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February 1999 Non-Manufacturing Report On Business®

FOR RELEASE: March 3, 1999

Contact: Zenobia Daruwalla
  NAPM Media Relations
  602/752-6276 ext. 3015
Non-Manufacturing Business Activity Growth is Stronger in February 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 February 1999.

Business Activity Index at 57.0%

New Orders, Backlog of Orders, Imports Increase and Prices Decrease

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

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity by rising from 54.0 percent in January to 57.0 percent in February. Comments from purchasing executives are heavily positive on business activity in February. Increased business activity in February was reported by 27 percent of purchasers compared to 29 percent who reported increased business in January. However, of the industry groups reporting in the NAPM non-manufacturing survey, in February twelve indicated increased activity, three indicated decreased activity, and two reported no change in activity level. In January, nine industry groups reported increased activity, six indicated decreased activity, and one advised no change," said Kauffman.

Other significant indicators in February include new orders, backlog of orders, and imports. NAPM's New Orders Index indicated a faster rate of increase for new orders in February and the highest rate of increase of new orders since September 1998. NAPM's Backlog of Orders Index indicated increased order backlogs for the first time since September 1998. NAPM's Imports Index indicated increased use of imports by non-manufacturers, also the first increase since September 1998. One member reported increased imports of champagne in anticipation of celebrations for the new millennium. These indications collectively project a non-manufacturing sector that is growing at almost the same rate of growth as the average for 1998 — NAPM's Non-Manufacturing Business Activity Index for February is 57.0 percent compared to the 57.3 percent average for the same index for all of 1998.

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

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series February
Indexes
January
Indexes
Feb. vs. Jan.
Index Change
Direction and
Rate of Change
Business Activity 57.0 54.0 +3.0 Increasing Faster
New Orders 56.5 53.5 +3.0 Increasing Faster
Backlog of Orders 51.5 49.0 +2.5 Increase from Decrease
New Export Orders 47.5 46.5 +1.0 Decreasing Slower
Inventory Change 49.5 47.0 +2.5 Decreasing Slower
Inventory Sentiment 60.5 61.0 -0.5 Lesser feeling of "too high"
Imports 51.5 48.0 +3.5 Increase from Decrease
Prices 46.5 47.0 -0.5 Decreasing Faster
Employment 49.5 49.5 0.0 Decreasing at same rate
Supplier Deliveries 51.5 54.5 -3.0 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 February with a slightly 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 manufacturing. Backlog of orders increased for non-manufacturing and continued to decrease for manufacturing. Prices declined in both areas of economic activity in February 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 decreased in the non-manufacturing sector in February, while manufacturing experienced an increase in new export orders. Supplier delivery performance in February was reported to be slower than in January by both sectors but with a greater rate of slowness in non-manufacturing. Use of Imports was up in both sectors in February.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 57.0 Production 56.9
New Orders 56.5 New Orders 57.2
Backlog of Orders 51.5 Backlog of Orders 48.5
New Export Orders 47.5 New Export Orders 54.0
Inventory Change 49.5 Inventories 44.2
Inventory Sentiment 60.5    
Imports 51.5 Imports 52.3
Prices 46.5 Prices 35.9
Employment 49.5 Employment 45.0
Supplier Deliveries 51.5 Supplier Deliveries 50.6

* 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 57.0 percent in February from 54.0 percent in January. This indicates a faster rate of increase in business activity in the non-manufacturing sector in February 1999 than in January 1999. Respondent comments in February were heavily positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in February numbered 27 percent compared to the 29 percent who said things were better in January, but only 13 percent indicated worse business in February compared to 21 percent who said things were worse in January. The industries reporting the highest rates of growth of business activity in February were: Legal Services; Health Services; Retail Trade; Transportation; Utilities; and Communication.

Business
Activity
% Higher % Same % Lower Index
February 1999 27 60 13 57.0
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

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased in February compared to January. NAPM's Non-Manufacturing New Orders Index for February was 56.5 percent compared to January's 53.5 percent. Comments from respondents included: "New projects," "New budget dollars," "Warm weather," and "Few adverse weather conditions."

The industries reporting the highest rates of growth of new orders in February were: Legal Services; Communication; Finance and Banking; Insurance; Retail Trade; Health Services; and Utilities.

New Orders % Higher % Same % Lower Index
February 1999 25 63 12 56.5
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 1998 30 54 16 57.0

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated 51.5 percent in February, an increase from January's 49.0 percent and a reversal of direction after four consecutive months of reduced order backlogs. Purchasing executives' comments on backlog of orders report included: "More project awards," "Commercial installations increasing," "Height of busy season," and "Supplier delivery problems." Of the total respondents in February, 26.0 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in February were: Legal Services; Finance and Banking; Agriculture; Construction; and Retail Trade.

Backlog
of Orders
% Higher % Same % Lower Index
February 1999 14 75 11 51.5
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

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was somewhat slower in February, but at a lesser rate of slowness, than in January. NAPM's Non-Manufacturing Supplier Deliveries Index for February was 51.5 percent compared to January's 54.5 percent. Comments from purchasing executives included: "Shorter lead times," "Railroad delays," and "Manufacturers slow."

The industries that reported the highest rates of slower supplier deliveries in February were: Legal Services; Agriculture; Wholesale Trade; Public Administration; and Retail Trade.

Supplier
Deliveries
% Higher % Same % Lower Index
February 1999 5 87 8 51.5
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

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 fifth consecutive month in February, but at a slower rate of decrease than reported in January. NAPM's Non-Manufacturing New Export Orders Index was 47.5 percent in February compared to 46.5 percent in January. Of the total respondents in February, 74.9 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 February were: Mining; Business Services; and Transportation. The industries reporting the highest rates of decrease in new export orders in February were: Entertainment; Utilities; *Other Services; Retail Trade; and Construction.

New Export
Orders
% Higher % Same % Lower Index
February 1999 10 75 15 47.5
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

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in February after four consecutive months of decreases. NAPM's Non-Manufacturing Imports Index for February was 51.5 percent compared to 48.0 percent in January. In February, 69.6 percent of respondents reported that they do not use or do not track use of imported materials.

The four industries that indicated increased use of imports in February were: Public Administration; Transportation; Retail Trade; and Wholesale Trade.

Imports % Higher % Same % Lower Index
February 1999 11 81 8 51.5
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

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in February for the second consecutive month. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in February, compared to 47.0 percent in January. Of the total respondents in February, 23.9 percent indicated they do not have inventories. Comments from member purchasers included: "Reduction of excess inventory," "Inventory reduction program in place," "Deletion of non-moving products," and "Moving closer to JIT."

The industries reporting the highest rates of growth of inventories in February were: Business Services; Transportation; Health Services; Agriculture; and Real Estate. The industries reporting inventory decreases in February were: Mining; Communication; Construction; Wholesale Trade; and *Other Services.

Inventory
Change
% Higher % Same % Lower Index
February 1999 23 53 24 49.5
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

Non-Manufacturing Inventory Sentiment

The February NAPM Non-Manufacturing Inventory Sentiment Index of 60.5 percent reflects a decrease of 0.5 percentage points from the January reading of 61.0 percent. The lower February 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 February than in January. In February, 29 percent of members felt their inventories were too high (same as in January). Also in February, eight percent indicated their inventories were too low, (seven percent in January), and 63 percent said that their inventories were about right (64 percent in January).

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

Inventory
Sentiment
% Higher % Same % Lower Index
February 1999 29 63 8 60.5
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

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services decreased at a slightly faster rate in February than in January. NAPM's Non-Manufacturing Price Index decreased to 46.5 percent in February, compared to 47.0 percent in January. February marks the twelfth month of either a decrease or no change in prices paid by non-manufacturing industries after eight consecutive months of price increases.

The two industries reporting higher prices paid in February were: Transportation; and Entertainment. The industries reporting the highest rates of reductions in prices paid in February were: Mining; Agriculture; Construction; Health Services; and Retail Trade.

Prices % Higher % Same % Lower Index
February 1999 8 77 15 46.5
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

Non-Manufacturing Employment

Employment in the non-manufacturing sector indicated a low rate of decrease again in February. NAPM's Non-Manufacturing Employment Index for February was 49.5 percent, the same as for January. Comments from purchasers included: "1999 budgets cut," "Business cutbacks," "Hiring freeze in place," and "Adding due to company growth."

The industries reporting the highest rates of growth of employment in February were: Legal Services; Insurance; Agriculture; Retail Trade; and Public Administration. The industries reporting the highest rates of employment decrease in February were: Entertainment; Real Estate; Business Services; Wholesale Trade; and Utilities.

Employment % Higher % Same % Lower Index
February 1999 11 77 12 49.5
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

*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 Personnel (Programmers, Programming Services, Consultants); Laptop Computers; Toner.

Commodities Reported Up in Price

Pine Lumber.

Commodities Reported Down in Price

Butter; Cheese; Computers — 10th month; Corrugated; Diesel Fuel; Fuel — 7th month; Gasoline — 3rd month(some reports of increased prices for fuel oil and gasoline); Paper — 7th month; PCs — 14th month; Pork; Soybean Meal; Soybean Oil; Stainless Steel — 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 180 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. (EST).

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



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