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March 1999 Non-Manufacturing Report on Business®

FOR RELEASE: April 5, 1999

Contact: Zenobia Daruwalla
  NAPM Media Relations
  602/752-6276 ext. 3015
Non-Manufacturing Business Activity Growth is Stronger in March Say Purchasing Executives in Latest Non-Manufacturing NAPM Report On Business®

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing 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 March 1999.

Business Activity Index at 62.5%
New Orders, Backlog of Orders, Employment, and Prices Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in March 1999 say the nation's purchasing 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 March, NAPM's Non-Manufacturing Business Activity Index indicated increased activity compared to February, continuing a long-term growth trend," Kauffman said. "New Orders, Backlog of Orders, and use of Imports also increased in March, while Supplier Deliveries were slower. Inventories of non-manufacturing firms shrank, and New Export Orders increased significantly. Prices paid by non-manufacturing organizations for materials and services increased, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling slightly more uncomfortable with the current level of inventories in March," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity by rising from 57.0 percent in February to 62.5 percent in March. Comments from purchasing executives are heavily positive on business activity in March. Increased business activity in March was reported by 35 percent of purchasers compared to 27 percent who reported increased business in February. Of the industry groups reporting in the March NAPM non-manufacturing survey, fifteen indicated increased activity, none indicated decreased activity, and one reported no change in activity level. In February, twelve industry groups reported increased activity, three indicated decreased activity, and two advised no change," said Kauffman.

Other significant indicators in March include new orders, prices, and employment. NAPM's New Orders Index indicated a faster rate of increase for new orders in March and the highest rate of increase of new orders since May 1998. NAPM's Prices Index indicated increased prices for purchased items for the first time since February 1998. NAPM's Employment Index indicated increased non-manufacturing employment. These indications collectively project a non-manufacturing sector that is growing at a faster rate of growth than in March 1998 and faster than the average for all of 1998. NAPM's Non-Manufacturing Business Activity Index for March is 62.5 percent compared to 59.5 percent for March 1998 and 57.3 percent for the average for all of 1998.

"Overall in March, non-manufacturing industries are continuing their long-term growth trend. Strong growth of order backlogs portends continued growth in the near term. Higher prices for some purchased items and ability to hire qualified labor are areas of concern," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series March
Indexes
February
Indexes
Mar. vs. Feb.
Index Change
Direction and
Rate of Change
Business Activity 62.5 57.0 +5.5 Increasing Faster
New Orders 60.5 56.5 +4.0 Increasing Faster
Backlog of Orders 55.5 51.5 +4.0 Increasing Faster
New Export Orders 58.5 47.5 +11.0 Increase from Decrease
Inventory Change 47.5 49.5 - 2.0 Decreasing Faster
Inventory Sentiment 61.5 60.5 +1.0 Greater feeling of "too high"
Imports 58.5 51.5 +7.0 Increasing Faster
Prices 50.5 46.5 +4.0 Increase from Decrease
Employment 52.0 49.5 +2.5 Increase from Decrease
Supplier Deliveries 52.5 51.5 +1.0 Slowing at Faster Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in March with a faster rate of growth in non-manufacturing business activity. New orders also increased for both the non-manufacturing and manufacturing sectors with a greater rate of increase for non-manufacturing. Backlog of orders increased for both non-manufacturing and manufacturing. Prices declined for manufacturing in March but increased for non-manufacturing. Inventories decreased in both non-manufacturing and manufacturing industries, with a faster rate of decrease in manufacturing. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in March was reported to be slower than in February by both sectors with equal rates of slowness. Use of Imports was up in both sectors in March with a higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 62.5 Production 59.6
New Orders 60.5 New Orders 58.2
Backlog of Orders 55.5 Backlog of Orders 52.0
New Export Orders 58.5 New Export Orders 51.7
Inventory Change 47.5 Inventories 44.6
Inventory Sentiment 61.5    
Imports 58.5 Imports 55.3
Prices 50.5 Prices 43.2
Employment 52.0 Employment 48.0
Supplier Deliveries 52.5 Supplier Deliveries 52.5

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing NAPM Report On Business®data is not seasonally adjusted.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index rose to 62.5 percent in March from 57.0 percent in February. This is the highest index since 64.0 percent in May 1998. Respondent comments in March were heavily positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in March numbered 35 percent compared to the 27 percent who said things were better in February, and only 10 percent indicated worse business in March compared to 13 percent who said things were worse in February. The industries reporting the highest rates of growth of business activity in March were: Finance and Banking; Public Administration; Insurance; Retail Trade; *Other Services; Communication; and Agriculture.

Business Activity % Higher % Same % Lower Index
March 1999 35 55 10 62.5
February 1999 27 60 13 57.0
January 1999 29 50 21 54.0
December 1998 22 55 23 49.5
November 1998 26 54 20 53.0
October 1998 27 53 20 53.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased in March compared to February, adding a third month to its uptrend and reaching the highest level since May 1998. NAPM's Non-Manufacturing New Orders Index for March was 60.5 percent compared to February's 56.5 percent. The previous higher mark in May 1998 was 63.5 percent. Comments from respondents included: "Capital projects being released," "Seasonal increase," "New branches opening," and "High level of booked orders."

The industries reporting the highest rates of growth of new orders in March were: Finance and Banking; Insurance; Public Administration; Communications; and Health Services.

New Orders % Higher % Same % Lower Index
March 1999 33 55 12 60.5
February 1999 25 63 12 56.5
January 1999 27 53 20 53.5
December 1998 21 55 24 48.5
November 1998 26 53 21 52.5
October 1998 26 55 19 53.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated 55.5 percent in March, an increase from February's 51.5 percent and continuing for a second month a reversal of direction after four consecutive months of reduced order backlogs. The March index was the highest since 56.5 percent in August 1998. Purchasing executives' comments on the backlog of orders report included: "Volume of work exceeds capacity," "Reducing backlog is a primary focus area," "Poor vendor performance," and "Increased funding increases numbers of projects." Of the total respondents in March, 24.8 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in March were: Retail Trade; Business Services; Public Administration; Construction; and Other Services.

Backlog of Orders % Higher % Same % Lower Index
March 1999 22 67 11 55.5
February 1999 14 75 11 51.5
January 1999 15 68 17 49.0
December 1998 13 68 19 47.0
November 1998 8 77 15 46.5
October 1998 17 64 19 49.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was somewhat slower in March, and at a higher rate of slowness, than in February. NAPM's Non-Manufacturing Supplier Deliveries Index for March was 52.5 percent compared to February's 51.5 percent. Comments from purchasing executives included: "High demand on suppliers," "Railroad delays" (several mentions), and "Y2K replacement equipment demands."

The industries that reported the highest rates of slower supplier deliveries in March were: Agriculture; Entertainment; Public Administration; Retail Trade; and Wholesale Trade.

Supplier Deliveries % Higher % Same % Lower Index
March 1999 5 85 10 52.5
February 1999 5 87 8 51.5
January 1999 6 79 15 54.5
December 1998 5 84 11 53.0
November 1998 9 82 9 50.0
October 1998 6 81 13 53.5

Non-Manufacturing New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by U.S. based personnel reversed five months of decreases in March. NAPM's Non-Manufacturing New Export Orders Index was 58.5 percent in March compared to 47.5 percent in February. The March index was the highest since 58.5 percent in March 1998. Of the total respondents in March, 74.9 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The industries with the highest rates of growth of new export orders in March were: Insurance; Finance and Banking; Retail Trade; Business Services; and Public Administration.

New Export Orders % Higher % Same % Lower Index
March 1999 22 73 5 58.5
February 1999 10 75 15 47.5
January 1999 14 65 21 46.5
December 1998 12 74 14 49.0
November 1998 10 70 20 45.0
October 1998 10 77 13 48.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in March for the second time after four months of decreases.. NAPM's Non-Manufacturing Imports Index for March was 58.5 percent compared to 51.5 percent in February. The March index was the highest since inception of the NAPM Non-Manufacturing Business Survey in July 1997. In March, 70.1 percent of respondents reported that they do not use or do not track use of imported materials.

The industries with the highest rates of growth of use of imports in March were: Business Services; Public Administration; Retail Trade; Wholesale Trade; Construction; and Agriculture.

Imports % Higher % Same % Lower Index
March 1999 22 73 5 58.5
February 1999 11 81 8 51.5
January 1999 9 78 13 48.0
December 1998 12 72 16 48.0
November 1998 15 69 16 49.5
October 1998 10 76 14 48.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in March for the third consecutive month. NAPM's Non-Manufacturing Inventories Index registered 47.5 percent in March, compared to 49.5 percent in February. Of the total respondents in March, 21.2 percent indicated they do not have inventories. Comments from member purchasers included: "Increased demand," "Better management of inventory," "New programs to reduce inventory," and "Using up current inventory."

The industries reporting the highest rates of growth of inventories in March were: Transportation; Agriculture; Entertainment; Real Estate; and Construction. The industries reporting the highest rates of inventory decrease in March were: Mining; Business Services; Insurance; Retail Trade; and Wholesale Trade.

Inventory Change % Higher % Same % Lower Index
March 1999 19 57 24 47.5
February 1999 23 53 24 49.5
January 1999 20 54 26 47.0
December 1998 25 51 24 50.5
November 1998 22 56 22 50.0
October 1998 21 55 24 48.5

Non-Manufacturing Inventory Sentiment

The March NAPM Non-Manufacturing Inventory Sentiment Index of 61.5 percent reflects an increase from the February reading of 60.5 percent. The higher March index of inventory sentiment indicates that non-manufacturing purchasing executives felt slightly more uncomfortable with current levels of inventory and shared the "too high" sentiment to a slightly greater extent in March than in February. In March, 28 percent of members felt their inventories were too high (compared to 29 percent in February). Also in March, 5 percent indicated their inventories were too low, (8 percent in February), and 67 percent said that their inventories were about right (63 percent in February).

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

Inventory Sentiment % Higher % Same % Lower Index
March 1999 28 67 5 61.5
February 1999 29 63 8 60.5
January 1999 29 64 7 61.0
December 1998 36 57 7 64.5
November 1998 30 66 4 63.0
October 1998 39 53 8 65.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in March for the first time since February 1998. NAPM's Non-Manufacturing Price Index increased to 50.5 percent in March, compared to 46.5 percent in February. March is the first month of price increase after twelve months of either a decrease or no change in prices paid by non-manufacturing industries.

The industries that reported the highest rates of increase in prices paid in March were: Mining; Business Services; Communication; Wholesale Trade; and Agriculture.

Prices % Higher % Same % Lower Index
March 1999 15 71 14 50.5
February 1999 8 77 15 46.5
January 1999 11 72 17 47.0
December 1998 5 81 14 45.5
November 1998 5 80 15 45.0
October 1998 10 76 14 48.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector reported an increase in March after indicating a low rate of decrease for the past three months. NAPM's Non-Manufacturing Employment Index for March was 52.0 percent compared to 49.5 percent for February. Comments from purchasers included: "Shortage, trained personnel hard to come by," "Adding people to reduce backlog," "Increased business," and "Downsizing and consolidation."

The industries reporting the highest rates of growth of employment in March were: Finance and Banking; Business Services; Communication; Public Administration; Entertainment; and Real Estate.

Employment % Higher % Same % Lower Index
March 1999 17 70 13 52.0
February 1999 11 77 12 49.5
January 1999 12 75 13 49.5
December 1998 13 73 14 49.5
November 1998 18 69 13 52.5
October 1998 16 73 11 52.5

*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

Copiers and Copier Equipment; Gypsum Board (drywall); Insulation; Labor; Laptop Computers — 2nd month; PC's.

Commodities Reported Up in Price

Corn; Corrugated Containers; Diesel Fuel; Fuel (equal reports of price decreases); Gasoline (some reports of price decreases); Insulation; Pine Lumber — 2nd month; Plywood; Services; Soybean Meal.

Commodities Reported Down in Price

Computers — 11th month; Copper; Fittings; Memory; Paper — 8th month (some reports of price increases); PCs — 15th month; Pipe; Valves.

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 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 industries 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 resulting single index number is not seasonally adjusted.

A weighted composite index similar to the Purchasing Managers Index (PMI) that is so popular in the Manufacturing NAPM Report On Business® will not be available. Several years of data will need to be developed before that type of non-manufacturing indicator could 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 purchasing and supply management research and education organization in the United States. NAPM is comprised of 180 affiliates with more than 44,000 members in the United States and Puerto Rico.

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. (EDT).

The next Non-Manufacturing NAPM Report On Business® featuring the April 1999 data will be released at 10:00 a.m. (EDT) on May 5, 1999.



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