November 2001 Non-Manufacturing NAPM Report On Business®

FOR RELEASE: December 5, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS IN NOVEMBER SAY PURCHASING AND SUPPLY EXECUTIVES 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 November 2001.

Business Activity at 51.3%

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased moderately in November 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 November, NAPM's Non-Manufacturing Business Activity Index indicated an increase in activity, although at a relatively slow rate of growth, in the non-manufacturing economy compared to October," Kauffman said. He also added, "Keeping in mind that the NAPM Indexes are indexes of change from one month to the next, it is not surprising that, following October's high rate of decrease in business activity in the aftermath of the events of September 11th, members experienced increased activity in November. However, the reports of increased activity were somewhat offset by reductions in six of the Report's nine other indexes. Of the Report's 10 indexes, six are primarily activity-oriented: Business Activity, New Orders, Backlog of Orders, Export Orders, Imports, and Employment. Of these, only Business Activity and Imports registered increases in November. Inventory Sentiment, which had risen to a near record high in October, eased somewhat but still indicated relatively strong feelings by members that they have more inventory than they would like to have. Supplier Deliveries indicated slower performance for the third month, with a number of comments about transportation delays stemming from the September 11th events. The Transportation sector also had the highest rate of decline in New Orders for the third consecutive month."

"NAPM's Non-Manufacturing Business Activity Index registered 51.3 percent in November, 10.7 percentage points higher than in October, indicating a rebound of growth in non-manufacturing economic activity. Reports from purchasing and supply executives indicate nine industry groups contracted or had no change from October, while eight indicated growth in November. Increased business activity in November was reported by 23 percent of members, compared to 17 percent in October. Reduced activity was reported by 25 percent of members compared to 37 percent in October. In November the remaining 52 percent of members indicated no change in business activity. This compares to 46 percent that reported no change in October," said Kauffman.

"Overall in November, non-manufacturing industries experienced growth in business activity following a dramatic drop-off of activity in October. Four indexes of activity recorded reductions in November, with two indicating growth. The Prices Index reached a record low for the second consecutive month, 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 November
Index %
October
Index %
Index
Change
from
October
Direction
& Rate of
Change
November
Index %
October
Index %
Index
Change
from
October
Business Activity/ Production 51.3 40.6 +10.7 Increasing from Decreasing 47.1 40.9 +6.2
New Orders 48.3 40.4 +7.9 Decreasing Slower 48.8 38.3 +10.5
Backlog of Orders 42.0 40.5 +1.5 Decreasing Slower 38.5 36.0 +2.5
New Export Orders 48.5 44.5 +4.0 Decreasing Slower 49.3 45.0 +4.3
Inventories 49.5 48.0 +1.5 Decreasing Slower 37.9 36.8 +1.1
Inventory Sentiment 67.0 68.5 -1.5 Decreased Feeling of "too high" N/A    
Imports 52.4 49.8 +2.6 Increasing from Decreasing 49.8 46.3 +3.5
Prices 38.5 41.5 -3.0 Decreasing Faster 31.6 32.5 -0.9
Employment 44.3 43.5 +0.8 Decreasing Slower 35.7 35.1 +0.6
Supplier Deliveries 52.5 53.5 -1.0 Slowing Slower 47.3 49.2 -1.9

* 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 November rose 10.7 percentage points to 51.3 percent from October's 40.6 percent. The November Business Activity Index is at its highest level since June 2001 (52.1 percent). In November, eight sectors reported increased business activity, eight sectors reported decreased activity, and one sector indicated no change in activity from October. The percent of members reporting increased activity in November was 23 percent compared to 17 percent in October. Members reporting decreased activity was 25 percent in November, compared to 37 percent in October. Those reporting no change in activity in November totaled 52 percent, an increase of 6 percentage points from October's 46 percent.

The industries reporting the highest rates of growth of business activity in November were: Utilities; Mining; Entertainment; Health Services; Business Services; and Finance and Banking. The industries reporting the highest rates of contraction of business activity in November were: Transportation; Real Estate; Communication; Insurance; and *Other Services.

Business
Activity
% Higher % Same % Lower Index
November 2001 23 52 25 51.3
October 2001 17 46 37 40.6
September 2001 26 51 23 50.2
August, 2001 18 56 26 45.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 48.3 percent in November from 40.4 percent in October. The November Index registered the seventh decrease in New Orders in the past eight months (exception was June 2001 at 53.1 percent). Comments from members included: "Fewer new sales"; "Partly, recovery from terrorist disruption in September"; "Strengthening sectors of the economy, computers, autos, meetings"; and "Not sure of future business, not committing."

The industries reporting growth of new orders in November were: Mining; Utilities; Health Services; and Construction. The industries reporting the highest rates of contraction of new orders in November were: Transportation; Communication; Real Estate; Agriculture; and *Other Services.

New
Orders
% Higher % Same % Lower Index
November 2001 20 53 27 48.3
October 2001 17 46 37 40.4
September 2001 24 54 22 49.8
August 2001 19 54 27 45.9

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 42 percent in November. This is the 11th consecutive monthly decline in order backlogs. The November index is an increase of 1.5 percentage points from October's 40.5 percent. Purchasing and supply executives' comments on backlogs of orders included: "Backlog is being worked off," "Less work, less backlog," "Caught up on backlogs," and "Lower inventory levels and shortened buying cycles." Of the total respondents in November, 29 percent indicated they do not measure backlog of orders.

The industries reporting growth of backlog of orders in November were: Legal Services; Mining; and Business Services. The industries reporting the highest rates of decline of order backlogs in November were: Entertainment; Agriculture; Transportation; Retail Trade; and *Other Services.

Backlog
of Orders
% Higher % Same % Lower Index
November 2001 11 62 27 42.0
October 2001 7 67 26 40.5
September 2001 13 71 16 48.5
August 2001 10 63 27 41.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the third consecutive month in November, registering an index value of 52.5 percent. Comments from purchasing and supply executives concerning supplier deliveries in November included: "Manufacturers holding to lead times/customs delays"; "Appears to be reduced supplier inventories of parts and materials"; "Due to added security, shipments take longer"; and "Many of our suppliers are having supply and delivery chain problems."

The industries that reported the highest rates of slowness of supplier deliveries in November were: Legal Services; Entertainment; Real Estate; Public Administration; and Utilities. The industries that reported faster supplier deliveries in November were: Agriculture; Finance and Banking; Construction; Health Services; and Wholesale Trade.

Supplier
Deliveries
% Higher % Same % Lower Index
November 2001 7 81 12 52.5
October 2001 5 83 12 53.5
September 2001 5 88 7 51.0
August 2001 10 84 6 48.0

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 November for the second consecutive month. The New Export Orders Index for November was 48.5 percent compared to October's 44.5 percent. Of the total respondents in November, 76 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 November were: Construction; *Other Services; and Wholesale Trade. Industries reporting decreases in new export orders in November were: Entertainment; Transportation; Communication; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
November 2001 12 73 15 48.5
October 2001 13 63 24 44.5
September 2001 16 75 9 53.5
August 2001 13 69 18 47.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in November after decreasing in October. NAPM's Non-Manufacturing Imports Index for November was 52.4 percent, an increase of 2.6 percentage points from the 49.8 percent reported in October. In November, 69 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 November were: Mining; Business Services; and Wholesale Trade. Industries reporting decreased use of imports in November were: Agriculture; Transportation; *Other Services; and Retail Trade.

Imports % Higher % Same % Lower Index
November 2001 13 75 12 52.4
October 2001 11 77 12 49.8
September 2001 17 79 4 55.0
August 2001 15 77 8 53.8

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in November for the 13th consecutive month but at a slower rate than in October. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in November, an increase of 1.5 percentage points from the 48 percent reported in October. Of the total respondents in November, 26 percent indicated they do not have inventories. Comments from members included: "Returning overstock items," "Inventory reduction program," "Still trying to lower inventory due to lack of sales," and "Overstocked on some key items purchased while prices are low."

The industries reporting the highest rates of inventory increase in November were: Legal Services; Agriculture; Entertainment; Insurance; and Finance and Banking. Industries reporting the highest rates of inventory decrease in November were: Retail Trade; Utilities; Construction; Wholesale Trade; and Public Administration.

Inventory
Change
% Higher % Same % Lower Index
November 2001 22 55 23 49.5
October 2001 23 50 27 48.0
September 2001 16 57 27 44.5
August 2001 13 61 26 43.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in November registered 67 percent compared to 68.5 percent for October. This decrease in the index level indicates that non-manufacturing purchasing and supply executives felt a lesser degree of discomfort with current levels of inventory in November than they did during October. The Index at 67 percent is relatively high. Over the preceding 12 months the Index averaged 65.5 percent. In November, 38 percent of members felt their inventories were too high (40 percent in October). Also in November, 4 percent indicated their inventories were too low (3 percent in October), and 58 percent said that their inventories were about right (57 percent in October).

The industries that reported the highest rates of feeling that their inventories were "too high" in November were: Legal Services; Communication; Wholesale Trade; Transportation; and Agriculture. No industry reported its inventories were too low.

Inventory
Sentiment
% Too High % About Right % Too Low Index
November 2001 38 58 4 67.0
October 2001 40 57 3 68.5
September 2001 35 58 7 64.0
August 2001 38 55 7 65.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services dropped in November for the fifth consecutive month, indicating continued downward pressure on prices. NAPM's Non-Manufacturing Prices Index for November is 38.5 percent, 3 percentage points lower than October's 41.5 percent, and the second consecutive new low in this index since inception of NAPM's non-manufacturing business survey in July 1997. The percentage of members reporting higher prices decreased 1 percentage point to 6 percent in November, the proportion indicating no change dropped 4 percentage points to 65 percent, and the number who noted lower prices increased 5 percentage points to 29 percent.

The only industry that reported an increase in prices paid in November was Health Services. The industries that reported the highest rates of price decreases in November were: Agriculture; Real Estate; Communication; Construction; and Utilities.

Prices % Higher % Same % Lower Index
November 2001 6 65 29 38.5
October 2001 7 69 24 41.5
September 2001 12 74 14 49.0
August 2001 10 76 14 48.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in November for the ninth consecutive month. NAPM's Non-Manufacturing Employment Index for November was 44.3 percent compared to 43.5 percent in October. Comments from members included: "Some early retirements – freezes on new hires – layoffs coming," "Team members not replaced as they quit," "Staff reduction," and "Budget crunch – positions open, but not able to be filled."

The industries reporting growth in employment in November were: Mining; Entertainment; Finance and Banking; Insurance; and Business Services. Industries reporting the highest rates of reduction in employment in November were: Communication; Transportation; Agriculture; Utilities; and Construction.

Employment % Higher % Same % Lower Index
November 2001 11 67 22 44.3
October 2001 9 68 23 43.5
September 2001 12 66 22 46.7
August 2001 10 71 19 45.9

*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

Flu Vaccine; Pharmaceuticals.

Commodities Reported Up in Price

Food Items; Office Supplies; Tomatoes; Transportation.

Commodities Reported Down in Price

Airfares (Air Travel); Beef; Butter; Cheese; Chicken; Computers (PCs) — 21st month; Copper and Copper Products — 2nd month; Dairy Products; Diesel Fuel — 2nd month; Fuel — 2nd month; Gasoline — 2nd month; Hotel Rooms; Natural Gas — 4th month; Oil; Packaging; Paper (some reports of price increases); Paper Bags; Petroleum Products; Pork; PVC and PVC Pipe Products — 2nd month.

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. 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 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 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.napm.org.

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 December 2001 data will be released at 10:00 a.m. (ET) on January 4, 2002.



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