July 1999 Non-Manufacturing Report On Business®

FOR RELEASE: August 4, 1999

Contact: Zenobia Daruwalla
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Non-Manufacturing Business Activity Continues to Grow in July 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 July 1999.

Business Activity Index at 59.5%

New Orders, Export Orders, Employment, and Prices Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in July 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 July, NAPM's Non-Manufacturing Business Activity Index indicated increased activity compared to June, continuing a long-term growth trend," Kauffman said. "New Orders, Export Orders, Employment, and use of Imports also increased in July, while Supplier Deliveries were slow. Backlog of Orders was unchanged and Inventories of non-manufacturing firms continued to shrink at the same rate as June. Prices paid by non-manufacturing organizations for materials and services increased, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling the same level of discomfort with the current level of inventories in July as they did in June," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity, but at a slower rate of increase, by moving from 61.0 percent in June to 59.5 percent in July. Comments from purchasing executives are heavily positive on business activity in July. Increased business activity in July was reported by 31 percent of purchasers compared to 36 percent who reported increased business in June. Of the industry groups reporting in the July NAPM non-manufacturing survey, thirteen indicated increased activity, two indicated decreased activity, and two reported no change in activity level. In June, ten industry groups reported increased activity, four indicated decreased activity, and two advised no change," said Kauffman.

Again in July, availability of qualified labor continues to be a concern for a number of non-manufacturing industries. Overall, various members reported shortages of construction labor, personnel in general, services labor, and temporary help. Another concern is increases in prices paid for materials and services. The NAPM Non-Manufacturing Price Index has indicated increases in prices paid each month since March 1999 and in July reached 57.5 percent, its highest level since inception of the NAPM Non-Manufacturing business survey in July 1997.

"Overall in July, non-manufacturing industries are continuing their long-term growth trend. Weaker growth of new orders and unchanged order backlogs may portend a slower rate of growth in the near future. Higher prices for some purchased items and ability to hire qualified labor continue to be areas of concern," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series July
Indexes
June
Indexes
July vs. June
Index Change
Direction and
Rate of Change
Business Activity 59.5 61.0 -1.5 Increasing Slower
New Orders 55.0 63.5 -8.5 Increasing Slower
Backlog of Orders 50.0 52.0 -2.0 Unchanged from Increasing
New Export Orders 57.5 53.5 +4.0 Increasing Faster
Inventory Change 49.5 49.5 0.0 Decreasing at Same Rate
Inventory Sentiment 61.0 61.0 0.0 Same feeling of "too high"
Imports 57.5 53.0 +4.5 Increasing Faster
Prices 57.5 54.0 +3.5 Increasing Faster
Employment 56.5 57.5 -1.0 Increasing Slower
Supplier Deliveries 52.5 54.0 -1.5 Slowing at Slower Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in July 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 at a slower rate for manufacturing and was unchanged from June in non-manufacturing. Prices increased in July for both areas but increased faster for non-manufacturing. Employment in July increased for non-manufacturing but decreased in manufacturing. Inventories decreased in both sectors 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 July was reported to be slow by both sectors with manufacturing reporting the greater rate of slowness. Use of Imports was up in both sectors in June with a higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 59.5 Production 58.2
New Orders 55.0 New Orders 54.4
Backlog of Orders 50.0 Backlog of Orders 50.5
New Export Orders 57.5 New Export Orders 50.4
Inventory Change 49.5 Inventories 44.4
Inventory Sentiment 61.0    
Imports 57.5 Imports 51.6
Prices 57.5 Prices 54.7
Employment 56.5 Employment 49.6
Supplier Deliveries 52.5 Supplier Deliveries 54.2

* 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 declined to 59.5 percent in July from 61.0 percent in June. Respondent comments in July were heavily positive, supporting the index's indication of increased business activity although at a slower rate of increase than in June. The July Business Activity Index was the lowest since 57.0 percent was reported in February 1999.

Purchasing executives reporting better business in July numbered 31 percent compared to the 36 percent who said things were better in June, and 12 percent indicated worse business in July, compared to 14 percent who said business was worse in June. The industries reporting the highest rates of growth of business activity in July were: Entertainment; Finance and Banking; Utilities; Mining; Agriculture; and Retail Trade.

Business
Activity
% Higher % Same % Lower Index
July 1999 31 57 12 59.5
June 1999 36 50 14 61.0
May 1999 30 60 10 60.0
April 1999 38 52 10 64.0
March 1999 35 55 10 62.5
February 1999 27 60 13 57.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index dropped to 55.0 percent in July from 63.5 percent in June, indicating a slower rate of increase for new orders to non-manufacturers. July's New Orders Index was the lowest since January 1999 when it was 53.5 percent. Comments from respondents included: "New sales," "Increased activity," and "New business added." The industries reporting the highest rates of growth of new orders in July were: Entertainment; Utilities; Real Estate; Health Services; Transportation; Finance and Banking; and Retail Trade.

New Orders % Higher % Same % Lower Index
July 1999 28 54 18 55.0
June 1999 39 49 12 63.5
May 1999 30 59 11 59.5
April 1999 36 53 11 62.5
March 1999 33 55 12 60.5
February 1999 25 63 12 56.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index was 50.0 percent in July, indicating unchanged order backlogs from June and ending five consecutive month of increases. The Backlog of Orders Index for July was the lowest since January 1999 (49.0 percent). Purchasing executives' comments on the backlog of orders report included: "Able to meet all commitments," "Backorders filled due to slower business," and "Delays in meeting all customer shipments." Of the total respondents in July, 26.0 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in July were: Transportation; Business Services; Utilities; Real Estate; and Retail Trade.

Backlog
of Orders
% Higher % Same % Lower Index
July 1999 16 68 16 50.0
June 1999 17 70 13 52.0
May 1999 13 75 12 50.5
April 1999 17 68 15 51.0
March 1999 22 67 11 55.5
February 1999 14 75 11 51.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was at a lesser rate of slowness in July than in June. NAPM's Non-Manufacturing Supplier Deliveries Index for July was 52.5 percent compared to 54.0 percent in June. Comments from purchasing executives included: "New supplier — production problems," "Supplier shorts on shipments," and "Heavier demand on transport."

The industries that reported the slowest rates of supplier deliveries in July were: Legal Services; Business Services; Agriculture; Communication; and Transportation.

Supplier
Deliveries
% Higher % Same % Lower Index
July 1999 4 87 9 52.5
June 1999 3 86 11 54.0
May 1999 2 88 10 54.0
April 1999 3 91 6 51.5
March 1999 5 85 10 52.5
February 1999 5 87 8 51.5

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 increased for the fifth consecutive month in July, and at a faster rate of increase than in June. NAPM's Non-Manufacturing New Export Orders Index was 57.5 percent in July compared to 53.5 percent in June. Of the total respondents in July, 77.8 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 July were: Real Estate; Finance and Banking; Mining; Communication; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
July 1999 26 63 11 57.5
June 1999 22 63 15 53.5
May 1999 23 71 6 58.5
April 1999 24 65 11 56.5
March 1999 22 73 5 58.5
February 1999 10 75 15 47.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in July for the sixth time after four months of decreases. NAPM's Non-Manufacturing Imports Index for July was 57.5 percent compared to 53.0 percent in June. In July, 73.2 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting growth in use of imports in July were: Mining; Agriculture; Retail Trade; Transportation; *Other Services; and Wholesale Trade.

Imports % Higher % Same % Lower Index
July 1999 19 77 4 57.5
June 1999 9 88 3 53.0
May 1999 15 81 4 55.5
April 1999 17 73 10 53.5
March 1999 22 73 5 58.5
February 1999 11 81 8 51.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased for the second month in July. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in July, the same as in June. Of the total respondents in July, 21.8 percent indicated they do not have inventories. Comments from member purchasers included: "Ongoing reduction effort," "More JIT agreements," "Consignment programs initiated," and "Adding new items to reduce backorders."

The industries reporting the highest rates of growth of inventories in July were: Transportation; Utilities; Real Estate; Retail Trade; and Construction.

The industries reporting the highest rates of contraction of inventories in July were: Mining; Agriculture; Communication; Public Administration; and *Other Services.

Inventory
Change
% Higher % Same % Lower Index
July 1999 19 61 20 49.5
June 1999 24 51 25 49.5
May 1999 23 57 20 51.5
April 1999 19 59 22 48.5
March 1999 19 57 24 47.5
February 1999 23 53 24 49.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in July registered 61.0 percent for the third consecutive month. This constant index level indicates that non-manufacturing purchasing executives felt the same degree of discomfort with current levels of inventory in all three months. In July, 33 percent of members felt their inventories were too high (30 percent in June). Also in July, 11 percent indicated their inventories were too low (8 percent in June), and 56 percent said that their inventories were about right (62 percent in June).

The industries that reported the highest rates of feeling that their inventories were "too high" in July were: Mining; Legal Services; Wholesale Trade; Real Estate; Utilities; Agriculture; and Entertainment.

Inventory
Sentiment
% Higher % Same % Lower Index
July 1999 33 56 11 61.0
June 1999 30 62 8 61.0
May 1999 30 62 8 61.0
April 1999 32 62 6 63.0
March 1999 28 67 5 61.5
February 1999 29 63 8 60.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in July for the fifth consecutive month and at a higher rate of increase than in June. NAPM's Non-Manufacturing Price Index for July was 57.5 percent, the highest level it has reached since the inception of NAPM's Non-Manufacturing business survey in July 1997.

The industries that reported the highest rates of increase in prices paid in July were: Legal Services; Retail Trade; Mining; Communication; and Wholesale Trade.

Prices % Higher % Same % Lower Index
July 1999 22 71 7 57.5
June 1999 17 74 9 54.0
May 1999 18 72 10 54.0
April 1999 20 71 9 55.5
March 1999 15 71 14 50.5
February 1999 8 77 15 46.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector registered its fifth consecutive monthly increase in July, but indicated a slower rate of increase than in June. NAPM's Non-Manufacturing Employment Index for July was 56.5 percent compared to 57.5 percent for June. Comments from purchasers included: "Cannot fill positions — tight labor market," "Expansion," "Hiring freeze lifted," and "Very competitive market."

The industries reporting the highest rates of growth of employment in July were: Communication; Utilities; Real Estate; Retail Trade; and Transportation.

Employment % Higher % Same % Lower Index
July 1999 21 71 8 56.5
June 1999 24 67 9 57.5
May 1999 17 74 9 54.0
April 1999 18 71 11 53.5
March 1999 17 70 13 52.0
February 1999 11 77 12 49.5

*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

Gypsum Board (drywall) — 5th month; Various types of labor — 2nd month; Laptop Computers — 6th month.

Commodities Reported Up in Price

Cheese; Corrugated Containers — 5th month; Gypsum Board (drywall) — 3rd month; Fuel — 5th month; Gasoline — 5th month; Paper — 4th month (also some reports of price decreases); Cut Paper; Copy Paper; Paper Products; Petroleum-based Products; Pine Lumber; Polyethylene.

Commodities Reported Down in Price

Computers — 15th month; Corn; Office Supplies — 2nd month; PCs — 19th 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 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 181 affiliates with more than 45,000 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 August 1999 data will be released at 10:00 a.m. (EDT) on September 3, 1999.



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