August 2006 Non-Manufacturing ISM Report On Business®

FOR RELEASE: September 6, 2006

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


Business Activity at 57%

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 2006.


New Orders Index at 52.1%
Employment Index at 51.4%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in August 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 41st consecutive month in August," Nieves said. He added, "Business Activity increased at a faster rate in August than in July. Employment, New Orders, New Export Orders, Imports, Inventories and Prices increased at a slower rate. Eleven of 18 non-manufacturing industry sectors report increased activity in August. Members' comments in August are mostly positive concerning current business conditions. Prices, fuel expenses, energy costs and interest rates remain areas of concern. The Prices Index decreased 2.4 percentage points this month to 72.4 percent. The overall indication in August is continued economic growth in the non-manufacturing sector at a faster pace than in July."

TOP PERFORMING INDUSTRIES

The 11 industries reporting growth in August — listed in order — are: Management of Companies & Support Services; Transportation & Warehousing; Other Services*; Educational Services; Utilities; Construction; Retail Trade; Accommodation & Food Services; Professional, Scientific & Technical Services; Information; and Finance & Insurance. The three industries reporting activity the same as last month are: Agriculture, Forestry, Fishing & Hunting; Mining; and Arts, Entertainment & Recreation. The four industries reporting decreased activity from July to August are: Real Estate, Rental & Leasing; Health Care & Social Assistance; Wholesale Trade; and Public Administration.

WHAT RESPONDENTS ARE SAYING ...
  • "Oil price fluctuations, availability of travel-related services and security issues in numerous countries are having a negative impact on new business." (Professional, Scientific & Technical Services)
  • "Increase in demand for loans." (Finance & Insurance)
  • "Contract manufacturing demand is up." (Management of Companies & Support Services)
  • "Increased construction activity." (Utilities)
  • "Business strong." (Retail Trade)
  • "Market trend has stabilized since last month in respect to inventory and commodities." (Construction)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
AUGUST 2006
  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 57.0 54.8 +2.2 Increasing Faster 41 56.6 57.6 -1.0
New Orders 52.1 55.6 -3.5 Increasing Slower 41 54.2 56.1 -1.9
Employment 51.4 54.5 -3.1 Increasing Slower 25 54.0 50.7 +3.3
Supplier Deliveries 53.5 54.5 -1.0 Slowing Slower 60 55.0 55.4 -0.4
Inventories 51.5 53.0 -1.5 Increasing Slower 10 50.2 50.5 -0.3
Prices 72.4 74.8 -2.4 Increasing Slower 53 73.0 78.5 -5.5
Backlog of Orders 49.5 56.0 -6.5 Contracting From Growing 1 51.5 50.5 +1.0
New Export Orders 53.0 56.0 -3.0 Increasing Slower 14 55.7 51.9 +3.8
Imports 60.0 60.5 -0.5 Increasing Slower 7 54.0 57.5 -3.5
Inventory Sentiment 59.0 60.0 -1.0 "Too High" Slower 111 N/A N/A N/A
Customers' Inventories N/A N/A N/A       46.0 44.5 +1.5

* 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 (6); Alloy Materials; Aluminum; Asphalt/Asphalt Materials; Brass; Cheese/Cheese Products; Copper (36); Copper Wire (2); Copy Paper (7); #1 Diesel Fuel (6); #2 Diesel Fuel (20); Electricity; Electric Products (2); Fiberglass Pipe/Products; Freight/Shipping/Transportation Costs (6); Fuel (33); Fuel Surcharges; Furniture (2); Gasoline (33); Hotel Costs (3); Natural Gas (2); Paper (31); Paper Products (7); Petroleum/Petroleum Based Products (8); Poly Products; Polyethylene Gas Pipe/Fittings; Roofing Materials (5); Stainless Steel Products; Steel (7); Steel Products (various) (4); and Textile Products.

Commodities Down in Price

Beef; Cell Phones; Computers; Lumber — Pine, Spruce & Treated (3); and Pork.

Commodities in Short Supply

Aluminum; Copper; Fiberglass Pipe/Fittings; Plastic Products; Rental Vehicles; and Transformers.

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



AUGUST 2006 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in August registered 57 percent compared to the 54.8 percent registered in July, indicating a faster rate of growth in business activity in August. The implication is that non-manufacturing business activity is continuing to increase for the 41st consecutive month at a faster rate. The faster rate of growth indicated by this index is not reflected in some of the other indexes this month as evidenced by a 3.5 percentage point decrease in the New Orders Index and a 1 percentage point decrease in the Inventory Sentiment Index. This month, 11 sectors report increased business activity, four are reporting decreased activity, and three are indicating unchanged activity compared to July.

The industries reporting growth of business activity in August are: Management of Companies & Support Services; Transportation & Warehousing; Other Services*; Educational Services; Utilities; Construction; Retail Trade; Accommodation & Food Services; Professional, Scientific & Technical Services; Information; and Finance & Insurance. The four industries reporting contraction of business activity in August are: Real Estate, Rental & Leasing; Health Care & Social Assistance; Wholesale Trade; and Public Administration.


Business Activity
%
Higher
%
Same
%
Lower

Index
August 2006 27 56 17 57.0
July 2006 30 52 18 54.8
June 2006 36 49 15 57.0
May 2006 35 53 12 60.1


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Aug 2006 57.0   Feb 2006 60.1
Jul 2006 54.8   Jan 2006 56.8
Jun 2006 57.0   Dec 2005 61.0
May 2006 60.1   Nov 2005 59.3
Apr 2006 63.0   Oct 2005 59.2
Mar 2006 60.5   Sep 2005 53.7
Average for 12 months – 58.5
High – 63.0
Low – 53.7

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 52.1 percent in August from the 55.6 percent registered in July. This indicates continued expansion of new orders, but at a slower rate of growth than in July. Comments from members include: "Increasing oil prices impacting funding for consulting services globally"; "Increase in customer demand"; and "Housing market slowdown."

Industries reporting growth of new orders in August are: Other Services*; Management of Companies & Support Services; Educational Services; Retail Trade; Utilities; Information; and Professional, Scientific & Technical Services. The industries reporting contraction of new orders in August are: Real Estate, Rental & Leasing; Construction; Accommodation & Food Services; Health Care & Social Assistance; Public Administration; Wholesale Trade; and Finance & Insurance.


New Orders
%
Higher
%
Same
%
Lower

Index
August 2006 22 60 18 52.1
July 2006 28 58 14 55.6
June 2006 36 48 16 56.6
May 2006 32 59 9 59.6

Employment

Employment activity in the non-manufacturing sector increased at a slower rate in August compared to July. This was the 25th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for August is 51.4 percent, a decrease of 3.1 percentage points from the 54.5 percent reported in July. Eight industries are reporting increased employment, seven are reporting a decrease, and three indicate employment is unchanged from July. Comments from respondents include: "More job awards"; "Large backlog of positions"; "Hiring freeze implemented"; and "Attrition, no replacements."

The industries reporting growth in employment in August are: Mining; Arts, Entertainment & Recreation; Transportation & Warehousing; Health Care & Social Assistance; Educational Services; Wholesale Trade; Management of Companies & Support Services; and Finance & Insurance. The seven industries reporting a reduction in employment in August are: Real Estate, Rental & Leasing; Retail Trade; Information; Construction; Accommodation & Food Services; Professional, Scientific & Technical Services; and Public Administration.


Employment
%
Higher
%
Same
%
Lower

Index
August 2006 15 72 13 51.4
July 2006 19 75 6 54.5
June 2006 22 66 12 52.0
May 2006 25 68 7 58.0

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 60th consecutive month in August. The index registered 53.5 percent, 1 percentage point lower than in July, indicating that deliveries are slowing at a slower rate than in July. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in August include: "Leadtimes still extended on many utility goods"; "Late supplier shipments"; and "Shortages."

The industries reporting slowing in supplier deliveries in August are: Mining; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Utilities; Educational Services; Construction; Accommodation & Food Services; Retail Trade; and Wholesale Trade. The three industries reporting faster supplier deliveries in August are: Real Estate, Rental & Leasing; Management of Companies & Support Services; and Public Administration.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
August 2006 13 81 6 53.5
July 2006 13 83 4 54.5
June 2006 17 78 5 56.0
May 2006 15 83 2 56.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 51.5 percent in August, a decrease of 1.5 percentage points compared to July. This is the 10th consecutive month of reported increases in non-manufacturing inventories. Of the total respondents in August, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "Manufacturing issues and running JIT inventories very close"; "Inventory reduction efforts underway"; and "Intentionally lowering inventories to reflect slower business activity."

The industries reporting increases in inventories in August are: Wholesale Trade; Finance & Insurance; Professional, Scientific & Technical Services; Health Care & Social Assistance; and Public Administration. The industries reporting decreases in inventories in August are: Other Services*; Educational Services; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Management of Companies & Support Services; and Accommodation and Food Services.


Inventories
%
Higher
%
Same
%
Lower

Index
August 2006 20 63 17 51.5
July 2006 21 64 15 53.0
June 2006 22 59 19 51.5
May 2006 27 64 9 59.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the 53rd consecutive month. ISM's Non-Manufacturing Prices Index for August is 72.4 percent, 2.4 percentage points lower than July's index of 74.8 percent. In August, the percentage of respondents reporting higher prices decreased 8 percent to 43 percent compared to July at 51 percent, the proportion indicating no change increased from 45 percent in July to 54 percent in August, and the percentage of respondents noting lower prices decreased from 4 percent to 3 percent in August.

The industries reporting an increase in prices paid in August are: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Utilities; Construction; Wholesale Trade; Finance & Insurance; Real Estate, Rental & Leasing; Management of Companies & Support Services; Retail Trade; Professional, Scientific & Technical Services; Educational Services; Information; Public Administration; and Transportation & Warehousing. No industry reported a decrease in prices in August.


Prices
%
Higher
%
Same
%
Lower

Index
August 2006 43 54 3 72.4
July 2006 51 45 4 74.8
June 2006 50 46 4 73.9
May 2006 54 43 3 77.5

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 49.5 percent in August, 6.5 percentage points lower than the 56 percent reported in July. This indicates that order backlogs are contracting for the first time in 19 months. Of the total respondents in August, 46 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Vendor deliveries running behind" and "OEM's catching up to demand."

The industries reporting an increase in order backlogs in August are: Mining; Educational Services; Other Services*; Utilities; and Construction. Industries reporting decreases in backlog of orders in August are: Transportation & Warehousing; Health Care & Social Assistance; Professional, Scientific & Technical Services; Information; Public Administration; Finance & Insurance; and Retail Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
August 2006 17 65 18 49.5
July 2006 22 68 10 56.0
June 2006 25 61 14 55.5
May 2006 15 74 11 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 14th consecutive month in August. The August index marks 36 of the past 37 months that the index has exhibited growth. The New Export Orders Index for August is 53 percent, compared to July's index of 56 percent. Of the total respondents in August, 69 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 August are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Construction; Accommodation & Food Services; Retail Trade; and Finance & Insurance. The two industries reporting a decrease in new export orders in August are: Public Administration and Wholesale Trade.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
August 2006 20 66 14 53.0
July 2006 22 68 10 56.0
June 2006 26 57 17 54.5
May 2006 30 68 2 64.0

Imports

In August, the ISM Non-Manufacturing Imports Index registered 60 percent, 0.5 percentage point lower than July's index of 60.5 percent, indicating that use of imports increased in August for the seventh consecutive month. In August, 65 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 August are: Transportation & Warehousing; Other Services*; Management of Companies & Support Services; Educational Services; Accommodation & Food Services; Wholesale Trade; and Retail Trade. The one industry reporting a decrease in imports for the month of August is Public Administration.


Imports
%
Higher
%
Same
%
Lower

Index
August 2006 22 76 2 60.0
July 2006 25 71 4 60.5
June 2006 20 71 9 55.5
May 2006 19 79 2 58.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in August registered 59 percent, 1 percentage point lower than the 60 percent reported in July. This indicates that non-manufacturing purchasing and supply executives feel a lesser degree of discomfort with current levels of inventory in August than they did during July. In August, 28 percent of respondents felt their inventories were too high, 10 percent indicated their inventories were too low, and 62 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in August are: Other Services*; Construction; Transportation & Warehousing; Wholesale Trade; Educational Services; Information; Health Care & Social Assistance; Retail Trade; and Utilities. The four industries reporting that their inventories are too low in August are: Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; and Real Estate, Rental & Leasing.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
August 2006 28 62 10 59.0
July 2006 28 64 8 60.0
June 2006 30 66 4 63.0
May 2006 24 70 6 59.0

*Other Services include:
Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating 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 purchasing and supply executives nationwide. Membership of the Non-Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). The Non-Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Other Services*; and Public Administration.

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.

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 2006 data will be released at 10:00 a.m. (ET) on Wednesday, October 4, 2006.