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November 2004 Non-Manufacturing ISM Report On Business®

FOR RELEASE: December 3, 2004

Contact: Terri Tracey
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3071
  E-mail: ttracey@ism.ws
Business Activity at 61.3%

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 November 2004.

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in November 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 20th consecutive month in November," Kauffman said. He added, "Also in November, New Orders, Employment, Order Backlogs, Imports, Prices and Exports increased."

Purchasing and supply executives report that business activity continued to increase in November in the non-manufacturing sector, with the fastest rate of increase since July 2004. The Business Activity Index for November is 61.3 percent, up 1.5 percentage points from October's 59.8 percent. November's index indicates continued growth across most non-manufacturing industries. In November, 12 industry groups reported growth, two indicated contraction, and three reported business unchanged from October. Increased business activity in November was reported by 34 percent of members, the same as in October. Reduced activity was reported by 9 percent of members, compared to 15 percent in October. In November, the remaining 57 percent of members indicated no change in business activity, compared to 51 percent that reported no change in October.

The Backlog of Orders Index increased to 54 percent, indicating a higher rate of increase than in October and growth in order backlogs for the 19th consecutive month. The November New Orders Index decreased from 60.5 percent in October to 59.9 percent in November. This indicates a slightly slower rate of increase of new orders in November compared to October. Members reported that the prices they pay increased in November for the 32nd consecutive month, with a slower rate of increase than in October. November's Prices Index is 71 percent, a drop of 3.1 percentage points from the 74.1 percent reported in October. This month, 38 percent of all respondents and 16 of 17 non-manufacturing industries reported paying higher prices compared to October. Many of members' comments regarding business in November indicate continued positive business conditions but with continued concern for inflationary pressures. Specific comments include: "Fluctuating oil prices continue to increase business activity expenses"; "Fuel, healthcare and logistics costs darken an otherwise bright outlook"; "Continued high activity levels in all of our business units — same as October"; "Fertilizer business is very good. Short supply, strong prices"; and "Business continues to surge in."

In addition, Inventories increased in November after being reported unchanged in October. With regard to Inventory Sentiment for November, members reported a slightly higher level of concern than in October that inventories are too high. New Export Orders increased for the 16th consecutive month and Imports increased for the 19th consecutive month. Employment increased for the fourth consecutive month. Supplier Deliveries indicated slower performance for the 39th consecutive month.

Significant reports of commodities in short supply or up or down in price in November indicate that concrete; flu vaccine; roofing shingles; steel; steel products; and trucking are in short supply. Price increases are reported for airfares; aluminum; asphalt products; butter; chemicals/chemical products; concrete; copper/copper cable; copy paper; corrugated; #2 diesel energy; fuel; gasoline; insulation; lumber; natural gas; oil/oil-based products; paper; petroleum products; petroleum-based products; plastic products; plastics; polybags; produce; PVC material/conduit; resins/resin-based products; roofing shingles; steel; steel products; strapping; tape/tape media; tomatoes; transportation/freight charges; and wire/wire goods. Price decreases are reported for computer hardware; computers; dairy; gasoline; and lumber.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM 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 61.3 59.8 +1.5 Increasing faster 57.0 58.9 -1.9
New Orders 59.9 60.5 -0.6 Increasing slower 61.5 58.3 +3.2
Employment 55.0 55.8 -0.8 Increasing slower 57.6 54.8 +2.8
Supplier Deliveries 55.0 56.0 -1.0 Slowing slower 56.5 58.6 -2.1
Inventories 52.5 50.0 +2.5 Increasing from unchanged 50.7 48.2 +2.5
Prices 71.0 74.1 -3.1 Increasing slower 74.0 78.5 -4.5
Backlog of Orders 54.0 52.5 +1.5 Increasing faster 47.5 49.0 -1.5
New Export Orders 53.5 55.0 -1.5 Increasing slower 54.7 56.6 -1.9
Imports 62.0 57.5 +4.5 Increasing faster 58.4 58.5 -0.1
Inventory Sentiment 61.5 60.5 +1.0 Greater feeling of "too high" N/A N/A N/A
Customers' Inventories N/A N/A N/A   43.5 43.5 0.0

* 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 November increased to 61.3 percent from October's 59.8 percent, indicating a faster rate of growth of activity in November. November's index was the highest since 64.8 percent was recorded in July of this year. This month, 12 sectors reported increased business activity, two reported decreased activity, and three reported unchanged activity compared to October.

The industries reporting the highest rates of growth of business activity in November are: Wholesale Trade; Utilities; Agriculture; Mining; and Business Services. The industries reporting contraction of business activity in November are: Legal Services and Entertainment.

Business Activity % Higher % Same % Lower Index
November 2004 34 57 9 61.3
October 2004 34 51 15 59.8
September 2004 35 49 16 56.7
August 2004 32 50 18 58.2

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 59.9 percent in November from 60.5 percent in October. This indicates continued expansion of new orders but at a slightly slower rate of growth than in October. Comments from members include: "More projects starting"; "We are seeing an increase in capital purchases by larger manufacturers"; "Good traction on advertising"; and "More aggressive sales efforts."

Industries reporting the highest rates of growth of new orders in November are: Health Services; Wholesale Trade; Business Services; Utilities; and Mining. Industries reporting contraction of new orders in November are: Entertainment; Legal Services; Finance & Banking; Construction; and Agriculture.

New Orders % Higher % Same % Lower Index
November 2004 32 57 11 59.9
October 2004 33 53 14 60.5
September 2004 34 50 16 58.5
August 2004 32 52 16 58.6

Employment

Employment activity in the non-manufacturing sector increased in November compared to October. This was the fourth consecutive monthly increase after experiencing no change in July compared to June. ISM's Non-Manufacturing Employment Index for November is 55 percent, a drop of 0.8 percentage point from October's 55.8 percent. Eleven industries reported increased employment, four reported decreases, and two indicated employment was unchanged from October. Comments from respondents include: "Additional support staff"; "Increased capacity to handle backlog"; "Hiring freeze lifted"; "Fill positions that had been vacant for a while"; and "Flexing staffing to meet increased ancillary activity levels in radiology and surgery."

The industries reporting the highest rates of growth in employment in November are: Mining; Construction; Entertainment; Wholesale Trade; Public Administration; and Real Estate. The industries reporting reduction in employment in November are: Agriculture; Legal Services; Insurance; and Transportation.

Employment % Higher % Same % Lower Index
November 2004 18 74 8 55.0
October 2004 17 75 8 55.8
September 2004 19 69 12 54.6
August 2004 18 69 13 52.5

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 39th consecutive month in November. The index registered 55 percent, 1 percentage point lower than October's 56 percent. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in November include: "Recent weather problems"; "Port delays"; "Trucking system is bogged down, driver shortages, truck availability is tight"; and "Continuing impact of hurricanes Charley, Frances, Ivan and Jeanne on material availability and leadtimes within electric utility industry."

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

Supplier Deliveries % Slower % Same % Faster Index
November 2004 13 84 3 55.0
October 2004 13 86 1 56.0
September 2004 15 81 4 55.5
August 2004 16 82 2 57.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 52.5 percent in November, 2.5 percentage points higher than the 50 percent reported in October. This reading indicates increased inventories in November, after an unchanged report in October. Of the total respondents in November, 32 percent indicate they do not have inventories or do not measure them. Comments from members include: "Increased focus on inventory"; "Seasonal merchandise adjustment, suppressed because of slow deliveries from Far East"; "Increased inventory to support three new stores due to open next month"; and "Due to leadtimes on Poly Iso insulation and EPDM roofing materials, my inventory levels are 15 percent higher."

The industries reporting the highest rates of inventory increases in November are: Legal Services; Mining; Transportation; Entertainment; and Health Services. The industries reporting inventory decreases in November are: Insurance; Utilities; Communication; Business Services; and Other Services*.

Inventory Change % Higher % Same % Lower Index
November 2004 24 57 19 52.5
October 2004 22 56 22 50.0
September 2004 25 53 22 51.5
August 2004 28 50 22 53.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in November for the 32nd consecutive month but at a slower rate of increase than in October. ISM's Non-Manufacturing Prices Index for November dropped to 71 percent, down 3.1 percentage points from the 74.1 percent registered for October. In November, the percentage of members reporting higher prices decreased 6 percentage points to 38 percent from 44 percent in October, the proportion indicating no change rose 5 percentage points to 58 percent, and the number who noted lower prices increased 1 percentage point to 4 percent.

The industries reporting the highest rates of increase in prices paid in November are: Mining; Real Estate; Wholesale Trade; Business Services; Utilities; and Retail Trade. No industry is reporting price decreases in November.

Prices % Higher % Same % Lower Index
November 2004 38 58 4 71.0
October 2004 44 53 3 74.1
September 2004 35 62 3 67.1
August 2004 40 56 4 70.0

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 54 percent in November. This is an increase of 1.5 percentage points from the 52.5 percent reported for October and indicates a faster rate of increase in November. November is the 19th consecutive month of growth in order backlogs. Of the total respondents in November, 43 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Hurricanes impacted supply"; "Reduced staff three months ago"; "Port delays"; and "Production worker layoffs."

The industries reporting the highest rates of growth in backlog of orders in November are: Mining; Transportation; Insurance; Business Services; and Construction. The industries reporting decline of order backlogs in November are: Entertainment and Health Services.

Backlog
of
Orders
% Higher % Same % Lower Index
November 2004 18 72 10 54.0
October 2004 17 71 12 52.5
September 2004 20 65 15 52.5
August 2004 18 70 12 53.0

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 16th consecutive month in November. The New Export Orders Index for November is 53.5 percent compared to October's 55 percent, indicating a slower rate of growth in November compared to October. Of the total respondents in November, 78 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 are: Construction; Transportation; Utilities; Business Services; Wholesale Trade; and Other Services*. The industries reporting decreases in new export orders in November are: Communication and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
November 2004 17 73 10 53.5
October 2004 24 62 14 55.0
September 2004 25 61 14 55.5
August 2004 19 72 9 55.0

Imports

In November, the ISM Imports Index registered 62 percent, 4.5 percentage points higher than the 57.5 percent reported in October. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in November than in October. November's index marks the 19th consecutive month of import growth. In November, 71 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 November are: Wholesale Trade; Utilities; Business Services; and Retail Trade. The industries reporting decreased use of imports in November are: Communication and Entertainment.

Imports % Higher % Same % Lower Index
November 2004 29 66 5 62.0
October 2004 24 67 9 57.5
September 2004 18 76 6 56.0
August 2004 29 69 2 63.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in November registered 61.5 percent, a 1 percentage point increase from the 60.5 percent reported in October. This indicates that non-manufacturing purchasing and supply executives feel slightly greater discomfort with current levels of inventory in November than they did during October. In November, 29 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 65 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in November are: Communication; Agriculture; Legal Services; Construction; and Wholesale Trade. The industries reporting that their inventories are too low in November are: Entertainment and Public Administration.

Inventory
Sentiment
% Too High % About Right % Too Low Index
November 2004 29 65 6 61.5
October 2004 26 69 5 60.5
September 2004 31 61 8 61.5
August 2004 34 57 9 62.5

*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

Concrete — 7th month; Flu Vaccine — 2nd month; Roofing Shingles; Steel — 10th month; Steel Products — 9th month; and Trucking.

Commodities Reported Up in Price

Airfares — 4th month; Aluminum — 11th month; Asphalt Products — 2nd month; Butter; Chemicals/Chemical Products; Concrete — 2nd month; Copper/Copper Cable — 15th month; Copy Paper; Corrugated — 7th month; #2 Diesel Fuel — 12th month; Energy; Fuel — 12th month; Gasoline* — 12th month; Insulation; Lumber*; Natural Gas — 3rd month; Oil/Oil-Based Products — 2nd month; Paper — 10th month; Petroleum Products; Petroleum-Based Products — 2nd month; Plastic Products (various); Plastics — 11th month; Polybags — 3rd month; Produce; PVC Material/Conduit — 2nd month; Resins/Resin-Based Products — 2nd month; Roofing Shingles; Steel — 13th month; Steel Products — 9th month; Strapping; Tape/Tape Media; Tomatoes — 2nd month; Transportation/Freight Charges — 7th month; and Wire/Wire Goods.

Commodities Reported Down in Price

Computer Hardware — 2nd month; Computers; Dairy — 4th month; Gasoline*; and Lumber*.

*Reported as both up and down in price.

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 December 2004 data will be released at 10:00 a.m. (ET) on January 5, 2005.



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