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May 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: June 5, 2006

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

Business Activity at 60.1%

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 May 2006.

New Orders Index at 59.6%
Employment Index at 58.0%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in May 2006, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Hotels Corporation. "Non-manufacturing business activity increased for the 38th consecutive month in May," Nieves said. He added, "Business Activity, New Orders and Backlog of Orders increased at slower rates in May than in April. Prices, New Export Orders, Imports and Employment increased at faster rates. Thirteen of 17 non-manufacturing industry sectors report increased activity in May, compared to 14 that reported increased activity in April. Members' comments in May are mostly positive concerning current business conditions. Price increases have again become a significant area of concern for many members as a result of raw material and fuel price increases. The Prices Index jumped 7 points this month to 77.5 percent, a level not seen since September 2005 when the index was 78.4 percent. The overall indication in May is continued economic growth in the non-manufacturing sector."

TOP PERFORMING INDUSTRIES

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

WHAT RESPONDENTS ARE SAYING ...
  • "Concern about rising fuel cost." (Communication)
  • "High energy cost and interest rates affect savings and loans." (Finance & Banking)
  • "Level of business activity, sales pipeline is starting to increase." (Insurance)
  • "Coal mining sales remain very high and should hold for long term." (Mining)
  • "Energy continues to have a negative impact on goods and services, specifically transportation costs."(Retail Trade)
  • "Beginning to see price increase requests due to oil, copper [and] other metals increasing." (Wholesale Trade)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
MAY 2006
  Non-Manufacturing Manufacturing
Index Series
Index
May
Series
Index
Apr.
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
May
Series
Index
Apr.
Percent
Point
Change
Business Activity/Production 60.1 63.0 -2.9 Increasing Slower 38 57.2 60.4 -3.2
New Orders 59.6 64.6 -5.0 Increasing Slower 38 53.7 57.6 -3.9
Employment 58.0 56.5 +1.5 Increasing Faster 22 52.9 55.8 -2.9
Supplier Deliveries 56.5 54.5 +2.0 Slowing Faster 57 57.6 57.7 -0.1
Inventories 59.0 59.0 0.0 Increasing Same 7 48.0 51.3 -3.3
Prices 77.5 70.5 +7.0 Increasing Faster 50 77.0 71.5 +5.5
Backlog of Orders 52.0 54.0 -2.0 Increasing Slower 16 53.0 57.0 -4.0
New Export Orders 64.0 59.5 +4.5 Increasing Faster 11 55.7 53.4 +2.3
Imports 58.5 57.0 +1.5 Increasing Faster 4 56.5 59.0 -2.5
Inventory Sentiment 59.0 60.0 -1.0 "Too High" Lesser 108 N/A N/A N/A
Customers' Inventories N/A N/A         44.0 46.5 -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, Imports and Customers' Inventories.
** Number of months moving in current direction

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

Commodities Up in Price

Air Fares (3); Aluminum (6); Aluminum Products (various); Asphalt (2); Asphalt Products (2); Cement; Concrete; Construction (2); Construction Materials; Copper (33); Copper Products (various) (7); Copy Paper (4); Delivery Costs; #1 Diesel Fuel (3); #2 Diesel Fuel (17); Electrical Components; Energy (3); Freight/Shipping/ Transportation Costs (3); Fuel (30); Gasoline (30); Gas Surcharge; #2 Heating Oil (2); Lumber; Natural Gas (2)*; Office/Computer Supplies; Paper (28); Paper (cut size) (3); Paper Products (4); Petroleum/Petroleum Based Products (5); Plastic Products (various); Plastics; Roofing Materials (2); Steel (4); Steel Products (various); Temporary Labor; Transformers; Unleaded Gasoline (2); and Wire (2).

Commodities Down in Price

Natural Gas (2)* and Stretch Wrap.

Commodities in Short Supply

Aluminum; Cement; Copper Wire; Doors; Drywall (4); Steel (4); and Tires (2).

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


MAY 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in May registered 60.1 percent compared to the 63 percent registered in April, indicating a slower rate of growth of activity in May. The implication is that non-manufacturing business activity is continuing to increase for the 38th consecutive month, but at a slower rate. The slower rate of growth indicated by this index is also reflected in other indexes this month: a 5 percentage point decrease in the New Orders Index and a 2 percentage point decrease in the Backlog of Orders Index. This month, 13 sectors report increased business activity, three are reporting decreased activity, and one is indicating unchanged activity compared to April.

The industries reporting the highest rates of growth of business activity in May are: Agriculture; Communication; Utilities; Health Services; Mining; Construction; Insurance; and Wholesale Trade. The three industries reporting contraction of business activity in May are: Entertainment; Finance & Banking; and Business Services.


Business Activity
%
Higher
%
Same
%
Lower

Index
May 2006 35 53 12 60.1
April 2006 42 49 9 63.0
March 2006 37 53 10 60.5
February 2006 31 57 12 60.1


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
May '06 60.1   Nov '05 59.3
Apr '06 63.0   Oct '05 59.2
Mar '06 60.5   Sep '05 53.7
Feb '06 60.1   Aug '05 64.8
Jan '06 56.8   July '05 60.4
Dec '05 61.0   June '05 61.1
Average for 12 months – 60.0
High – 64.8
Low – 53.7

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 59.6 percent in May from the 64.6 percent registered in April. This indicates continued expansion of new orders, but at a slower rate of growth than in April. Comments from members include: "Increased capital investment in infrastructure"; "Strong economy"; "Construction activity is slowing"; and "End of school year activities."

Industries reporting the highest rates of growth of new orders in May are: Agriculture; Entertainment; Communication; Utilities; Wholesale Trade; Other Services*; Mining; and Insurance. The two industries reporting contraction of new orders in May are: Transportation and Finance & Banking.


New Orders
%
Higher
%
Same
%
Lower

Index
May 2006 32 59 9 59.6
April 2006 41 50 9 64.6
March 2006 32 57 11 59.5
February 2006 27 59 14 56.2

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in May compared to April. This was the 22nd consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for May is 58 percent, a rise of 1.5 percentage points from the 56.5 percent reported in April. Eleven industries are reporting increased employment, three report a decrease, and three indicate employment is unchanged from April. Comments from respondents include: "Using more temporary administrative support versus hiring"; "Reduction in employment level due to completion of jobs"; "Adding seasonal help"; and "Demand for services increased."

The industries reporting the highest rates of growth in employment in May are: Agriculture; Legal Services; Transportation; Utilities; Retail Trade; and Insurance. The three industries reporting a reduction in employment in May are: Entertainment; Finance & Banking; and Communication.


Employment
%
Higher
%
Same
%
Lower

Index
May 2006 25 68 7 58.0
April 2006 25 67 8 56.5
March 2006 18 74 8 54.6
February 2006 21 69 10 58.2

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 57th consecutive month in May. The index registered 56.5 percent, 2 percentage points higher than in April, indicating that deliveries are slowing at a faster rate than in April. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in May include: "Capacity shortfall"; "Raw material demands"; and "Factory backlogs continue to build. Longer and longer leadtimes prevail."

The industries reporting the highest rates of slowing in supplier deliveries in May are: Mining; Construction; Utilities; Wholesale Trade; and Real Estate. The one industry reporting faster supplier deliveries in May is Business Services.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
May 2006 15 83 2 56.5
April 2006 11 87 2 54.5
March 2006 9 90 1 54.0
February 2006 8 89 3 52.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 59 percent in May, indicating the same rate of increase as in April. This is the seventh consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in May, 35 percent indicate they do not have inventories or do not measure them. Comments from members include: "Constraints on capital equipment"; "Preparing to fill schools for next year"; "Buildup from slowing demand"; "Increasing stock leads for peak period"; and "Due to increased business, inventory levels have increased."

The industries reporting the highest rates of increase in inventories in May are: Real Estate; Wholesale Trade; Communication; Mining; and Health Services. The four industries reporting an inventory decrease in May are: Entertainment; Finance & Banking; Transportation; and Construction.


Inventories
%
Higher
%
Same
%
Lower

Index
May 2006 27 64 9 59.0
April 2006 26 66 8 59.0
March 2006 25 58 17 54.0
February 2006 24 58 18 53.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 50th consecutive month. ISM's Non-Manufacturing Prices Index for May is 77.5 percent, 7 percentage points higher than April's 70.5 percent. In May, the percentage of respondents reporting higher prices remained the same as in April at 54 percent, the proportion indicating no change decreased from 44 percent in April to 43 percent in May, and the number of respondents noting lower prices increased from 2 percent in April to 3 percent in May. No industry reported a decrease in prices in May. One industry, Legal Services, reported that prices remained the same.

The industries reporting the highest rates of increase in prices paid in May are: Agriculture; Mining; Entertainment; Construction; and Utilities.


Prices
%
Higher
%
Same
%
Lower

Index
May 2006 54 43 3 77.5
April 2006 54 44 2 70.5
March 2006 36 58 6 60.5
February 2006 39 57 4 64.8

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52 percent in May, 2 percentage points lower than the 54 percent reported in April. This indicates that order backlogs are increasing at a slower rate in May than in April. May's report of increasing order backlogs marks 36 of the last 37 months that an increase has been reported in order backlogs. Of the total respondents in May, 46 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Business is soft and inventory has caught up with sales"; "New budget funds available"; "Somewhat level activity allows for catching up"; and "Backlog is 30 percent higher than last year."

The industries reporting an increase in order backlogs in May are: Construction; Transportation; Utilities; and Public Administration. Industries reporting decreases in backlog of orders in May are: Business Services; Finance & Banking; Health Services; and Wholesale Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
May 2006 15 74 11 52.0
April 2006 22 64 14 54.0
March 2006 11 79 10 50.5
February 2006 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 for the 11th consecutive month in May. The May index marks 33 of the past 34 months that the index has exhibited growth. The New Export Orders Index for May is 64 percent, compared to April's 59.5 percent. Of the total respondents in May, 74 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The industries reporting an increase in new export orders in May are: Transportation; Mining; Other Services*; Wholesale Trade; Communication; Utilities; and Retail Trade. No Industry is reporting a decrease in new export orders in May.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
May 2006 30 68 2 64.0
April 2006 28 63 9 59.5
March 2006 32 63 5 63.5
February 2006 28 64 8 60.0

Imports

In May, the ISM Non-Manufacturing Imports Index registered 58.5 percent, 1.5 percentage points higher than April's 57 percent, and indicating that use of imports increased in May for the fourth consecutive month. In May, 67 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting an increase in the use of imports in May are: Wholesale Trade; Business Services; Utilities; Other Services*; and Retail Trade. No industry is reporting a decrease in the use of imports in May.


Imports
%
Higher
%
Same
%
Lower

Index
May 2006 19 79 2 58.5
April 2006 19 76 5 57.0
March 2006 24 73 3 60.5
February 2006 15 80 5 55.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in May registered 59 percent, 1 percentage point lower than the 60 percent reported in April. This indicates that non-manufacturing purchasing and supply executives feel a lesser degree of discomfort with current levels of inventory in May than they did during April. In May, 24 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 70 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in May are: Communication; Mining; Other Services*; Business Services; Wholesale Trade; Utilities; Retail Trade; Public Administration; and Construction. No industry is reporting that their inventories are too low in May.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
May 2006 24 70 6 59.0
April 2006 27 66 7 60.0
March 2006 28 70 2 63.0
February 2006 33 61 6 63.5

*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 approximately 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 June 2006 data will be released at 10:00 a.m. (ET) on July 6, 2006.


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