April 1999 Non-Manufacturing Report On Business®

FOR RELEASE: May 5, 1999

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

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 April 1999.

Non-Manufacturing Business Activity Growth is Stronger in April Say Purchasing Executives in Latest Non-Manufacturing NAPM Report On Business®

Business Activity Index at 64.0%

New Orders, Backlog of Orders, Employment, and Prices Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in April 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 April, NAPM's Non-Manufacturing Business Activity Index indicated increased activity compared to March, continuing a long-term growth trend," Kauffman said. "New Orders, Backlog of Orders, and use of Imports also increased in April, while Supplier Deliveries were slower. Inventories of non-manufacturing firms shrank, 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 more uncomfortable with the current level of inventories in April," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity by rising from 62.5 percent in March to 64.0 percent in April. Comments from purchasing executives are heavily positive on business activity in April. Increased business activity in April was reported by 38 percent of purchasers compared to 35 percent who reported increased business in March. Of the industry groups reporting in the April NAPM non-manufacturing survey, fifteen indicated increased activity, one indicated decreased activity, and none reported no change in activity level. In March, fifteen industry groups reported increased activity, none indicated decreased activity, and one advised no change," said Kauffman.

Other significant indicators in April include backlog of orders, new orders, and prices. NAPM's Backlog of Orders Index indicated a slower rate of increase in April following a faster rate of increase in March. NAPM's New Orders Index recorded an increase over in April, indicating a faster rate of increase than in March. NAPM's Prices Index indicated increased prices for purchased items for the second consecutive month and only the second time since February 1998. These indications collectively project a non-manufacturing sector that is growing at a slightly faster rate of growth than in April 1998 and faster than the average for all of 1998. NAPM's Non-Manufacturing Business Activity Index for April 1999 is 64.0 percent compared to 63.0 percent for April 1998 and 57.3 percent for the average for all of 1998.

"Overall in April, non-manufacturing industries are continuing their long-term growth trend. Weaker growth of 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 are areas of concern," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series April Indexes March Indexes April vs. March
Index Change
Direction and Rate
of Change
Business Activity 64.0 62.5 +1.5 Increasing Faster
New Orders 62.5 60.5 +2.0 Increasing Faster
Backlog of Orders 51.0 55.5 -4.5 Increasing Slower
New Export Orders 56.5 58.5 -2.0 Increasing Slower
Inventory Change 48.5 47.5 +1.0 Decreasing Slower
Inventory Sentiment 63.0 61.5 +1.5 Greater feeling of "too high"
Imports 53.5 58.5 -5.0 Increasing Slower
Prices 55.5 50.5 +5.0 Increasing Faster
Employment 53.5 52.0 +1.5 Increasing Faster
Supplier Deliveries 51.5 52.5 -1.0 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 April 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 declined for manufacturing in April but increased for non-manufacturing. Inventories decreased in both groups of industries, with a faster rate of decrease in manufacturing. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in April was reported to be slower than in March by non-manufacturing but faster in manufacturing. Use of Imports was up in both sectors in April with a slightly higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 64.0 Production 57.6
New Orders 62.5 New Orders 54.8
Backlog of Orders 51.0 Backlog of Orders 53.0
New Export Orders 56.5 New Export Orders 51.6
Inventory Change 48.5 Inventories 46.6
Inventory Sentiment 63.0    
Imports 53.5 Imports 53.4
Prices 55.5 Prices 49.9
Employment 53.5 Employment 49.5
Supplier Deliveries 51.5 Supplier Deliveries 49.4

* 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 64.0 percent in April from 62.5 percent in March. This is the highest index since 64.0 percent in May 1998. Respondent comments in April were heavily positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in April numbered 38 percent compared to the 35 percent who said things were better in March, and only 10 percent indicated worse business in April, the same proportion as in March. The industries reporting the highest rates of growth of business activity in April were: Public Administration; Communication; Finance and Banking; Business Services; Wholesale Trade; and Retail Trade.

Business Activity % Higher % Same % Lower Index
April 1999 38 52 10 64.0
March 1999 35 55 10 62.5
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

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased in April compared to March, adding a fourth month to its uptrend and reaching the highest level since May 1998. NAPM's Non-Manufacturing New Orders Index for April was 62.5 percent compared to March's 60.5 percent. The previous higher mark in May 1998 was 63.5 percent. Comments from respondents included: "Increased demand," "Seasonal increase," "Business slightly higher," and "Growth."

The industries reporting the highest rates of growth of new orders in April were: Communication; Finance and Banking; Business Services; Retail Trade; Public Administration; and Wholesale Trade.

New Orders % Higher % Same % Lower Index
April 1999 36 53 11 62.5
March 1999 33 55 12 60.5
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

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated 51.0 percent in April, a decrease from March's 55.5 percent, but continuing increases in order backlogs for a third consecutive month after four consecutive months of reductions. Purchasing executives' comments on the backlog of orders report included: "More business," "Higher production," "Increased lead time," and "More work, same staff." Of the total respondents in April, 27.4 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in April were: Insurance; Agriculture; Transportation; Construction; and *Other Services.

Backlog of Orders % Higher % Same % Lower Index
April 1999 17 68 15 51.0
March 1999 22 67 11 55.5
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

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was somewhat slower in April, and at a higher rate of slowness, than in March. NAPM's Non-Manufacturing Supplier Deliveries Index for April was 51.5 percent compared to March's 52.5 percent. Comments from purchasing executives included: "Limited allocation on gypsum board," "Railroad delivery slower than normal," and "Increased lead times from manufacturers and suppliers."

The industries that reported slower supplier deliveries in April were: Agriculture; Wholesale Trade; Entertainment; and Construction.

Supplier Deliveries % Higher % Same % Lower Index
April 1999 3 91 6 51.5
March 1999 5 85 10 52.5
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

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 second consecutive month in April. NAPM's Non-Manufacturing New Export Orders Index was 56.5 percent in April compared to 58.5 percent in March. Of the total respondents in April, 77.1 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 April were: Insurance; Retail Trade; Real Estate; Communication; Business Services; and Transportation.

New Export Orders % Higher % Same % Lower Index
April 1999 24 65 11 56.5
March 1999 22 73 5 58.5
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

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in April for the third time after four months of decreases. NAPM's Non-Manufacturing Imports Index for April was 53.5 percent compared to 58.5 percent in March. In April, 69.8 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 April were: Utilities; Retail Trade; Business Services; Transportation; and Wholesale Trade.

Imports % Higher % Same % Lower Index
April 1999 17 73 10 53.5
March 1999 22 73 5 58.5
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

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in April for the fourth consecutive month. NAPM's Non-Manufacturing Inventories Index registered 48.5 percent in April, compared to 47.5 percent in March. Of the total respondents in April, 22.4 percent indicated they do not have inventories. Comments from member purchasers included: "Inventory reduction program," "Outsourcing inventory," "Using suppliers' inventory and JIT," and "Reducing inventory."

The industries reporting the highest rates of growth of inventories in April were: Transportation; Business Services; Real Estate; and Construction. The industries reporting the highest rates of inventory decrease in April were: Insurance; Mining; Agriculture; Communication; Entertainment; and *Other Services.

Inventory Change % Higher % Same % Lower Index
April 1999 19 59 22 48.5
March 1999 19 57 24 47.5
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

Non-Manufacturing Inventory Sentiment

The April NAPM Non-Manufacturing Inventory Sentiment Index of 63.0 percent reflects an increase from the March reading of 61.5 percent. The higher April index of inventory sentiment indicates that non-manufacturing purchasing executives felt slightly more uncomfortable with current levels of inventory and shared the "too high" sentiment to a slightly greater extent in April than in March. In April, 32 percent of members felt their inventories were too high (compared to 28 percent in March). Also in April, 6 percent indicated their inventories were too low (5 percent in March), and 62 percent said that their inventories were about right (67 percent in March).

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

Inventory Sentiment % Higher % Same % Lower Index
April 1999 32 62 6 63.0
March 1999 28 67 5 61.5
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

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in April for the second consecutive month. NAPM's Non-Manufacturing Price Index increased to 55.5 percent in April, compared to 50.5 percent in March. April is the second 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 April were: Agriculture; Entertainment; Public Administration; Transportation; and Business Services.

Prices % Higher % Same % Lower Index
April 1999 20 71 9 55.5
March 1999 15 71 14 50.5
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

Non-Manufacturing Employment

Employment in the non-manufacturing sector indicated the second consecutive monthly increase in April after indicating a low rate of decrease for the preceding three months. NAPM's Non-Manufacturing Employment Index for April was 53.5 percent compared to 52.0 percent for March. Comments from purchasers included: "Higher turnover," "Growing, adding staff," "Filled open positions," and "Headcount freeze."

The industries reporting the highest rates of growth of employment in April were: Agriculture; Finance and Banking; Insurance; Transportation; and Public Administration.

Employment % Higher % Same % Lower Index
April 1999 18 71 11 53.5
March 1999 17 70 13 52.0
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

*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

Cement; Corrugated Containers; Gypsum Board (drywall) — 2nd month; IT Personnel; Laptop Computers — 3rd month.

Commodities Reported Up in Price

Beef; Computer Memory; Corrugated Containers — 2nd month; Diesel Fuel — 2nd month; Fuel — 2nd month; Fuel Oil; Gasoline — 2nd month; Insulation — 2nd month; Linerboard; Oil; Paper (some reports of price decreases); Petroleum-based Products; Pharmaceuticals; Plastics; Produce; Resins.

Commodities Reported Down in Price

Caustic Soda; Cheese; Computers — 12th month; Copiers; PCs — 16th month; Textiles.

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 on the third business day of every month after 10:10 a.m. (EDT).

The next Non-Manufacturing NAPM Report On Business® featuring the May 1999 data will be released at 10:00 a.m. (EDT) on June 3, 1999.


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