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November 1999 Non-Manufacturing Report On Business®

FOR RELEASE: December 3, 1999

Contact: Zenobia Daruwalla
  NAPM Media Relations
  480/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY GROWS MORE SLOWLY IN NOVEMBER 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 November 1999.

Business Activity Index Down to 55.5%
New Orders, Export Orders, Prices, Employment, and Inventories Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in November 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 November, NAPM's Non-Manufacturing Business Activity Index continued its long-term growth trend but at a significantly slower rate of increase than in October," Kauffman said. "New Orders, Imports, and Employment also increased at slower rates in November, while Supplier Deliveries were slower than in October and Export Orders increased at a faster rate. Inventories increased at the highest rate in 19 months with a number of members attributing the increase to Y2K preparation. Prices paid by non-manufacturing organizations for materials and services increased at a slightly faster rate than in October, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling a higher degree of discomfort with the current level of inventories in November than they did in October," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 55.5 percent in November, compared to 60.0 percent in October, reflecting a continued growth in non-manufacturing economic activity, but at a slower rate. Comments from purchasing executives continue to be positive on business activity in November. Increased business activity in November was reported by 24 percent of purchasers, a decrease of 8 percentage points from the 32 percent reporting more activity in October. Of the industry groups reporting in the November NAPM non-manufacturing survey, 9 indicated increased activity, 3 indicated decreased activity, and 5 reported no change in activity level. In October, 16 industry groups reported increased activity, none indicated decreased activity, and 1 advised no change," said Kauffman.

In our September report we indicated that about 26 percent of non-manufacturing survey members planned to build inventories because of continuity of supply concerns related to Y2K. In November we received a number of comments that the inventory addition was actually happening. The comments were supported by a five percentage point jump in the Inventory Change Index to 52.5 percent, its highest level since April 1998 (also 52.5 percent). Prices paid by members' firms for purchased materials and services continue to be a concern, but the Price Index moved up only slightly to 57.5 percent in November after October's drop to 57.0 percent from September's record high 62.0 percent. Members reporting higher prices in November numbered 21.0 percent, a drop of 1 percentage point from the 22.0 percent reported in October.

"Overall in November, non-manufacturing industries continued their long-term growth trend. However, new orders grew more slowly this month, indicating some moderation in the strength of business growth. There are indications that some Y2K inventory building is occurring and purchase prices in November increased only slightly faster than in October," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series November
Indexes
October
Indexes
November
vs. October
Index
Change
Direction and
Rate of Change
Business Activity 55.5 60.0 -4.5 Increasing Slower
New Orders 55.5 60.5 -5.0 Increasing Slower
Backlog of Orders 49.0 52.0 -3.0 Decreasing from Increasing
New Export Orders 56.0 54.0 +2.0 Increasing Faster
Inventory Change 52.5 47.5 +5.0 Increasing from Decreasing
Inventory Sentiment 62.5 58.0 +4.5 Increased Feeling of "too high"
Imports 52.5 54.5 -2.0 Increasing Slower
Prices 57.5 57.0 +0.5 Increasing Faster
Employment 50.5 51.0 -0.5 Increasing Slower
Supplier Deliveries 56.5 56.0 +0.5 Slowing at a 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 November with a faster rate of growth in manufacturing production. New orders also increased for both the non-manufacturing and manufacturing sectors with a greater rate of increase for manufacturing. Backlog of orders increased for manufacturing but decreased for non-manufacturing. Prices increased in November for both areas but increased faster for manufacturing. Employment in November increased for manufacturing and non-manufacturing but increased more rapidly in manufacturing. Inventories increased in non-manufacturing but were unchanged in manufacturing. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in November was reported to be slow by both sectors with non-manufacturing reporting the greater rate of slowness. Use of Imports was up in both sectors in November with a higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 55.5 Production 57.4
New Orders 55.5 New Orders 59.9
Backlog of Orders 49.0 Backlog of Orders 58.5
New Export Orders 56.0 New Export Orders 54.5
Inventory Change 52.5 Inventories 50.0
Inventory Sentiment 62.5    
Imports 52.5 Imports 51.2
Prices 57.5 Prices 65.3
Employment 50.5 Employment 52.2
Supplier Deliveries 56.5 Supplier Deliveries 55.9

* 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 in November decreased to 55.5 percent from 60.0 percent in October, indicating increased business activity but at a slower rate of increase. November's Business Activity Index was the lowest since January 1999 (54.0 percent). Purchasing executives' comments in November continued to be positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in November numbered 24 percent, a decrease from the 32 percent reporting more activity in October. Members who indicated lower business activity in November numbered 13 percent, up one point from 12 percent in October. The industries reporting the highest rates of growth of business activity in November were: Legal Services: Insurance; Communication; Utilities; and Public Administration.

Business
Activity
% Higher % Same % Lower Index
November 1999 24 63 13 55.5
October 1999 32 56 12 60.0
September 1999 33 56 11 61.0
August 1999 31 57 12 59.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index declined to 55.5 percent in November from 60.5 percent in October, indicating a slower rate of increase for new orders to non-manufacturers. November's New Orders Index indicates continued high levels of activity with a reduced rate of growth. The November Index was the lowest since July 1999 (55.0 percent). Comments from members included: "Y2K safety stock," "Large capital asset orders from customers," and "Increased project activity."

The industries reporting the highest rates of growth of new orders in November were: Insurance; Communication; Public Administration; Utilities; and Wholesale Trade.

New
Orders
% Higher % Same % Lower Index
November 1999 24 63 13 55.5
October 1999 33 55 12 60.5
September 1999 31 60 9 61.0
August 1999 32 55 13 59.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index decreased to 49.0 percent in November from 52.0 percent in October, indicating decreased order backlogs. The Backlog of Orders Index for November was the lowest, and the first indicating decreased order backlogs, since January 1999 (49.0 percent). Purchasing executives' comments on backlogs of orders included: "Increase in installations," "More requests for materials," and "Stockouts by several packaged goods manufacturers." Of the total respondents in November, 29.2 percent indicated they do not measure backlog of orders.

The only industries reporting growth of backlog of orders in November were: *Other Services; Wholesale Trade; and Health Services.

The industries reporting the highest rates of decrease of backlog of orders in November were: Agriculture; Construction; Entertainment; and Retail Trade.

Backlog
of Orders
% Higher % Same % Lower Index
November 1999 13 72 15 49.0
October 1999 19 66 15 52.0
September 1999 16 73 11 52.5
August 1999 18 67 15 51.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slightly slower in November than in October. November was the fourth consecutive month of increase in the rate of delivery slowness. NAPM's Non-Manufacturing Supplier Deliveries Index for November was 56.5 percent compared to 56.0 percent in October. The November index was the highest since the UPS strike-induced 71.5 percent in August 1997. Comments from purchasing executives included: "Distributors reducing inventory," "Slow suppliers due to Y2K demand," "Numerous out of stocks in food manufacturing," and "Paper deliveries very slow."

The industries that reported the slowest rates of supplier deliveries in November were: Legal Services; Entertainment; Mining; Retail Trade; and Communication.

Supplier
Deliveries
% Higher % Same % Lower Index
November 1999 3 81 16 56.5
October 1999 3 82 15 56.0
September 1999 2 88 10 54.0
August 1999 4 85 11 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 increased for the ninth consecutive month in November, and at a faster rate of increase than in October. NAPM's Non-Manufacturing New Export Orders Index was 56.0 percent in November compared to 54.0 percent in October. Of the total respondents in November, 73.7 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The industries reporting the highest rates of growth of new export orders in November were: Communication; Mining; Agriculture; Insurance; *Other Services; and Finance and Banking.

New Export
Orders
% Higher % Same % Lower Index
November 1999 22 68 10 56.0
October 1999 14 80 6 54.0
September 1999 29 67 4 62.5
August 1999 24 68 8 58.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in November for the tenth consecutive month but increased more slowly than in October. NAPM's Non-Manufacturing Imports Index for November was 52.5 percent compared to 54.5 percent in October. The November Imports Index was the lowest since August 1999 (also 52.5 percent). In November, 72.1 percent of respondents reported that they do not use or do not track use of imported materials.

The only industries reporting higher rates of growth in use of imports in November were: Communication; Retail Trade; and *Other Services.

Imports % Higher % Same % Lower Index
November 1999 9 87 4 52.5
October 1999 17 75 8 54.5
September 1999 21 75 4 58.5
August 1999 11 83 6 52.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in November after a decrease in October. NAPM's Non-Manufacturing Inventories Index registered 52.5 percent in November, compared to 47.5 in October. The Inventory Change Index for November was the highest since April 1998 (also 52.5 percent). Of the total respondents in November, 26.4 percent indicated they do not have inventories. Comments from member purchasers included: "Y2K build (numerous similar comments)," "Material stocked to cover sales activity," "Loading up paper anticipating (price) increases," and "Reduction of MRO inventory."

The industries reporting the highest rates of increase of inventories in November were: Business Services; Transportation; Agriculture; Public Administration; Health Services; Retail Trade; and Wholesale Trade.

Inventory
Change
% Higher % Same % Lower Index
November 1999 21 63 16 52.5
October 1999 20 55 25 47.5
September 1999 20 64 16 52.0
August 1999 24 56 20 52.0

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in November registered 62.5 percent compared to 58.0 percent for October. This increased index level indicates that non-manufacturing purchasing executives felt a higher degree of discomfort with current levels of inventory in November than they did during October. In November, 34 percent of members felt their inventories were too high (28 percent in October). Also in November, 9 percent indicated their inventories were too low (12 percent in October), and 57 percent said that their inventories were about right (60 percent in October).

The industries that reported the highest rates of feeling that their inventories were "too high" in November were: Utilities; Business Services; Entertainment; Wholesale Trade; Communication; and Construction.

Inventory
Sentiment
% Higher % Same % Lower Index
November 1999 34 57 9 62.5
October 1999 28 60 12 58.0
September 1999 29 65 6 61.5
August 1999 38 50 12 63.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in November for the ninth consecutive month and at a slightly higher rate of increase than in October. NAPM's Non-Manufacturing Price Index for November was 57.5 percent, compared to 57.0 percent in October. This small increase, after a five-point drop in the Price Index for October, may be an indication that the strength of price increases over the past nine months is continuing to moderate.

The industries that reported the highest rates of increase in prices paid in November were: Agriculture; Wholesale Trade; Retail Trade; Health Services; Real Estate; and Entertainment.

Prices % Higher % Same % Lower Index
November 1999 21 73 6 57.5
October 1999 22 70 8 57.0
September 1999 28 68 4 62.0
August 1999 24 71 5 59.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector increased at a slightly slower rate in November compared to October. NAPM's Non-Manufacturing Employment Index for November was 50.5 percent compared to 51.0 percent for October. Comments from purchasers included: "Adding additional employees, "Increased staff to compensate for increase in orders," and "Adding temporary staff."

The industries reporting the highest rates of growth of employment in November were: Legal Services; Insurance; Communication; Real Estate; and Finance and Banking.

Employment % Higher % Same % Lower Index
November 1999 15 71 14 50.5
October 1999 16 70 14 51.0
September 1999 14 72 14 50.0
August 1999 15 74 11 52.0

*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:

Computer memory — 2nd month; Copper Pipe; Gypsum Board (drywall) — 9th month; Fiber Optic Cable.

Commodities Reported Up in Price:

Beef — 3rd month; Computer memory — 2nd month; Copy Paper — 2nd month; Corrugated Containers — 9th month; Diesel Fuel; Fuel — 9th month; Gasoline — 9th month; Linerboard; Natural Gas; Paper — 8th month; Paper Products — 3rd month; Plywood; Polyethylene — 3rd month; Polystyrene; Produce.

Commodities Reported Down in Price:

Computers — 19th month; PCs — 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 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. 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® 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 purchasing and supply management research and education organization in the United States. NAPM is comprised of 182 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. (ET).

The next Non-Manufacturing NAPM Report on Business® featuring the December 1999 data will be released at 10:00 a.m. (ET) on January 5, 2000.



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