products; paper; paper products; paper tissues; petroleum-based products; plastic bags; plastic resins; plastics; plywood; polybags; poly items; polyester/polyester products; polyethylene/polyethylene products; polyethylene film; PVC; PVC products (various); resin; steel; steel products (various forms); steel-related products; tomatoes; transportation/freight; travel; utilities; and #10 window envelopes. Price decreases are reported for beef; chicken; dairy; and PC hardware and related products.

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


Index

October
Index %

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

October
Index %

September
Index %
Index
Change from
September
Business Activity / Production 59.8 56.7 +3.1 Increasing faster 58.9 61.6 -2.7
New Orders 60.5 58.5 +2.0 Increasing faster 58.3 58.1 +0.2
Employment 55.8 54.6 +1.2 Increasing faster 54.8 58.1 -3.3
Supplier Deliveries 56.0 55.5 +0.5 Slowing faster 58.6 59.6 -1.0
Inventories 50.0 51.5 -1.5 Unchanged from Increasing 48.2 51.0 -2.8
Prices 74.1 67.1 +7.0 Increasing faster 78.5 76.0 +2.5
Backlog of Orders 52.5 52.5 0.0 Increasing at same rate 49.0 55.0 -6.0
New Export Orders 55.0 55.5 -0.5 Increasing slower 56.6 51.8 +4.8
Imports 57.5 56.0 +1.5 Increasing faster 58.5 55.8 +2.7
Inventory Sentiment 60.5 61.5 -1.0 Lesser feeling of "too high" N/A N/A N/A
Customers' Inventories N/A N/A N/A   43.5 41.5 +2.0

* 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 October increased to 59.8 percent from September's 56.7 percent, indicating a faster rate of growth of activity in October. October's index was the highest since 64.8 percent was recorded in July of this year. This month, 12 sectors reported increased business activity, one reported decreased activity, and four reported unchanged activity compared to September.

The industries reporting the highest rates of growth of business activity in October are: Communication; Business Services; Finance & Banking; Mining; and Wholesale Trade. The one industry reporting contraction of business activity in October is Other Services*.

Business
Activity
%
Higher
%
Same
%
Lower

Index
October 2004 34 51 15 59.8
September 2004 35 49 16 56.7
August 2004 32 50 18 58.2
July 2004 38 52 10 64.8

New Orders

ISM's Non-Manufacturing New Orders Index increased to 60.5 percent in October from 58.5 percent in September. This indicates continued expansion of new orders at a faster rate of growth than in September. Comments from members include: "Increased sales and new product releases"; "Business activity up — only slightly due to weather"; "New industrial customer equipment purchases"; and "New restaurant openings."

Industries reporting the highest rates of growth of new orders in October are: Entertainment; Legal Services; Business Services; Communication; and Finance & Banking. Industries reporting contraction of new orders in October are: Agriculture and Other Services*.

New
Orders
%
Higher
%
Same
%
Lower

Index
October 2004 33 53 14 60.5
September 2004 34 50 16 58.5
August 2004 32 52 16 58.6
July 2004 39 51 10 66.4

Employment

Employment activity in the non-manufacturing sector increased in October compared to September. This was the third 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 October is 55.8 percent, a rise of 1.2 percentage points from September's 54.6 percent. Ten industries reported increased employment, three reported decreases, and four indicated employment was unchanged from September. Comments from respondents include: "Continued rightsizing"; "Increased sales activity"; "Looking for qualified workers"; "Small backlog of positions"; and "New job orders — we see an increase of about 30 percent in new employees since June 30, 2004."

The industries reporting the highest rates of growth in employment in October are: Entertainment; Legal Services; Finance & Banking; Communication; and Wholesale Trade. The industries reporting reduction in employment in October are: Insurance; Agriculture; and Other Services*.


Employment
%
Higher
%
Same
%
Lower

Index
October 2004 17 75 8 55.8
September 2004 19 69 12 54.6
August 2004 18 69 13 52.5
July 2004 18 68 14 50.0

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 38th consecutive month in October. The index registered 56 percent, 0.5 percentage point higher than in September. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in October include: "Increasing backlog at suppliers"; "Availability of steel products"; "Some suppliers are understaffed"; and "Rail cars, trucks and tankers are all being delayed. Customs delays some items."

The industries reporting the highest rates of slowing in supplier deliveries in October are: Entertainment; Legal Services; Wholesale Trade; Construction; and Real Estate. No industry is reporting faster supplier deliveries in October.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Index
October 2004 13 86 1 56.0
September 2004 15 81 4 55.5
August 2004 16 82 2 57.0
July 2004 20 76 4 58.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 50 percent in October, 1.5 percentage points lower than the 51.5 percent reported in September. This reading indicates no change in inventories in October, and follows seven consecutive monthly increases in material inventories maintained by non-manufacturing organizations. Of the total respondents in October, 31 percent indicate they do not have inventories or do not measure them. Comments from members include: "Trimming inventories"; "Ramping up for increased business"; "Reducing inventories as a result of three months of poor sales"; and "[Increasing inventories] to get ahead of price increases."

The industries reporting inventory increases in October are: Legal Services; Retail Trade; Construction; Wholesale Trade; and Public Administration. The industries reporting the highest rates of inventory decreases in October are: Mining; Finance & Banking; Transportation; Communication; and Insurance.

Inventory
Change
%
Higher
%
Same
%
Lower

Index
October 2004 22 56 22 50.0
September 2004 25 53 22 51.5
August 2004 28 50 22 53.0
July 2004 27 54 19 54.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in October for the 31st consecutive month and at a faster rate of increase than in September. ISM's Non-Manufacturing Prices Index for October rose to 74.1 percent, up 7 percentage points from the 67.1 percent registered for September. In October, the percentage of members reporting higher prices increased 9 percentage points to 44 percent from 35 percent in September, the proportion indicating no change dropped 9 percentage points to 53 percent, and the number who noted lower prices remained constant at 3 percent.

The industries reporting the highest rates of increase in prices paid in October are: Wholesale Trade; Agriculture; Real Estate; Mining; and Construction. No industry is reporting price decreases in October.


Prices
%
Higher
%
Same
%
Lower

Index
October 2004 44 53 3 74.1
September 2004 35 62 3 67.1
August 2004 40 56 4 70.0
July 2004 45 50 5 73.1

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52.5 percent in October. This is the same result as reported for September and indicates order backlogs at non-manufacturing industries increased at the same rate in both months. October is also the 18th consecutive month of growth in order backlogs. Of the total respondents in October, 41 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Old jobs are being completed due to slowdown"; "Business expanding, adding doctors, new clinics"; "Making progress purchasing backordered materials"; and "Raw material shortages."

The industries reporting the highest rates of growth in backlog of orders in October are: Construction; Insurance; Real Estate; Mining; and Finance & Banking. The industries reporting the highest rates of decline of order backlogs in October are: Agriculture; Transportation; Communication; Retail Trade; and Other Services*.

Backlog
of Orders
%
Higher
%
Same
%
Lower

Index
October 2004 17 71 12 52.5
September 2004 20 65 15 52.5
August 2004 18 70 12 53.0
July 2004 23 64 13 55.0

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 for the 15th consecutive month in October. The New Export Orders Index for October is 55 percent compared to September's 55.5 percent, indicating a slightly slower rate of growth in October compared to September. Of the total respondents in October, 81 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 are: Construction; Other Services*; Communication; Wholesale Trade; and Business Services. The one industry reporting a decrease in new export orders in October is Retail Trade.

New Export
Orders
%
Higher
%
Same
%
Lower

Index
October 2004 24 62 14 55.0
September 2004 25 61 14 55.5
August 2004 19 72 9 55.0
July 2004 20 71 9 55.5

Imports

In October, the ISM Imports Index registered 57.5 percent, 1.5 percentage points higher than the 56 percent reported in September. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in October than in September. October's index marks the 18th consecutive month of import growth. In October, 70 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting highest rates of increase in the use of imports in October are: Construction; Communication; Finance & Banking; Business Services; and Health Services. The one industry reporting decreased use of imports in October is Transportation.


Imports
%
Higher
%
Same
%
Lower

Index
October 2004 24 67 9 57.5
September 2004 18 76 6 56.0
August 2004 29 69 2 63.5
July 2004 24 73 3 60.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in October registered 60.5 percent, a 1 percentage point decrease from the 61.5 percent reported in September. This indicates that non-manufacturing purchasing and supply executives feel slightly less discomfort with current levels of inventory in October than they did during September. In October, 26 percent of respondents felt their inventories were too high, 5 percent indicated their inventories were too low, and 59 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in October are: Construction; Communication; Agriculture; Insurance; and Wholesale Trade. The industries reporting that their inventories are too low in October are: Finance & Banking and Public Administration.

Inventory
Sentiment
% Too
High
% About
Right
% Too
Low

Index
October 2004 26 69 5 60.5
September 2004 31 61 8 61.5
August 2004 34 57 9 62.5
July 2004 36 56 8 64.0

*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

Concrete — 6th month; Flu Vaccine; Paper; Rail Cars; Rubber Goods; Steel — 9th month; Steel Products — 8th month.

Commodities Reported Up in Price

Airfares — 3rd month; Aluminum — 10th month; Asphalt; Concrete; Construction Materials; Copper — 14th month; Corrugated — 6th month; Cut Paper; #2 Diesel Fuel — 11th month; Food/Food Products; Fuel — 11th month; Fuel Surcharges — 4th month; Gasoline — 11th month; Grease/Lubricants; #2 Heating Oil — 4th month; Metal-Related Products; Metals — 3rd month; Natural Gas — 2nd month; Oil/Oil-Related Products; Paper — 9th month; Paper Products — 8th month; Paper Tissues; Petroleum-Based Products; Plastic Bags — 3rd month; Plastic Resins; Plastics — 10th month; Plywood; Polybags — 2nd month; Poly Items; Polyester/Polyester Products; Polyethylene/Polyethylene Products; Polyethylene Film; PVC; PVC Products (various forms); Resin; Steel — 12th month; Steel Products (various forms) — 8th month; Steel-Related Products; Tomatoes; Transportation/Freight Charges — 6th month; Travel; Utilities; #10 Window Envelopes — 2nd month.

Commodities Reported Down in Price

Beef — 4th month; Chicken — 3rd month; Dairy — 3rd month; PC Hardware and Related Products — 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, 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 November 2004 data will be released at 10:00 a.m. (ET) on December 3, 2004.


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 October 2004.



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