May 1999 Non-Manufacturing Report On Business®

FOR RELEASE: June 3, 1999

Contact: Zenobia Daruwalla
  NAPM Media Relations
  602/752-6276 ext. 3015
Non-Manufacturing Business Activity Continues Strong in May 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 May 1999.

Business Activity Index at 60.0%
New Orders, Backlog of Orders, Employment, and Prices Increase

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

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity, but at a slower rate of increase, by dropping from 64.0 percent in April to 60.0 percent in May. Comments from purchasing executives are heavily positive on business activity in May. Increased business activity in May was reported by 30 percent of purchasers compared to 38 percent who reported increased business in April. Of the industry groups reporting in the May NAPM non-manufacturing survey, thirteen indicated increased activity, one indicated decreased activity, and three reported no change in activity level. In April, fifteen industry groups reported increased activity, one indicated decreased activity, and none advised no change," said Kauffman.

Other significant indicators in May include backlog of orders, new orders, and inventories. NAPM's Backlog of Orders Index indicated a slower rate of increase for the second consecutive month in May. NAPM's New Orders Index dropped in May, indicating a slower rate of increase than in April. NAPM's Inventories Index indicated increased inventories in May for the first time in five months. These indications collectively project a non-manufacturing sector that is growing at a slower rate of growth than in May 1998 and faster than the average for all of 1998. NAPM's Non-Manufacturing Business Activity Index for May 1999 is 60.0 percent compared to 64.0 percent for May 1998 and 57.3 percent for the average for all of 1998.

"Overall in May, non-manufacturing industries are continuing their long-term growth trend. Weaker growth of new orders and order backlogs may portend a slower rate of growth in the near term 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 May
Indexes
April
Indexes
May vs. April
Index Change
Direction and
Rate of Change
Business Activity 60.0 64.0 -4.0 Increasing Slower
New Orders 59.5 62.5 -3.0 Increasing Slower
Backlog of Orders 50.5 51.0 -0.5 Increasing Slower
New Export Orders 58.5 56.5 +2.0 Increasing Faster
Inventory Change 51.5 48.5 +3.0 Increase from Decrease
Inventory Sentiment 61.0 63.0 -2.0 Lesser feeling of "too high"
Imports 55.5 53.5 +2.0 Increasing Faster
Prices 54.0 55.5 -1.5 Increasing Slower
Employment 54.0 53.5 +0.5 Increasing Faster
Supplier Deliveries 54.0 51.5 +2.5 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 May 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 sectors with a faster rate of increase in manufacturing. Prices increased in May for both areas but increased faster for non-manufacturing. Inventories decreased in manufacturing but increased in non-manufacturing. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in May was reported to be slower than in April by both sectors with non-manufacturing reporting the greater rate of slowness. Use of Imports was up in both sectors in May with a slightly higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey
Questions
Indexes Manufacturing
Survey
Questions
Indexes
Business Activity 60.0 Production 59.2
New Orders 59.5 New Orders 58.9
Backlog of Orders 50.5 Backlog of Orders 55.5
New Export Orders 58.5 New Export Orders 52.4
Inventory Change 51.5 Inventories 42.2
Inventory Sentiment 61.0    
Imports 55.5 Imports 54.6
Prices 54.0 Prices 52.2
Employment 54.0 Employment 53.5
Supplier Deliveries 54.0 Supplier Deliveries 51.9

* 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 dropped to 60.0 percent in May from 64.0 percent in April. Respondent comments in May were heavily positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in May numbered 30 percent compared to the 38 percent who said things were better in April, and only 10 percent indicated worse business in May, the same proportion as in April. The industries reporting the highest rates of growth of business activity in May were: Retail Trade; Public Administration; Transportation; Agriculture; and Business Services.

Business
Activity
% Higher % Same % Lower Index
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 decreased in May reversing a four-month up-trend, but still indicating an increase in new orders. NAPM's Non-Manufacturing New Orders Index for May was 59.5 percent compared to April's 62.5 percent. Comments from respondents included: "Increasing activity in construction," "Seasonal activity," "More business," and "Continued positive sales trends."

The industries reporting the highest rates of growth of new orders in May were: Transportation; Public Administration; Retail Trade; Agriculture; and Business Services.

New
Orders
% Higher % Same % Lower Index
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 indicated 50.5 percent in May, a decrease from April's 51.0 percent, but continuing increases in order backlogs for a fourth consecutive month after four months of reductions. Purchasing executives' comments on the backlog of orders report included: "Service level up to 97.6%," "Outages drawing to a close," "Back orders and out of stocks are increasing," and "Not as much constrained material." Of the total respondents in May, 27.4 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in May were: Legal Services; Agriculture; Transportation; Entertainment; Public Administration; and Finance and Banking.

Backlog
of Orders
% Higher % Same % Lower Index
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 somewhat slower in May, and at a higher rate of slowness, than in April. NAPM's Non-Manufacturing Supplier Deliveries Index for May was 54.0 percent compared to April's 51.5 percent. Comments from purchasing executives included: "Spot deliveries in rail," "Increased sales lowering supplier inventories," and "Paper deliveries behind schedule."

The industries that reported slower supplier deliveries in May were: Communication; Wholesale Trade; Retail Trade; Agriculture; Entertainment; Utilities; *Other Services; and Finance and Banking.

Supplier
Deliveries
% Higher % Same % Lower Index
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 third consecutive month in May. NAPM's Non-Manufacturing New Export Orders Index was 58.5 percent in May compared to 56.5 percent in April. Of the total respondents in May, 76.9 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 May were: Business Services; Real Estate; Mining; Wholesale Trade; and Retail Trade.

New Export
Orders
% Higher % Same % Lower Index
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 May for the fourth time after four months of decreases. NAPM's Non-Manufacturing Imports Index for May was 55.5 percent compared to 53.5 percent in April. In May, 71.6 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 May were: Wholesale Trade; Utilities; Retail Trade; Construction; and Transportation.

Imports % Higher % Same % Lower Index
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 increased in May after four consecutive months of decreases. NAPM's Non-Manufacturing Inventories Index registered 51.5 percent in May, compared to 48.5 percent in April. Of the total respondents in May, 20.4 percent indicated they do not have inventories. Comments from member purchasers included: "Building for future," "Ramping up for higher activity levels," "Increase in business," and "Programs to reduce inventory."

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

Inventory
Change
% Higher % Same % Lower Index
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 May NAPM Non-Manufacturing Inventory Sentiment Index of 61.0 percent reflects a decrease from the April reading of 63.0 percent. The lower May index of inventory sentiment indicates that non-manufacturing purchasing executives felt slightly less uncomfortable with current levels of inventory and shared the "too high" sentiment to a slightly lesser extent in May than in April. In May, 30 percent of members felt their inventories were too high (compared to 32 percent in April). Also in May, 8 percent indicated their inventories were too low (6 percent in April), and 62 percent said that their inventories were about right, the same as in April.

The industries that reported the highest rates of feeling that their inventories were "too high" in May were: Communication; Transportation; Wholesale Trade; Utilities; Business Services; and Finance and Banking.

Inventory
Sentiment
% Higher % Same % Lower Index
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 May for the third consecutive month although at a slower rate of increase than in April. NAPM's Non-Manufacturing Price Index decreased to 54.0 percent in May, from 55.5 percent in April. May is the third 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 May were: Wholesale Trade; Communication; Mining; *Other Services; and Business Services.

Prices % Higher % Same % Lower Index
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 third consecutive monthly increase in May after indicating a low rate of decrease for the preceding three months. NAPM's Non-Manufacturing Employment Index for May was 54.0 percent compared to 53.5 percent for April. Comments from purchasers included: "Higher employment to support sales," "More business, expansion," "Expect new business," and "Temporary freeze on employment."

The industries reporting the highest rates of growth of employment in May were: Legal Services; Public Administration; Utilities; Business Services; and Construction.

Employment % Higher % Same % Lower Index
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

Contract Labor; Gypsum Board (drywall) — 3rd month; Labor; Laptop Computers — 4th month; Pharmaceuticals; Polybags.

Commodities Reported Up in Price

Copper; Corrugated Containers — 3rd month; Diesel Fuel — 3rd month; Gypsum Board (drywall); Fuel — 3rd month; Fuel Oil — 2nd month; Gasoline — 3rd month; Paper — 2nd month (also reports of price decreases); Polyethylene.

Commodities Reported Down in Price

Computers — 13th month; Furniture; PCs — 17th month; Stainless Steel; Textiles — 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 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 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 June 1999 data will be released at 10:00 a.m. (EDT) on July 6, 1999.