December 1998 Non-Manufacturing Report On Business®

FOR RELEASE: January 6, 1999

CONTACT: Zenobia Daruwalla
  NAPM Media Relations
  602/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS DECREASES SLIGHTLY IN DECEMBER 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 December 1998.

Business Activity Index at 49.5%
New Orders and Employment Decrease
Backlog of Orders Decreases for Third Month

(Tempe, Arizona) — Business in the non-manufacturing sector contracted slightly in December 1998 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 December, NAPM's Non-Manufacturing Business Activity Index registered reduced activity compared to November, indicating a slight weakness in the non-manufacturing sector," Kauffman said. "New Orders and Employment also contracted in December, Backlog of Orders decreased, and Supplier Deliveries were slower than in November. Inventories of non-manufacturing firms grew at a slow rate, and New Export Orders and use of Imports decreased for the third consecutive month. Prices paid by non-manufacturing organizations for materials and services decreased at a slower rate in December, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling more uncomfortable with the current level of inventories in December," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index indicated reduced business activity by dropping below 50.0 percent for the first time since the inception of the survey in July 1997. The index for December was 49.5 percent compared to November's 53.0 percent. Comments from purchasing executives are mixed, but on balance negative on business activity in December. Increased business activity in December was reported by 22 percent of purchasers compared to 26 percent who reported increased business in November. Also in December, of the industry groups reporting in the NAPM non-manufacturing survey, six indicated increased activity, nine indicated decreased activity, and one reported no change in activity level. In November, nine industry groups reported increased activity, six indicated decreased activity, and two advised no change," said Kauffman. Other significant indicators in December include decreased new orders, decreased employment, and decreased order backlogs. NAPM's New Orders and Employment indexes both indicated decreases by dropping below 50.0 percent for the first time since the inception of NAPM's non-manufacturing survey. Backlog of Orders registered its third consecutive monthly decrease in December.

These indications collectively project a non-manufacturing sector that is contracting slightly but many members indicate that the December slowdown is due to seasonal factors. Incorporating the December Business Activity Index results in an average non-manufacturing Business Activity Index for the year of 57.3 percent.

"Overall in December, non-manufacturing industries' reported decreased business activity and reduced employment while experiencing lower levels of new orders. Concerns of purchasing executives in non-manufacturing industries in December include high inventory levels relative to current demand and a slowdown in business activity," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series December
Indexes
November
Indexes
Dec. vs. Nov.
Index Change
Direction and
Rate of Change
Business Activity 49.5 53.0 -3.5 Decrease from Increase
New Orders 48.5 52.5 -4.0 Decrease from Increase
Backlog of Orders 47.0 46.5 +0.5 Decreasing Slower
New Export Orders 49.0 45.0 +4.0 Decreasing Slower
Inventory Change 50.5 50.0 +0.5 Increase from Unchanged
Inventory Sentiment 64.5 63.0 +1.5 Greater feeling of "too high"
Imports 48.0 49.5 -1.5 Decreasing Faster
Prices 45.5 45.0 +0.5 Decreasing Slower
Employment 49.5 52.5 -3.0 Decrease from Increase
Supplier Deliveries 53.0 50.0 +3.0 Slower from Unchanged

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and Production in manufacturing industries both decreased in December with a faster rate of decrease in manufacturing Production. New orders and backlog of orders also declined in both non-manufacturing and manufacturing, both with faster rates of decline in manufacturing. Prices declined in both areas of economic activity in December with the manufacturing sector reporting a more rapid rate of decrease. Inventories increased slightly in non-manufacturing industries, while decreasing at a faster rate in manufacturing. New export orders decreased in both sectors in December, with manufacturing experiencing a more rapid rate of decrease. Supplier delivery performance in December was reported to be slower than in November by non-manufacturers but faster by manufacturers. 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 49.5 Production 46.5
New Orders 48.5 New Orders 46.0
Backlog of Orders 47.0 Backlog of Orders 37.0
New Export Orders 49.0 New Export Orders 45.5
Inventory Change 50.5 Inventories 41.8
Inventory Sentiment 64.5    
Imports 48.0 Imports 49.8
Prices 45.5 Prices 31.3
Employment 49.5 Employment 40.8
Supplier Deliveries 53.0 Supplier Deliveries 48.5

* 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 declined to 49.5 percent in December from 53.0 percent in November. This indicates a decrease in business activity in the non-manufacturing sector in December compared to November 1998, and is the first decrease reported for business activity since the inception of the NAPM non-manufacturing business survey in July 1997. Respondent comments in December were mixed but, on balance, indicating reduced business activity. Many purchasers' comments indicated that the lessened activity in December was due to seasonal factors.

Respondents reporting better business in December numbered 22 percent compared to the 26 percent who said things were better in November. The six industries reporting growth of business activity in December were: Agriculture; Insurance; Retail Trade; Utilities; Real Estate; and Entertainment. Those reporting the highest rates of decrease in business activity in December were: Mining; Communication; Wholesale Trade; and Business Services.

Business
Activity
% Higher % Same % Lower Index
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
January 1998 31 52 17 57.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index decreased in December compared to November. This is the first decrease in New Orders reported since the inception of NAPM's non-manufacturing business survey in July 1997. NAPM's Non-Manufacturing New Orders Index for December was 48.5 percent compared to November's 52.5 percent. Comments from respondents included: "Anticipated sales not occurring," "Seasonal reductions," "Year-end slowdown," and "Capital purchases are down."

The seven industries reporting growth of new orders in December were: Retail Trade; Insurance; Real Estate; Utilities; Health Services; Public Administration; and Business Services. The industries reporting the highest rates of decrease of new orders in December were: Communication; Construction; Entertainment; Wholesale Trade; Mining; and Transportation.

New Orders % Higher % Same % Lower Index
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
January 1998 28 51 21 53.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated 47.0 percent in December, an increase from November's 46.5 percent and the third consecutive month of reduced order backlogs. Purchasing executives' comments on this month's backlog of orders report included: "Slower year-end," "Suppliers are filling backorders faster," "Backordering less," "Awaiting new capital budgets." Of the total respondents in December, 25.5 percent indicated they do not measure backlog of orders.

The three industries reporting growth of backlog of orders in December were: Insurance; Health Services; and Construction.

Backlog
of Orders
% Higher % Same % Lower Index
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
January 1998 15 68 17 49.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower in December than in November. NAPM's Non-Manufacturing Supplier Deliveries Index for December was 53.0 percent compared to November's 50.0 percent. Comments from respondents included: "Everything is urgent," "Suppliers maintaining less inventory", "December always slow," and "Backlog on some orders."

The industries that reported the highest rates of slower supplier deliveries in December were: Agriculture; Entertainment; Wholesale Trade; Utilities; Transportation; and Health Services.

Supplier
Deliveries
% Higher % Same % Lower Index
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
January 1998 4 84 12 54.0

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 third consecutive month in December, but at a slower rate of decrease than reported in November. NAPM's Non-Manufacturing New Export Orders Index was 49.0 percent in December compared to 45.0 percent in November. Of the total respondents in December, 77.6 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The only two industries with growth of new export orders in December were: Retail Trade; and Business Services.

New Export
Orders
% Higher % Same % Lower Index
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
January 1998 18 68 14 52.0

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries decreased for the third consecutive month in December, and at a faster rate of decrease than in November. NAPM's Non-Manufacturing Imports Index for December was 48.0 percent, compared to 49.5 percent in November. In December, 70.3 percent of respondents reported that they do not use or do not track use of imported materials.

The three industries that indicated increased use of imports in December were: Health Services; Entertainment; and Transportation.

Imports % Higher % Same % Lower Index
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
January 1998 10 73 17 46.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased slightly in December. NAPM's Non-Manufacturing Inventories Index registered 50.5 percent in December, compared to 50.0 percent in November. Of the total respondents in December, 25.8 percent indicated they do not have inventories. Comments from respondents included: "Building inventory for busy season," "Purchasing materials for new construction," "Anticipated higher demand," and "Working inventory down to level of business."

The industries reporting the highest rates of growth of inventories in December were: Insurance; Agriculture; Entertainment; Real Estate; Business Services; and Retail Trade.

Inventory
Change
% Higher % Same % Lower Index
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
January 1998 23 51 26 48.5

Non-Manufacturing Inventory Sentiment

The December NAPM Non-Manufacturing Inventory Sentiment Index of 64.5 percent reflects an increase of 1.5 percentage points from the November reading of 63.0 percent. The higher December index of inventory sentiment indicates that non-manufacturing purchasing executives felt more uncomfortable with current levels of inventory and shared the "too high" sentiment to a greater extent in December than in November. In December, 36 percent of members felt their inventories were too high (30 percent in November). Also in December, seven percent indicated their inventories were too low, (compared to four percent in November), and 57 percent said that their inventories were about right (66 percent in November).

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

Inventory
Sentiment
% Higher % Same % Lower Index
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
January 1998 26 71 3 61.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services decreased at a slightly slower rate in December than in November. NAPM's Non-Manufacturing Price Index increased to 45.5 percent in December, compared to 45.0 percent in November. December marks the tenth 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 December were: Retail Trade; Health Services; *Other Services; and Business Services.

Prices % Higher % Same % Lower Index
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
January 1998 15 75 10 52.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector decreased in December for the first time since the inception of the NAPM non-manufacturing business survey in July 1997. NAPM's Non-Manufacturing Employment Index for December was 49.5 percent compared to the November reading of 52.5 percent. Comments from respondents included: "Lower seasonal activity," "Continued reduction in force," "Retirements and resignations," and "Increased employment due to merger, for now."

The five industries reporting growth of employment in December were: Agriculture; Retail Trade; Finance and Banking; Public Administration; and *Other Services. The industries reporting the highest rates of employment decrease in December were: Business Services; Insurance; Utilities; Mining; Entertainment; and Communication.

Employment % Higher % Same % Lower Index
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
January 1998 18 70 12 53.0

*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

Labor (Personnel in general) — 3rd month; Laptop computers — 2nd month.

Commodities Reported Up in Price

None.

Commodities Reported Down in Price

Computers — 8th month; Diesel Fuel; Fittings — 3rd month; Fuel — 5th month; Gasoline; Paper — 5th month; PCs — 12th month; Printers. Steel pipe — 4th month.


December 1998 Non-Manufacturing Release Continued ...

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