January 1999 Non-Manufacturing Report On Business®

FOR RELEASE: February 3, 1999

Contact: Zenobia Daruwalla
  NAPM Media Relations
  602/752-6276 ext. 3015

Non-Manufacturing Business Activity Grows in January 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 January 1999.

Business Activity Index at 54.0%

New Orders Increase
Backlog of Orders, Exports, Imports Decrease

(Tempe, Arizona) — Business in the non-manufacturing sector grew in January 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 January, NAPM's Non-Manufacturing Business Activity Index indicated increased activity compared to December, supporting a long-term growth trend and indicating that December's report of slight business activity contraction was likely due to seasonal factors," Kauffman said. "New Orders also increased in January, Backlog of Orders decreased, and Supplier Deliveries were slower than in December. Inventories of non-manufacturing firms shrank, and New Export Orders and use of Imports decreased for the fourth consecutive month. Prices paid by non-manufacturing organizations for materials and services decreased at a slower rate in January, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling less uncomfortable with the current level of inventories in January," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity by rebounding from 49.5 percent in December to 54.0% in January. Comments from purchasing executives are mixed, but generally positive on business activity in January. Increased business activity in January was reported by 29 percent of purchasers compared to 22 percent who reported increased business in December. Also in January, of the industry groups reporting in the NAPM non-manufacturing survey, nine indicated increased activity, six indicated decreased activity, and one reported no change in activity level. In December, six industry groups reported increased activity, nine indicated decreased activity, and one advised no change," said Kauffman.

Other significant indicators in January include new orders, inventories, and prices. NAPM's New Orders Index indicated increased new orders in January after reporting a decrease in December. NAPM's Inventories Index indicated decreased inventories by registering 47 percent, its second-lowest level since the inception of NAPM's non-manufacturing survey.

NAPM's Price Index also indicated continuing price decreases but at a reduced rate of decrease in January compared to November and December. One purchaser reported that many suppliers that usually have annual price increases are holding at the 1998 level in 1999. These indications collectively project a non-manufacturing sector that is growing but at a slower rate of growth than the average for 1998 — NAPM's Non-Manufacturing Business Activity Index for January is 54.0 percent compared to the 57.3 percent average for the same index for all of 1998.

"Overall in January, non-manufacturing industries reported increased business activity and higher levels of new orders. Concerns of purchasing executives in non-manufacturing industries in January include continued inventory reduction efforts and ability to find qualified personnel," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series January
Indexes
December
Indexes
Jan. vs. Dec.
Index Change
Direction and
Rate of Change
Business Activity 54.0 49.5 +4.5 Increase from Decrease
New Orders 53.5 48.5 +5.0 Increase from Decrease
Backlog of Orders 49.0 47.0 +2.0 Decreasing Slower
New Export Orders 46.5 49.0 -2.5 Decreasing Faster
Inventory Change 47.0 50.5 -3.5 Decrease from Increase
Inventory Sentiment 61.0 64.5 -3.5 Lesser feeling of "too high"
Imports 48.0 48.0 0.0 Decreasing at Same Rate
Prices 47.0 45.5 +1.5 Decreasing Slower
Employment 49.5 49.5 0.0 Decreasing at Same Rate
Supplier Deliveries 54.5 53.0 +1.5 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 January 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 declined in both non-manufacturing and manufacturing, with a faster rate of decline in manufacturing. Prices declined in both areas of economic activity in January with the manufacturing sector reporting a more rapid rate of decrease. Inventories decreased in both non-manufacturing and manufacturing industries, with a faster rate of decrease in manufacturing. New export orders also decreased in both sectors in January, with non-manufacturing experiencing a more rapid rate of decrease. Supplier delivery performance in January was reported to be slower than in December by both sectors but with a greater rate of slowness in non-manufacturing. Use of Imports was down in both the non-manufacturing and manufacturing sectors, but declined at a faster rate in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 54.0 Production 53.1
New Orders 53.5 New Orders 51.3
Backlog of Orders 49.0 Backlog of Orders 38.0
New Export Orders 46.5 New Export Orders 49.8
Inventory Change 47.0 Inventories 42.3
Inventory Sentiment 61.0    
Imports 48.0 Imports 49.4
Prices 47.0 Prices 32.5
Employment 49.5 Employment 44.8
Supplier Deliveries 54.5 Supplier Deliveries 50.9

* 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 rose to 54.0 percent in January from 49.5 percent in December. This indicates an increase in business activity in the non-manufacturing sector in January 1999 compared to December 1998. Respondent comments in January were mixed but, on balance, indicating increased business activity. Many purchasers' comments indicated that the lessened activity in December was due to seasonal factors.

Respondents reporting better business in January numbered 29 percent compared to the 22 percent who said things were better in December. The industries reporting the highest rates of growth of business activity in January were: Utilities; Health Services; Public Administration; Insurance; Business Services; and Communication.

Business
Activity
% Higher % Same % Lower Index
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
September 1998 32 54 14 59.0
August 1998 24 56 20 52.0
July 1998 33 49 18 57.5
June 1998 37 49 14 61.5
May 1998 40 48 12 64.0
April 1998 38 50 12 63.0
March 1998 31 57 12 59.5
February 1998 34 49 17 58.5

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased in January compared to December. NAPM's Non-Manufacturing New Orders Index for January was 53.5 percent compared to December's 48.5 percent. Comments from respondents included: "Capital funds available," "Busy season," "Received new contracts," and "New year, new budget."

The industries reporting the highest rates of growth of new orders in January were: Agriculture; Utilities; Health Services; Public Administration; Business Services; and Communication.

New Orders % Higher % Same % Lower Index
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
September 30 54 16 57.0
August 1998 29 53 18 55.5
July 1998 29 52 19 55.0
June 1998 33 52 15 59.0
May 1998 38 51 11 63.5
April 1998 38 47 15 61.5
March 1998 28 59 13 57.5
February 1998 31 56 13 59.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated 49.0 percent in January, an increase from December's 47.0 percent and the fourth consecutive month of reduced order backlogs. Purchasing executives' comments on this month's backlog of orders report included: "Working off backlog," "New requests slowed, allowing backlog to clear," "Lack of capital spending," and "Received new contracts." Of the total respondents in January, 26.2 percent indicated they do not measure backlog of orders.

The five industries reporting growth of backlog of orders in January were: Agriculture; Communication; *Other Services; Public Administration; and Wholesale Trade.

Backlog
of Orders
% Higher % Same % Lower Index
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
September 1998 19 70 11 54.0
August 1998 24 65 11 56.5
July 1998 21 62 17 52.0
June 1998 17 66 17 50.0
May 1998 22 62 16 53.0
April 1998 15 72 13 51.0
March 1998 15 73 12 51.5
February 1998 14 75 11 51.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower in January than in December. NAPM's Non-Manufacturing Supplier Deliveries Index for January was 54.5 percent compared to December's 53.0 percent. Comments from purchasing executives included: "Suppliers are backordered," "Catching up from holiday effects," and "Some weather problems."

The industries that reported the highest rates of slower supplier deliveries in January were: Retail Trade; Agriculture; Transportation; Wholesale Trade; Entertainment; and Construction.

Supplier
Deliveries
% Higher % Same % Lower Index
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
September 1998 5 84 11 53.0
August 1998 6 80 14 54.0
July 1998 5 81 14 54.5
June 1998 5 83 12 53.5
May 1998 8 83 9 50.5
April 1998 5 86 9 52.0
March 1998 4 87 9 52.5
February 1998 3 90 7 52.0

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 decreased for the fourth consecutive month in January, and at a faster rate of decrease than reported in December. NAPM's Non-Manufacturing New Export Orders Index was 46.5 percent in January compared to 49.0 percent in December. Of the total respondents in January, 79.1 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The three industries with growth of new export orders in January were: Retail Trade; Business Services; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
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
September 1998 12 84 4 54.0
August 1998 19 70 11 54.0
July 1998 16 71 13 51.5
June 1998 23 64 13 55.0
May 1998 20 57 23 48.5
April 1998 27 59 14 56.5
March 1998 24 69 7 58.5
February 1998 19 65 16 51.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased for the fourth consecutive month in January and at the same rate of decrease as in December. NAPM's Non-Manufacturing Imports Index for both January and December was 48.0 percent. In January, 73.2 percent of respondents reported that they do not use or do not track use of imported materials.

The only industry that indicated increased use of imports in January was Agriculture.

Imports % Higher % Same % Lower Index
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
September 1998 16 77 7 54.5
August 1998 16 78 6 55.0
July 1998 13 79 8 52.5
June 1998 21 70 9 56.0
May 199 18 72 10 54.0
April 1998 13 80 7 53.0
March 1998 14 78 8 53.0
February 1998 14 76 10 52.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in January. NAPM's Non-Manufacturing Inventories Index registered 47.0 percent in January, compared to 50.5 percent in December. The only incidence of an Inventory Change Index lower than January's 47.0 percent since the beginning of NAPM's non-manufacturing business survey, was 46.5 percent in October 1997. Of the total respondents in January, 25.2 percent indicated they do not have inventories. Comments from respondents included: "Inventories reflect lower activity level," "Inventory reductions at year end," "Company policy to lower inventory," and "Inventory reduction efforts."

The four industries reporting growth of inventories in January were: Insurance; Health Services; Public Administration; and Wholesale Trade. The industries reporting the highest rates of inventory decrease in January were: Communication; Real Estate; Retail Trade; Entertainment; Business Services; and Construction.

Inventory
Change
% Higher % Same % Lower Index
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
September 1998 21 59 20 50.5
August 1998 19 58 23 48.0
July 1998 21 54 25 48.0
June 1998 20 59 21 49.5
May 1998 21 58 21 50.0
April 1998 27 51 22 52.5
March 1998 23 59 18 52.5
February 1998 21 59 20 50.5

Non-Manufacturing Inventory Sentiment

The January NAPM Non-Manufacturing Inventory Sentiment Index of 61.0 percent reflects a decrease of 3.5 percentage points from the December reading of 64.5 percent. The lower January index of inventory sentiment indicates that non-manufacturing purchasing executives felt less uncomfortable with current levels of inventory and shared the "too high" sentiment to a lesser extent in January than in December. In January, 29 percent of members felt their inventories were too high (36 percent in December). Also in January, seven percent indicated their inventories were too low, (compared to seven percent also in December), and 64 percent said that their inventories were about right (57 percent in December).

The industries that reported the highest rates of feeling that their inventories were "too high" in January were: Mining; Wholesale Trade; Communication; Entertainment; Finance and Banking; Health Services; and Utilities.

Inventory
Sentiment
% Higher % Same % Lower Index
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
September 1998 36 58 6 65.0
August 1998 34 57 9 62.5
July 1998 30 61 9 60.5
June 1998 40 58 2 69.0
May 1998 34 59 7 63.5
April 1998 38 57 5 66.5
March 1998 31 66 3 64.0
February 1998 26 67 7 59.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services decreased at a slower rate in January than in December. NAPM's Non-Manufacturing Price Index increased to 47.0 percent in January, compared to 45.5 percent in December. January marks the eleventh month of either a decrease or no change in prices paid by non-manufacturing industries after eight consecutive months of price increases.

The four industries reporting higher prices paid in January were: Mining; Retail Trade; Business Services; and Health Services.

Prices % Higher % Same % Lower Index
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
September 1998 5 79 16 44.5
August 1998 10 78 12 49.0
July 1998 9 76 15 47.0
June 1998 9 74 17 46.0
May 1998 10 76 14 48.0
April 1998 10 80 10 50.0
March 1998 10 78 12 49.0
February 1998 15 75 10 52.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector decreased in January for only the second time since the inception of the NAPM non-manufacturing business survey in July 1997. NAPM's Non-Manufacturing Employment Index for January was 49.5 percent, the same as for December. Comments from purchasers included: "Losing programmers to Y2K projects, cannot find qualified replacements," "Outsourcing — reduced in-house personnel," and "Added employees for new branches opened."

The industries reporting the highest rates of growth of employment in January were: Agriculture; Transportation; Business Services; Health Services; Communication; and Finance and Banking. The industries reporting the highest rates of employment decrease in January were: Insurance; Entertainment; Wholesale Trade; and Real Estate.

Employment % Higher % Same % Lower Index
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
September 1998 16 72 12 52.0
August 1998 15 74 11 52.0
July 1998 24 62 14 55.0
June 1998 22 65 13 54.5
May 1998 21 66 13 54.0
April 1998 18 70 12 53.0
March 1998 21 68 11 55.0
February 1998 20 64 16 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.



January 1999 Non-Manufacturing Report Continued ...