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August 1999 Non-Manufacturing Report On Business®

FOR RELEASE: September 3, 1999

Contact: Zenobia Daruwalla
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTINUES TO GROW IN AUGUST 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 August 1999.

Business Activity Index Steady at 59.5%
New Orders, Export Orders, Inventories, and Prices Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in August 1999 say the nation's purchasing executives in the latest Non-Manufacturing 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 August, NAPM's Non-Manufacturing Business Activity Index indicated increased activity at the same rate of increase as in July, continuing a long-term growth trend," Kauffman said. "New Orders, Export Orders, and Backlog of Orders also increased in August, while Supplier Deliveries were slower than in July. Employment and use of Imports also increased in August but at slower rates of increase than in July. Inventories increased for only the second time in the past eight months. Prices paid by non-manufacturing organizations for materials and services increased, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling a higher level of discomfort with the current level of inventories in August than they did in July," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 59.5 percent in August, the same indication as in July, reflecting continued increase in non-manufacturing economic activity. Comments from purchasing executives are heavily positive on business activity in August. Increased business activity in August was reported by 31 percent of purchasers, the same as in July. Of the industry groups reporting in the August NAPM non-manufacturing survey, thirteen indicated increased activity, three indicated decreased activity, and one reported no change in activity level. July also had thirteen industry groups that reported increased activity, while two indicated decreased activity, and two advised no change," said Kauffman.

In August, there were some scattered reports of shortages of qualified labor from the members of the NAPM Non-Manufacturing Business Survey Committee, but they were not as numerous as in recent months. NAPM's Non-Manufacturing Employment Index, while indicating increased employment in August, dropped by 4.5 percentage points, reflecting slower growth in members' employment than in July. Prices paid by members' firms for purchased materials and services continue to be a concern. In August, the NAPM Non-Manufacturing Price Index reached another highest-since-survey-inception (July 1997) mark of 59.5 percent. A record 24 percent of members indicated higher overall prices paid in August compared to July.

"Overall in August, non-manufacturing industries continued their long-term growth trend. New orders and order backlogs strengthened this month, indicating continued business vigor. Labor problems appear to have subsided somewhat in August but higher purchase prices continue to be a concern for members," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series August
Indexes
July
Indexes
August vs. July
Index Change
Direction and
Rate of Change
Business Activity 59.5 59.5 0.0 Increasing at Same Rate
New Orders 59.5 55.0 +4.5 Increasing Faster
Backlog of Orders 51.5 50.0 +1.5 Increasing from Unchanged
New Export Orders 58.0 57.5 +0.5 Increasing Faster
Inventory Change 52.0 49.5 +2.5 Increasing from Decreasing
Inventory Sentiment 63.0 61.0 +2.0 Increased Feeling of "too high"
Imports 52.5 57.5 -5.0 Increasing Slower
Prices 59.5 57.5 +2.0 Increasing Faster
Employment 52.0 56.5 -4.5 Increasing Slower
Supplier Deliveries 53.5 52.5 +1.0 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 August 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 at a faster rate for manufacturing in August. Non-manufacturing order backlogs also increased in August but at a slower rate than in manufacturing. Prices increased in August for both areas but increased slightly faster for manufacturing. Employment in August increased for both sectors with a higher rate of increase in 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 August was reported to be slow by both sectors with non-manufacturing reporting the greater rate of slowness. Use of Imports was up in both sectors in August with a higher rate of increase in manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 59.5 Production 56.7
New Orders 59.5 New Orders 56.6
Backlog of Orders 51.5 Backlog of Orders 52.5
New Export Orders 58.0 New Export Orders 54.2
Inventory Change 52.0 Inventories 46.6
Inventory Sentiment 63.0    
Imports 52.5 Imports 53.9
Prices 59.5 Prices 59.8
Employment 52.0 Employment 53.4
Supplier Deliveries 53.5 Supplier Deliveries 51.1

* Manufacturing Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing Report On Business® data is not seasonally adjusted.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in August remained at the same value as in July, 59.5 percent. Respondent comments in August were heavily positive, supporting the index's indication of increased business activity at the same rate of increase as in July. The Business Activity Index value for July and August was the lowest since 57.0 percent was reported in February 1999.

Purchasing executives reporting better business in August numbered 31 percent, the same as in July, and 12 percent indicated worse business in August, also the same as in July. The industries reporting the highest rates of growth of business activity in August were: Mining; Transportation; Business Services; Wholesale Trade; Real Estate; and Utilities.

Business Activity % Higher % Same % Lower Index
August 1999 31 57 12 59.5
July 1999 31 57 12 59.5
June 1999 36 50 14 61.0
May 1999 30 60 10 60.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index rose to 59.5 percent in August from 55.0 percent in July, indicating a faster rate of increase for new orders to non-manufacturers. August's New Orders Index thus rebounded and indicated continued non-manufacturing strength. Comments from respondents included: "Many new orders," "Capital expansion," and "More people asking for quotes." The industries reporting the highest rates of growth of new orders in August were: Real Estate; Utilities; Wholesale Trade; Transportation; and Business Services.

New Orders % Higher % Same % Lower Index
August 1999 32 55 13 59.5
July 1999 28 54 18 55.0
June 1999 39 49 12 63.5
May 1999 30 59 11 59.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index was 51.5 percent in August, indicating increased order backlogs compared to July. The Backlog of Orders Index for August indicates a modest increase from July's 50.0 percent which indicated unchanged order backlogs compared to June. Purchasing executives' comments on the backlog of orders report included: "Inventory not available," "Supply constraints," and "More bids awarded." Of the total respondents in August, 29.6 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in August were: Legal Services; Communication; Business Services; Mining; Utilities; and Finance & Banking.

Backlog
of Orders
% Higher % Same % Lower Index
August 1999 18 67 15 51.5
July 1999 16 68 16 50.0
June 1999 17 70 13 52.0
May 1999 13 75 12 50.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was at a higher rate of slowness in August than in July. NAPM's Non-Manufacturing Supplier Deliveries Index for August was 53.5 percent compared to 52.5 percent in July. Comments from purchasing executives included: "Suppliers seem to be overwhelmed with orders," "Suppliers overburdened," and "Supplier production issues and/or delivery truck shortages."

The industries that reported the slowest rates of supplier deliveries in August were: Legal Services; Communication; Business Services; Retail Trade; and Wholesale Trade.

Supplier
Deliveries
% Higher % Same % Lower Index
August 1999 4 85 11 53.5
July 1999 4 87 9 52.5
June 1999 3 86 11 54.0
May 1999 2 88 10 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 increased for the sixth consecutive month in August, and at a slightly faster rate of increase than in July. NAPM's Non-Manufacturing New Export Orders Index was 58.0 percent in August compared to 57.5 percent in July. Of the total respondents in August, 74.2 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 August were: Legal Services; Real Estate; Finance and Banking; Construction; and *Other Services.

New Export
Orders
% Higher % Same % Lower Index
August 1999 24 68 8 58.0
July 1999 26 63 11 57.5
June 1999 22 63 15 53.5
May 1999 23 71 6 58.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in August for the seventh time after four months of decreases but increased more slowly than in July. NAPM's Non-Manufacturing Imports Index for August was 52.5 percent compared to 57.5 percent in July. In August, 72.5 percent of respondents reported that they do not use or do not track use of imported materials.

The three industries reporting growth in use of imports in August were: Transportation; Wholesale Trade; and Retail Trade.

Imports % Higher % Same % Lower Index
August 1999 11 83 6 52.5
July 1999 19 77 4 57.5
June 1999 9 88 3 53.0
May 1999 15 81 4 55.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in August for only the second time in the past eight months (the other increase month was May 1999). NAPM's Non-Manufacturing Inventories Index registered 52.0 percent in August, compared to 49.5 percent in July. Of the total respondents in August, 24.5 percent indicated they do not have inventories. Comments from member purchasers included: "More business, more inventory," "Increasing inventory due to Y2K and Christmas," "Increased business activity requires more inventory," and "Stocking policy change due to supplier shutdown."

The industries reporting the highest rates of growth of inventories in August were: Utilities; Real Estate; Transportation; Agriculture; Entertainment; and Construction.

Inventory
Change
% Higher % Same % Lower Index
August 1999 24 56 20 52.0
July 1999 19 61 20 49.5
June 1999 24 51 25 49.5
May 1999 23 57 20 51.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in August registered 63.0 percent compared to 61.0 percent for the three preceding months. This increased index level indicates that non-manufacturing purchasing executives felt a higher degree of discomfort with current levels of inventory in August than they did during the preceding three months. In August, 38 percent of members felt their inventories were too high (33 percent in July). Also in August, 12 percent indicated their inventories were too low (11 percent in July), and 50 percent said that their inventories were about right (56 percent in July).

The industries that reported the highest rates of feeling that their inventories were "too high" in August were: Legal Services; Transportation; Business Services; Communication; and Finance & Banking.

Inventory
Sentiment
% Higher % Same % Lower Index
August 1999 38 50 12 63.0
July 1999 33 56 11 61.0
June 1999 30 62 8 61.0
May 1999 30 62 8 61.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the sixth consecutive month and at a higher rate of increase than in July. NAPM's Non-Manufacturing Price Index for August was 59.5 percent, compared to 57.5 percent in July. The August value is the highest level the Price Index has reached since the inception of NAPM's Non-Manufacturing business survey in July 1997, and August is the second consecutive month in which the Price Index has set record high levels.

The industries that reported the highest rates of increase in prices paid in August were: Wholesale Trade; Transportation; *Other Services; Retail Trade; Construction; and Business Services.

Prices % Higher % Same % Lower Index
August 1999 24 71 5 59.5
July 1999 22 71 7 57.5
June 1999 17 74 9 54.0
May 1999 18 72 10 54.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector registered its sixth consecutive monthly increase in August but, for the second consecutive month, indicated a slower rate of increase than in the preceding month. NAPM's Non-Manufacturing Employment Index for August was 52.0 percent compared to 56.5 percent for July. Comments from purchasers included: "Employment growth to support new business," "More work," and "Decreasing Y2K compliance staff."

The industries reporting the highest rates of growth of employment in August were: Legal Services; Communication; Insurance; *Other Services; Construction: and Real Estate.

Employment % Higher % Same % Lower Index
August 1999 15 74 11 52.0
July 1999 21 71 8 56.5
June 1999 24 67 9 57.5
May 1999 17 74 9 54.0

*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

Gypsum Board (drywall) — 6th month; Various types of labor — 3rd month; Laptop Computers — 7th month; Lumber; PVC Pipe.

Commodities Reported Up in Price

Cheese — 2nd month; Concrete; Corrugated Containers — 6th month; Gypsum Board (drywall) — 4th month; Fuel — 6th month; Fuel Oil; Gasoline — 6th month; Insulation; Lumber; Paper — 5th month; Bond Paper; Copy Paper — 2nd month; Printing; Roofing.

Commodities Reported Down in Price

Computers — 16th month; Medical Scanners; PCs — 20th month.

Data and Method of Presentation

The Non-Manufacturing 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 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 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 182 affiliates with more than 46,000 members in the United States and Puerto Rico.

The full text version of the Non-Manufacturing 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 Report On Business® featuring the September 1999 data will be released at 10:00 a.m. (EDT) on October 5, 1999.


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