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August 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: September 6, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
Business Activity at 65%

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 August 2005.


New Orders Index Up 3.9 Points to 65.8%
New Export Orders Index Up 10 Points to 63.5%
Employment Index Up 3.4 Points to 59.6%
Prices Index Down 3.2 Points to 67.1%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in August 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 29th consecutive month in August," Kauffman said. He added, "Business Activity increased at a faster rate in August than in July. New Orders, Employment and Inventories also increased at faster rates. Many members' comments expressed concern about the continuing increase in oil and gas prices and its impact on the prices of other items and on budgets. The overall indication is continued economic growth in the non-manufacturing sector in August at a faster rate of increase than in July."

TOP PERFORMING INDUSTRIES

The 13 industries reporting growth in August — listed in order — are: Mining; Transportation; Utilities; Real Estate; Legal Services, Insurance; Other Services*; Retail Trade; Health Services; Communication; Business Services; Construction; and Public Administration. The four industries reporting activity the same as last month are: Agriculture; Wholesale Trade; Finance & Banking; and Entertainment. No industry is reporting decreased activity from July to August.

WHAT RESPONDENTS ARE SAYING …
  • "Things look positive for the next six months — construction is going well." (Construction)
  • "Concern about fuel prices affecting coming season (winter) volume and per diem. Advance sales ensure substantial volume. Overall energy costs trickling down to operating commodities and cost of goods expenses are concerns." (Entertainment)
  • "How high will fuel costs go?" (Insurance)
  • "General lack of optimism stemming from recent increases in fuel and energy costs." (Other Services)
  • "Pricing increases are now being passed along on many goods and services as a direct result of higher gas and oil prices. This will have a negative effect in the near future on spending plans." (Public Administration)
  • "Increasing railroad freight and fuel surcharges pose problems." (Wholesale Trade)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
AUGUST 2005
  Non-Manufacturing Manufacturing
Index Series
Index
August
Series
Index
July
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
August
Series
Index
July
Percent
Point
Change
Business Activity/ Production 65.0 60.5 +4.5 Increasing Faster 29 55.9 61.2 -5.3
New Orders 65.8 61.9 +3.9 Increasing Faster 29 56.4 60.6 -4.2
Employment 59.6 56.2 +3.4 Increasing Faster 23 52.6 53.2 -0.6
Supplier Deliveries 55.0 57.0 -2.0 Slowing Slower 48 50.5 51.8 -1.3
Inventories 53.5 52.5 +1.0 Increasing Faster 7 45.7 47.5 -1.8
Prices 67.1 70.3 -3.2 Increasing Slower 27 62.5 48.5 +14.0
Backlog of Orders 52.0 53.5 -1.5 Increasing Slower 7 50.5 49.0 +1.5
New Export Orders 63.5 53.5 +10.0 Increasing Faster 2 53.3 55.9 -2.6
Imports 61.5 62.0 -0.5 Increasing Slower 28 53.4 54.7 -1.3
Inventory Sentiment 67.0 64.0 +3.0 "Too High" Greater 99 N/A N/A  
Customers' Inventories N/A N/A         46.5 44.5 +2.0

* 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

Adhesives; Airfares (5); Asphalt Construction/Products (6); Construction/Construction Services and Contractors (4); Conveyor Belts; Copper/Copper Products (24); #1 Diesel Fuel (6); #2 Diesel Fuel (8); Electrical Products (3); Energy (2); Food/Food & Beverage Products (2); Freight Charges/Shipping (2); Fuel (21); Fuel-Related Surcharges (2); Gasoline (21); Hotel Prices/Costs (9); Medical/Surgical Supplies; Natural Gas (3); Office Machine/Copier Services; Oil-Based Products; Paper/Paper Products (19); Petrochemical Products; Petroleum/Petroleum Products (2); Pipe/Pipe Fittings (3); Plastics/Plastic Products (2); Soy Oil; Tape/Tape Media; Transportation; Trash Can Liners; Travel (2); and Unleaded Gasoline (2).

Commodities Down in Price

Beef (3); Computers and Peripherals (3); Corrugated; Lumber — Pine, Spruce and Treated (2); Pork/Pork Ribs; Printing Services; Steel (2); and Technology-Related Equipment.

Commodities in Short Supply

Concrete; and Steel.

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


AUGUST 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in August increased to 65 percent from July's 60.5 percent, indicating a faster rate of growth of activity in August. The last time the index exceeded 65 percent was when it registered 66.9 percent in April 2004. This month,13 sectors report increased business activity, none is reporting decreased activity, and four indicate unchanged activity compared to July.

The industries reporting the highest rates of growth of business activity in August are: Mining; Transportation; Utilities; Real Estate; and Legal Services. No industry is reporting contraction of business activity in August.

Business
Activity
%Higher %Same %Lower Index
August 2005 37 51 12 65.0
July 2005 35 53 12 60.5
June 2005 38 54 8 62.2
May 2005 30 61 9 58.5


THE LAST 12 MONTHS
Month Business Activity
Index
  Month Business Activity
Index
Aug '05 65.0   Feb '05 59.8
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
Average for 12 months – 61.3
High – 65.0
Low – 58.5

New Orders

ISM's Non-Manufacturing New Orders Index increased to 65.8 percent in August from 61.9 percent in July. This indicates continued expansion of new orders at a faster rate of growth than in July. Comments from members include: "Some growth in sales"; "New clients in pipeline"; "Capital purchases are driving additional spend"; and "New restaurant openings."

Industries reporting the highest rates of growth of new orders in August are: Real Estate; Mining; Transportation; Agriculture; and Legal Services. No industry is reporting contraction of new orders in August.

New Orders %Higher %Same %Lower Index
August 2005 37 54 9 65.8
July 2005 34 58 8 61.9
June 2005 35 55 10 59.5
May 2005 30 62 8 59.7

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in August compared to July. This was the 23rd consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for August is 59.6 percent, a rise of 3.4 percentage points from July's 56.2 percent. Eleven industries are reporting increased employment, one reports a decrease, and five indicate employment is unchanged from July. Comments from respondents include: "Expansion of sales force"; "Continued growth of business"; "Increased service demand and good financial performance"; "Gearing up for increased business"; and "Strong business demand."

The industries reporting the highest rates of growth in employment in August are: Entertainment; Health Services; Retail Trade; Other Services* and Wholesale Trade. The one industry reporting a reduction in employment in August is Legal Services.

Employment %Higher %Same %Lower Index
August 2005 26 66 8 59.6
July 2005 26 64 10 56.2
June 2005 29 61 10 57.4
May 2005 21 68 11 53.4

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 48th consecutive month in August. The index registered 55 percent, 2 percentage points lower than in July. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in August include: "OEMs having problems getting some components from overseas"; "Delivery of certain goods is getting longer"; "Supply of trucks for scheduling"; "No stock inventory to pull from"; and "Lack of product or capacity to produce."

The industries reporting the highest rates of slowing in supplier deliveries in August are: Legal Services; Real Estate; Public Administration; Retail Trade; and Health Services. The one industry reporting faster supplier deliveries in August is Entertainment.

Supplier
Deliveries
%Slower %Same %Faster Index
August 2005 12 86 2 55.0
July 2005 17 80 3 57.0
June 2005 14 85 1 56.5
May 2005 9 89 2 53.5

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

Inventories

ISM's Non-Manufacturing Inventories Index registered 53.5 percent in August, 1 percentage point higher than the 52.5 percent reported in July. This is the seventh consecutive month of higher inventories after a dip in inventory size in January. Of the total respondents in August, 32 percent indicate they do not have inventories or do not measure them. Comments from members include: "Selling off excess and obsolete [inventory]"; "Increased volume is pushing inventories out the door"; "Preparation for seasonal demand"; and "Retail stock has been increased to support new stores."

The industries reporting the highest rates of inventory increases in August are: Transportation; Real Estate; Business Services; Communication; Retail Trade; and Health Services. The industries reporting inventory decreases in August are: Construction; Public Administration; Other Services*; and Insurance.

Inventories %Higher %Same %Lower Index
August 2005 22 63 15 53.5
July 2005 24 57 19 52.5
June 2005 18 68 14 52.0
May 2005 18 67 15 51.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the 27th consecutive month but at a slower rate of increase than in July. ISM's Non-Manufacturing Prices Index for August is 67.1 percent, 3.2 percentage points below the 70.3 percent registered for July. In August, the percentage of members reporting higher prices decreased from 39 percent to 36 percent, the proportion indicating no change remained at 58 percent, and the number noting lower prices increased from 3 percent to 6 percent.

The industries reporting the highest rates of increase in prices paid in August are: Agriculture; Transportation; Insurance; Real Estate; and Legal Services. The one industry reporting price decreases in August is Retail Trade.

Prices %Higher %Same %Lower Index
August 2005 36 58 6 67.1
July 2005 39 58 3 70.3
June 2005 27 68 5 59.8
May 2005 27 68 5 57.9

NOTE: A list of commodities reported up in price and down in price is available on pages 2 and 3 of this report.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52 percent in August. This is a decrease of 1.5 percentage points from the 53.5 percent reported for July. August's increase in order backlogs marks 27 out of the last 28 months that an increase has been reported in order backlogs. Of the total respondents in August, 50 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Higher demand, less planning"; "Increased maintenance and capital products"; and "Seasonal."

The industries reporting the highest rates of increase in order backlogs in August are: Transportation; Legal Services; Communication; Mining; and Utilities. Industries reporting decreases in backlog of orders in August are: Entertainment; Wholesale Trade; and Public Administration.

Backlog
of Orders
%Higher %Same %Lower Index
August 2005 12 80 8 52.0
July 2005 19 69 12 53.5
June 2005 11 83 6 52.5
May 2005 17 79 4 56.5

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 for the second consecutive month in August after being reported unchanged in June. While June's report followed 22 consecutive months of increases, the August index marks 24 out of the past 25 months the index has exhibited growth. The New Export Orders Index for August is 63.5 percent, compared to July's 53.5 percent. Of the total respondents in August, 78 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The industries reporting the highest rates of increase in new export orders in August are: Communication; Finance & Banking; Insurance; Mining; and Other Services*. No industry is reporting a decrease in new export orders in August.

New Export
Orders
%Higher %Same %Lower Index
August 2005 32 63 5 63.5
July 2005 18 71 11 53.5
June 2005 18 64 18 50.0
May 2005 31 62 7 62.0

Imports

In August, the ISM Imports Index registered 61.5 percent, 0.5 percentage point lower than the 62 percent reported in July. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in August than in July. August's index marks the 28th consecutive month of import growth. In August, 71 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting increases in the use of imports in August are: Communication; Wholesale Trade; Retail Trade; and Business Services. No industry is reporting a decrease in the use of imports in August.

Imports %Higher %Same %Lower Index
August 2005 25 73 2 61.5
July 2005 26 72 2 62.0
June 2005 25 67 8 58.5
May 2005 22 71 7 57.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in August registered 67 percent, 3 percentage points higher than the 64 percent reported in July. This indicates that non-manufacturing purchasing and supply executives feel a greater degree of discomfort with current levels of inventory in August than they did during July. The index has not registered this high since November 2001 when it also registered 67 percent. In August, 37 percent of respondents felt their inventories were too high, 3 percent indicated their inventories were too low, and 60 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in August are: Communication; Insurance; Legal Services; Business Services; Mining; Construction; and Wholesale Trade. No industry is reporting that its inventories are too low in August.

Inventory
Sentiment
%Too High %About Right %Too Low Index
August 2005 37 60 3 67.0
July 2005 35 58 7 64.0
June 2005 33 63 4 64.5
May 2005 30 66 4 63.0

*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.

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 September 2005 data will be released at 10:00 a.m. (ET) on October 5, 2005.



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