July 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: August 3, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  e-mail: rgoupil@ism.ws
Business Activity at 60.5%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. 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 July 2005.


Prices Index Up 10.5 Points to 70.3%
New Export Orders Index Up 3.5 Points to 53.5%
Imports Index Up 3.5 Points to 62%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in July 2005, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee and coordinator of the Supply Chain Management Program, University of Houston-Downtown. "Non-manufacturing business activity increased for the 28th consecutive month in July," Kauffman said. He added, "Business activity increased at a slower rate in July than in June. New Orders and Backlog of Orders increased faster but Employment increased more slowly in July than in June. With the exception of the increase in the Prices Index, there were no unusually large changes in the indexes. The overall indication is continued economic growth in the non-manufacturing sector in July at about the same rate of increase as in June. Members' comments indicated that price increases are one of their primary concerns at the present time."

TOP PERFORMING INDUSTRIES

The 13 industries reporting growth in July — listed in order — are: Construction; Insurance; Entertainment; Mining; Transportation; Utilities; Communication; Retail Trade; Wholesale Trade; Business Services; Finance & Banking; Other Services*; and Public Administration. The two industries reporting activity the same as last month are: Real Estate and Health Services. The one industry reporting decreased activity from the prior month is Agriculture.

WHAT RESPONDENTS ARE SAYING ...
  • "Continued increases in oil are having direct impact on product and service pricing. Political unrest continues to restrict business activities in various regions and countries." (Business Services)
  • "Continue to deal with long leadtimes and higher prices on special fabricated and manufactured equipment, anything made of alloy steels." (Mining)
  • "The overall cost of doing business is holding firm except for the cost of fuel." (Other Services)
  • "Price of energy continues to shake us to the core. We are finding it harder to stabilize or predict future pricing, transportation, etc. Our manufacturers appear to be struggling with pricing effects and we are seeing some good suppliers begin to weaken from not passing [price] increases through the supply chain sooner." (Retail Trade)
  • "June was a surprisingly strong sales month." (Wholesale Trade)
  • "The increasing energy costs for heating oil, diesel fuel, and natural gas and what to do for next year's supply contracts are occupying much staff time." (Public Administration)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
JULY 2005
  Non-Manufacturing Manufacturing
Index Series
Index
July
Series
Index
June
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
July
Series
Index
June
Percent
Point
Change
Business Activity / Production 60.5 62.2 -1.7 Increasing Slower 28 61.2 55.6 +5.6
New Orders 61.9 59.5 +2.4 Increasing Faster 28 60.6 57.2 +3.4
Employment 56.2 57.4 -1.2 Increasing Slower 22 53.2 49.9 +3.3
Supplier Deliveries 57.0 56.5 +0.5 Slowing Faster 47 51.8 53.1 -1.3
Inventories 52.5 52.0 +0.5 Increasing Faster 6 47.5 47.8 -0.3
Prices 70.3 59.8 +10.5 Increasing Faster 26 48.5 50.5 -2.0
Backlog of Orders 53.5 52.5 +1.0 Increasing Faster 6 49.0 51.0 -2.0
New Export Orders 53.5 50.0 +3.5 Increasing From Unchanged 1 55.9 50.4 +5.5
Imports 62.0 58.5 +3.5 Increasing Faster 27 54.7 54.2 +0.5
Inventory Sentiment 64.0 64.5 -0.5 "Too High" Lesser 98 N/A N/A  
Customers' Inventories N/A N/A         44.5 44.0 +0.5

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders, Prices and Customers' Inventories.

** Number of months moving in current direction.

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Airfares (4); Air Freight; Asphalt/Asphalt Products (5); Building/Construction Materials/Supplies (3); Cement; Concrete (2); Construction/Construction Services (3); Contract Labor; Copper (23); Corn; #1 Diesel Fuel (5); #2 Diesel Fuel (7); Electronic/Electrical Parts (2); Energy; Food/Food Products; Freight Charges/Shipping; Fuel (20); Fuel-Related Surcharges; Gasoline (20); Hotel Rates/Costs (8); IT Consultants/Contractors/Support; Lighting/Lighting Products; Natural Gas (2); Paper/Paper Products (18); Petroleum Products; Petroleum-Related Products; Pipe/Pipe Conduit (2); Plastics; Printer Cartridges; Printer Supplies/Toner; Printing; Travel; and Unleaded Gasoline.

Commodities Down in Price

Beef (2); Computers and Peripherals (2); Frozen Beef Knuckles/Trim; Lumber — Pine, Spruce and Treated; PVC/PVC Pipe; Steel; Steel Pipe and Fittings (4); and Telephone Equipment.

Commodities in Short Supply

Roofing Materials/Shingles.

Note: The number of consecutive months the commodity is listed is indicated after each item.


JULY 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in July decreased to 60.5 percent from June's 62.2 percent, indicating a slower rate of growth of activity in July. This month, 13 sectors report increased business activity, one is reporting decreased activity, and two indicate unchanged activity compared to June.

The industries reporting the highest rates of growth of business activity in July are: Construction; Insurance; Entertainment; Mining; Transportation; and Utilities. The one industry reporting contraction of business activity in July is Agriculture.

Business
Activity
%Higher %Same %Lower Index
July 2005 35 53 12 60.5
June 2005 38 54 8 62.2
May 2005 30 61 9 58.5
Apr 2005 36 55 9 61.7

THE LAST 12 MONTHS
Month Business Activity
Index
  Month Business Activity
Index
July '05 60.5   Jan '05 59.2
June '05 62.2   Dec '04 63.9
May '05 58.5   Nov '04 61.9
Apr '05 61.7   Oct '04 61.5
Mar '05 63.1   Sep '04 58.7
Feb '05 59.8   Aug '04 59.3
Average for 12 months – 60.9
High – 63.9
Low – 58.5

New Orders

ISM's Non-Manufacturing New Orders Index increased to 61.9 percent in July from 59.5 percent in June. This indicates continued expansion of new orders at a faster rate of growth than in June. Comments from members include: "Increased sales"; "More contracting activity"; "Strong customer demand"; and "Successful bids on large projects."

Industries reporting the highest rates of growth of new orders in July are: Insurance; Entertainment; Finance & Banking; Mining; Construction; Transportation; and Utilities. No industry is reporting contraction of new orders in July.

New Orders %Higher %Same %Lower Index
July 2005 34 58 8 61.9
June 2005 35 55 10 59.5
May 2005 30 62 8 59.7
Apr 2005 32 60 8 58.8

Employment

Employment activity in the non-manufacturing sector increased at a slower rate in July compared to June. This was the 22nd consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for July is 56.2 percent, a decline of 1.2 percentage points from June's 57.4 percent. Eleven industries are reporting increased employment, two report a decrease, and three indicate employment is unchanged from June. Comments from respondents include: "Increased activity"; "Additional staffing for engineering to support proposal work and existing projects"; "Increased placements on successful recruiting and retention of clinical staff"; "Economy good. Making up for last two 'down' years"; and "Hiring for increased sales."

The industries reporting the highest rates of growth in employment in July are: Construction; Health Services; Business Services; Transportation; Wholesale Trade; and Insurance. The industries reporting a reduction in employment in July are: Agriculture and Other Services*.

Employment %Higher %Same %Lower Index
July 2005 26 64 10 56.2
June 2005 29 61 10 57.4
May 2005 21 68 11 53.4
Apr 2005 18 74 8 53.3

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 47th consecutive month in July. The index registered 57 percent, one-half percentage point higher than in June. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in July include: "Slow rail delivery"; "Some of our OEMs are running very lean inventories, which has slowed deliveries"; "Backorders, delivery delays"; "Suppliers cannot keep up with demand"; and "Truck and driver availability."

The industries reporting the highest rates of slowing in supplier deliveries in July are: Mining; Transportation; Entertainment; Communication; Agriculture; and Wholesale Trade. The one industry reporting faster supplier deliveries in July is Business Services.

Supplier
Deliveries
%Slower %Same %Faster Index
July 2005 17 80 3 57.0
June 2005 14 85 1 56.5
May 2005 9 89 2 53.5
Apr 2005 9 88 3 53.0

NOTE: A list of commodities in short supply is available on page 3 of this report.

Inventories

ISM's Non-Manufacturing Inventories Index registered 52.5 percent in July, 0.5 percentage point higher than the 52 percent reported in June. This is the sixth consecutive month of higher inventories after a dip in inventory size in January. Of the total respondents in July, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "Offshored seasonal retail merchandise arriving"; "Hedging against vendor performance issues and weather-related issues in the South, Gulf area"; "Adjusting for increased business'"; and "Support of new business."

The industries reporting the highest rates of inventory increases in July are: Mining; Entertainment; Insurance; Retail Trade; Real Estate; and Utilities. The industries reporting the highest rates of inventory decrease in July are: Other Services*; Business Services; Construction; Wholesale Trade; and Public Administration.

Inventory
Change
%Higher %Same %Lower Index
July 2005 24 57 19 52.5
June 2005 18 68 14 52.0
May 2005 18 67 15 51.5
Apr 2005 24 61 15 54.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in July for the 26th consecutive month and at a significantly faster rate of increase than in June. ISM's Non-Manufacturing Prices Index for July is 70.3 percent, up 10.5 percentage points from the 59.8 percent registered for June. In July, the percentage of members reporting higher prices increased from 27 percent to 39 percent, the proportion indicating no change dropped from 68 percent to 58 percent, and the number noting lower prices decreased from 5 to 3 percent.

The industries reporting the highest rates of increase in prices paid in July are: Agriculture; Entertainment; Construction; Transportation; and Utilities. No industry is reporting price decreases in July.

Prices %Higher %Same %Lower Index
July 2005 39 58 3 70.3
June 2005 27 68 5 59.8
May 2005 27 68 5 57.9
Apr 2005 41 57 2 61.9

NOTE: A list of commodities reported up in price and down in price is available on page 2 of this report.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 53.5 percent in July. This is an increase of 1 percentage point from the 52.5 percent reported for June. July's increase in order backlogs marks 26 out of the last 27 months that an increase has been reported in order backlogs. Of the total respondents in July, 46 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Booking of spring work that starts this fall"; "Inadequate stock at vendor distribution centers"; "Received contracts"; and "Sales over forecast."

The industries reporting the highest rates of increase in order backlogs in July are: Mining; Utilities; Insurance; Communication; and Finance & Banking. Industries reporting decreases in backlog of orders in July are: Business Services; Other Services*; and Retail Trade.

Backlog
of Orders
%Higher %Same %Lower Index
July 2005 19 69 12 53.5
June 2005 11 83 6 52.5
May 2005 17 79 4 56.5
Apr 2005 18 72 10 54.0

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically based personnel increased in July after being reported unchanged in June. June's report followed 22 consecutive months of increases. The New Export Orders Index for July is 53.5 percent, compared to June's 50 percent. Of the total respondents in July, 78 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting increases in new export orders in July are: Finance & Banking; Insurance; Mining; Retail Trade; Wholesale Trade; and Business Services. The one industry reporting a decrease in new export orders in July is Communication.

New Export
Orders
%Higher %Same %Lower Index
July 2005 18 71 11 53.5
June 2005 18 64 18 50.0
May 2005 31 62 7 62.0
April 2005 17 71 12 52.5

Imports

In July, the ISM Imports Index registered 62 percent, 3.5 percentage points higher than the 58.5 percent reported in June. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in July than in June. July's index marks the 27th consecutive month of import growth. In July, 68 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting the highest rates of increase in the use of imports in July are: Entertainment; Wholesale Trade; Mining; Utilities; and Business Services. No industry is reporting a decrease in the use of imports in July.

Imports %Higher %Same %Lower Index
July 2005 26 72 2 62.0
June 2005 25 67 8 58.5
May 2005 22 71 7 57.5
Apr 2005 24 69 7 58.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in July registered 64 percent, 0.5 percentage point lower than the 64.5 percent reported in June. This indicates that non-manufacturing purchasing and supply executives feel a slightly lesser degree of discomfort with current levels of inventory in July than they did during June. In July, 35 percent of respondents felt their inventories were too high, 7 percent indicated their inventories were too low, and 58 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in July are: Transportation; Construction; Communication; Mining; and Other Services*. No industry is reporting that its inventories are too low in July.

Inventory
Sentiment
%Too High %About Right %Too Low Index
July 2005 35 58 7 64.0
June 2005 33 63 4 64.5
May 2005 30 66 4 63.0
Apr 2005 28 65 7 60.5

*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.

About this Report

The data presented herein is obtained from a survey of non-manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision making.

Data and Method of Presentation

The Non-Manufacturing ISM Report On Business® is based on data compiled from monthly replies to questions asked of more than 370 purchasing and supply 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 industry's 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. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. The remaining indexes have not indicated significant seasonality.

A weighted composite index similar to the PMI that is so popular in the Manufacturing ISM Report On Business® is not available. Several years of data will need to be developed before that type of non-manufacturing indicator can 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 indicates 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 ISM Report On Business® is published monthly by the Institute for Supply Management™, the largest supply management research and education organization in the United States. The Institute for Supply Management™, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

The full text version of the Non-Manufacturing ISM Report On Business® is posted on ISM's Web site at www.ism.ws on the third business day of every month after 10:10 a.m. (ET). The next Non-Manufacturing ISM Report On Business® featuring the August 2005 data will be released at 10:00 a.m. (ET) on September 6, 2005.



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