November 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: December 5, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
Business Activity at 58.5%

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 November 2005.


Inventory Sentiment Index Up 5 Points to 60%; Employment Index Up 4.1 Points to 57%;
Inventories Index Up 4 Points to 54%; Prices Index Down 3.8 Points to 74.2%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in November 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 32nd consecutive month in November," Kauffman said. He added, "Business Activity and Order Backlogs increased at slower rates in November than in October. New Orders and Employment increased at faster rates. Twelve of 17 non-manufacturing industry sectors report increased activity in November compared to 11 that reported increased activity in October. Although the Business Activity Index indicated a slower rate of increase in November, members' comments are generally positive concerning current business conditions. There is still significant concern about the relatively high level of energy prices and its impact on freight costs and on the prices of other materials and services. There is also concern about shortages of materials in some categories and about the availability of transportation service. The overall indication is continued economic growth in the non-manufacturing sector in November, but with some concern about the impact of energy prices on future business activity."

TOP PERFORMING INDUSTRIES

The 12 industries reporting growth in November — listed in order — are: Mining; Legal Services; Health Services; Business Services; Retail Trade; Insurance; Other Services*; Utilities; Construction; Public Administration; Wholesale Trade; and Communication. The three industries reporting activity the same as last month are: Transportation; Real Estate; and Entertainment. The two industries reporting decreased activity from October to November are: Agriculture and Finance & Banking.

WHAT RESPONDENTS ARE SAYING …
  • "Much pricing pressures and material shortages." (Construction)
  • "Business in retail and middle market growing, but very, very competitive market with margin pressure. Demand for IT and business commodity products/services stable." (Finance & Banking)
  • "The third quarter was very good for us and profits and sales were very good, even when considering the effect of the hurricanes." (Other Services)
  • "The Central Florida economy continues its robust performance." (Public Administration)
  • "Fuels continue to have a negative impact with transportation surcharges running 23 to 30 percent." (Retail Trade)
  • "Freight costs are increasing and there are shipping delays from products coming out of Asia due to the holiday rush." (Wholesale Trade)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
NOVEMBER 2005
  Non-Manufacturing Manufacturing


Index
Series
Index
Nov.
Series
Index
Oct.
Percent
Point
Change


Direction
Rate
of
Change

Trend**
(Months)
Series
Index
Nov.
Series
Index
Oct.
Percent
Point
Change
Business Activity/Production 58.5 60.0 -1.5 Increasing Slower 32 60.6 62.0 -1.4
New Orders 59.5 58.2 +1.3 Increasing Faster 32 59.8 61.7 -1.9
Employment 57.0 52.9 +4.1 Increasing Faster 26 56.6 55.0 +1.6
Supplier Deliveries 60.5 58.5 +2.0 Slowing Faster 51 58.3 61.7 -3.4
Inventories 54.0 50.0 +4.0 Increasing From Unchanged 1 49.3 48.1 +1.2
Prices 74.2 78.0 -3.8 Increasing Slower 30 74.0 84.0 -10.0
Backlog of Orders 54.0 55.0 -1.0 Increasing Slower 10 53.0 55.5 -2.5
New Export Orders 57.0 54.5 +2.5 Increasing Faster 5 59.2 54.8 +4.4
Imports 56.5 53.5 +3.0 Increasing Faster 31 54.1 58.2 -4.1
Inventory Sentiment 60.0 55.0 +5.0 "Too High" Greater 102 N/A N/A  
Customers' Inventories N/A N/A         43.5 41.0 +2.5

* 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 (8); Airfreight; Asphalt/Asphalt Products; Beef/Beef Trimmings*; Building Materials (3); Car Rentals; Carbon Steel Pipe; Cement/Cement Products (3); Chemicals (2); Coffee/Coffee Products; Computer Accessories/Chips/Peripherals; Copper (27); Copper Products (various); Corrugated; #1 Diesel Fuel (9); #2 Diesel Fuel (11); Energy (5); Freight Charges/Shipping Costs (5); Fuel* (24); Fuel-Related Surcharges (5); Gasoline* (24); #2 Heating Oil (3); Hotel Rates/Costs (12); Lumber Products; Medical/Surgical Supplies; Natural Gas (6); Office Supplies; Packaging/Packaging Supplies (3); Paper/Paper Products (22); Petrochemical Products; Plastic Shopping Bags (3); Plastics/Plastic Products (5); Plastic Resins; Poly Products (various) (2); PVC/PVC Products (3); Resin-Based (or related) Products (2); Roofing Materials (3); Sheetrock (Drywall); Shipping; Sugar; Telecom Products/Services; Transportation (4); Travel Costs (2); and Valves/Valve Parts.

Commodities Down in Price

Beef/Beef Trimmings* (2); Diesel Fuel; Fuel*; Gasoline* (2); Lumber — Pine, Spruce and Treated; and Unleaded Gasoline (2).

Commodities in Short Supply

Building Materials/Supplies (2); Concrete; Construction Labor; Flu Vaccine; Plastic Bags; Plastic Resins; PVC Products (2); and Roofing Materials (2).

*Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.


NOVEMBER 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in November eased somewhat to 58.5 percent from October's 60 percent, indicating a slower rate of growth of activity in November. This month, 12 sectors report increased business activity, two are reporting decreased activity, and three indicate unchanged activity compared to October.

The industries reporting the highest rates of growth of business activity in November are: Mining; Legal Services; Health Services; Business Services; Retail Trade; Insurance; and Other Services*. The industries reporting contraction of business activity in November are: Agriculture and Finance & Banking.

Business
Activity
%
Higher
%
Same
%
Lower

Index
November 2005 31 56 13 58.5
October 2005 31 54 15 60.0
September 2005 27 54 19 53.3
August 2005 37 51 12 65.0


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Nov '05 58.5   May '05 58.5
Oct '05 60.0   Apr '05 61.7
Sep '05 53.3   Mar '05 63.1
Aug '05 65.0   Feb '05 59.8
July '05 60.5   Jan '05 59.2
June '05 62.2   Dec '04 63.9
Average for 12 months – 60.5
High – 65.0
Low – 53.3

New Orders

ISM's Non-Manufacturing New Orders Index increased to 59.5 percent in November from 58.2 percent in October. This indicates continued expansion of new orders at a faster rate of growth than in October. Comments from members include: "Additional proposal work/additional work on existing projects"; "Demand for consultants and temp labor edged up"; "Increased activity because of storms Katrina and Wilma"; and "Strong customer demand."

Industries reporting the highest rates of growth of new orders in November are: Construction; Legal Services; Health Services; Retail Trade; Utilities; Real Estate; and Entertainment. Industries reporting contraction of new orders in November are: Finance & Banking and Transportation.

New
Orders
%
Higher
%
Same
%
Lower

Index
November 2005 31 57 12 59.5
October 2005 27 58 15 58.2
September 2005 26 59 15 56.6
August 2005 37 54 9 65.8

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in November compared to October. This was the 26th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for November is 57 percent, a rise of 4.1 percentage points from October's 52.9 percent. Fourteen industries are reporting increased employment, two report decreases, and one indicates employment is unchanged from October. Comments from respondents include: "Expansion of sales force"; "Anticipating a stronger second quarter"; "Recruiting new attorneys"; and "Filling need for more people."

The industries reporting the highest rates of growth in employment in November are: Mining; Insurance; Entertainment; Legal Services; and Business Services. Industries reporting a reduction in employment in November are: Transportation and Agriculture.


Employment
%
Higher
%
Same
%
Lower

Index
November 2005 21 72 7 57.0
October 2005 16 72 12 52.9
September 2005 20 68 12 54.9
August 2005 26 66 8 59.6

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 51st consecutive month in November. The index registered 60.5 percent, 2 percentage points higher than in October. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in November include: "OEM inventories depleted last month"; "Capacity constraints"; "FEMA grabbing trucks and truckers in Southeast"; "Shortage of truck drivers"; and "Demand exceeding production."

The industries reporting the highest rates of slowing in supplier deliveries in November are: Utilities; Wholesale Trade; Legal Services; Communication; Construction and Transportation. No industries are reporting faster supplier deliveries in November.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Index
November 2005 22 77 1 60.5
October 2005 21 75 4 58.5
September 2005 17 78 5 56.0
August 2005 12 86 2 55.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 54 percent in November, indicating an increase in inventories compared to October. This month's increase follows two consecutive months of unchanged inventories in non-manufacturing industries. Of the total respondents in November, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "Building in anticipation of reconstruction"; "Escalation in new store openings"; "Hedge against price increases"; and "Longer leadtimes and concern for shortages."

The industries reporting the highest rates of increase in inventories in November are: Communication; Retail Trade; Real Estate; Utilities; and Business Services. The industries reporting inventory decreases in November are: Agriculture; Transportation; Construction; Other Services* and Wholesale Trade.


Inventories
%
Higher
%
Same
%
Lower

Index
November 2005 24 60 16 54.0
October 2005 26 48 26 50.0
September 2005 22 56 22 50.0
August 2005 22 63 15 53.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in November for the 30th consecutive month, but at a slower rate of increase than in October. ISM's Non-Manufacturing Prices Index for November is 74.2 percent, 3.8 percentage points below the 78 percent reported for October. In November, the percentage of respondents reporting higher prices declined from 54 percent to 44 percent, the proportion indicating no change rose from 41 percent to 48 percent, and the number of respondents noting lower prices increased from 5 percent to 8 percent.

The industries reporting the highest rates of increase in prices paid in November are: Construction; Utilities; Insurance; Wholesale Trade; and Business Services. Industries reporting price decreases in November are: Transportation and Real Estate.


Prices
%
Higher
%
Same
%
Lower

Index
November 2005 44 48 8 74.2
October 2005 54 41 5 78.0
September 2005 58 40 2 81.4
August 2005 36 58 6 67.1

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 54 percent in November, 1 percentage point lower than the 55 percent reported in October. November's report of increasing order backlogs marks 30 out of the last 31 months that an increase has been reported in order backlogs. Of the total respondents in November, 40 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Supply shortage in steel and petro products"; "IT equipment taking longer to deliver"; and "Allocations due to resin shortage."

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

Backlog
of Orders
%
Higher
%
Same
%
Lower

Index
November 2005 22 64 14 54.0
October 2005 23 64 13 55.0
September 2005 19 66 15 52.0
August 2005 12 80 8 52.0

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 for the fifth consecutive month in November. The November index marks 27 out of the past 28 months that the index has exhibited growth. The New Export Orders Index for November is 57 percent, compared to October's 54.5 percent. Of the total respondents in November, 76 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 November are: Finance & Banking; Mining; Utilities; Retail Trade; and Other Services*. Industries reporting decreases in new export orders in November are: Public Administration and Business Services.

New Export
Orders
%
Higher
%
Same
%
Lower

Index
November 2005 23 68 9 57.0
October 2005 23 63 14 54.5
September 2005 27 56 17 55.0
August 2005 32 63 5 63.5

Imports

In November, the ISM Non-Manufacturing Imports Index registered 56.5 percent, 3 percentage points higher than the 53.5 percent reported in October. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in November than in October. November's index marks the 31st consecutive month of import growth. In November, 65 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 November are: Transportation; Utilities; Other Services*; Business Services; and Retail Trade. Industries reporting decreases in the use of imports in November are: Public Administration and Entertainment.


Imports
%
Higher
%
Same
%
Lower

Index
November 2005 22 69 9 56.5
October 2005 19 69 12 53.5
September 2005 24 69 7 58.5
August 2005 25 73 2 61.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in November registered 60 percent, 5 percentage points higher than the 55 percent reported in October. This indicates that non-manufacturing purchasing and supply executives feel a greater degree of discomfort with current levels of inventory in November than they did during October. In November, 26 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 68 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in November are: Communication; Construction; Transportation; Legal Services; and Health Services. The one industry reporting that its inventories are too low in November is Agriculture.

Inventory
Sentiment
%Too
High
%About
Right
%Too
Low

Index
November 2005 26 68 6 60.0
October 2005 22 66 12 55.0
September 2005 33 62 5 64.0
August 2005 37 60 3 67.0

*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 December 2005 data will be released at 10:00 a.m. (ET) on January 5, 2006.



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