February 2007 Non-Manufacturing ISM Report On Business®

FOR RELEASE: March 5, 2007


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

Business Activity at 54.3%

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 February 2007.


New Orders Index at 54.8%
Employment Index at 52.2%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased at a slower rate in February 2007, 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 47th consecutive month in February," Nieves said. He added, "Business Activity and New Orders increased at a slower rate in February than in January. Employment increased at a faster rate than in January. The Prices Index decreased 1.4 percentage points this month to 53.8 percent. Nine non-manufacturing industries reported increased activity in February. Members' comments in February are mixed concerning current business conditions. The overall indication in February is continued economic growth in the non-manufacturing sector, but at a slower pace than in January."

TOP PERFORMING INDUSTRIES

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

WHAT RESPONDENTS ARE SAYING ...
  • "Cautious optimism for continued growth albeit at a slower pace than 2006." (Finance & Insurance)
  • Business markets for professional services are flat from the prior month due to economic and political uncertainty globally. Travel-related services continue to be a challenge due to short supply." (Professional, Scientific & Technical Services)
  • "There seems to be a settling taking place with prices and vendor performance." (Retail Trade)
  • "Encouraged by economic indicators." (Educational Services)
  • "Discretionary consumer business contracting overall, growing in highly differentiated and personalized offerings." (Accommodation & Food Services)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
FEBRUARY 2007
  Non-Manufacturing Manufacturing
Index Series
Index
Feb
Series
Index
Jan
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
Feb
Series
Index
Jan
Percent
Point
Change
Business Activity / Production 54.3 59.0 -4.7 Increasing Slower 47 54.1 49.6 +4.5
New Orders 54.8 55.4 -0.6 Increasing Slower 47 54.9 50.3 +4.6
Employment 52.2 51.7 +0.5 Increasing Faster 31 51.1 49.5 +1.6
Supplier Deliveries 52.5 53.5 -1.0 Slowing Slower 3 50.8 52.7 -1.9
Inventories 50.5 47.0 +3.5 Growing From Contracting 1 44.6 39.9 +4.7
Prices 53.8 55.2 -1.4 Increasing Slower 45 59.0 53.0 +6.0
Backlog of Orders 47.0 49.0 -2.0 Contracting Faster 3 51.5 43.5 +8.0
New Export Orders 59.0 55.0 +4.0 Increasing Faster 20 54.0 52.5 +1.5
Imports 54.0 52.0 +2.0 Increasing Faster 13 61.5 54.5 +7.0
Inventory Sentiment 61.5 65.5 -4.0 "Too High" Slower 117 N/A N/A N/A
Customers' Inventories N/A N/A N/A       53.0 52.0 +1.0

* 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 for New Orders, Production, Employment, Supplier Deliveries and Inventories.
** Number of months moving in current direction.


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

Commodities Up in Price

Asphalt and Asphalt Products; Beef; Electricity; Energy; #2 Diesel Fuel; Freight/Shipping (2); Fuel*; Gasoline* (4); Hotel Costs (9); Paper (37); Printing; and Soy Products.

Commodities Down in Price

Copper (2); Copper Products; Copper Wire; Fuel* (6); Gasoline* (2); Lumber — Pine, Plywood, Spruce and Treated; Office Supplies; Pork Products (2); and PVC Products (2).

Commodities in Short Supply

Contract Personnel; Drugs/Drug-Related Products (2); Fiberglass Pipe and Fittings; Purchasing and Contracts Professionals; and Skilled Labor (2).

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

* Reported as both up and down in price.



FEBRUARY 2007 NON-MANUFACTURING INDEX SUMMARIES

Business Activity

ISM's Non-Manufacturing Business Activity Index in February registered 54.3 percent compared to the seasonally adjusted 59 percent registered in January, indicating a slower rate of growth in business activity in February. The implication is that non-manufacturing business activity is continuing to increase for the 47th consecutive month. Nine industries reported increased business activity, and nine reported decreased activity for the month of February.

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


Business Activity
%
Higher
%
Same
%
Lower

Index
February 2007 27 53 20 54.3
January 2007 30 45 25 59.0
December 2006 26 55 19 56.7
November 2006 32 53 15 58.3


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Feb 2007 54.3   Aug 2006 56.9
Jan 2007 59.0   Jul 2006 55.7
Dec 2006 56.7   Jun 2006 56.9
Nov 2006 58.3   May 2006 59.2
Oct 2006 57.4   Apr 2006 61.1
Sep 2006 54.6   Mar 2006 59.6
Average for 12 months – 57.5
High – 61.1
Low – 54.3

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 54.8 percent in February from the seasonally adjusted 55.4 percent registered in January. This indicates continued expansion of new orders, but at a slower rate than in January. Comments from members include: "Fewer leads or prospects"; "Concern over economy, energy prices, but most of all healthcare"; and "Decline in housing markets."

Industries reporting growth of new orders in February are: Other Services*; Accommodation & Food Services; Transportation & Warehousing; Health Care & Social Assistance; Utilities; Professional, Scientific & Technical Services; Educational Services; and Public Administration. The industries reporting contraction of new orders in February are: Mining; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Arts, Entertainment & Recreation; Construction; Retail Trade; Real Estate, Rental & Leasing; Finance & Insurance; and Wholesale Trade.


New Orders
%
Higher
%
Same
%
Lower

Index
February 2007 27 55 18 54.8
January 2007 27 51 22 55.4
December 2006 24 56 20 55.6
November 2006 29 55 16 56.2

Employment

Employment activity in the non-manufacturing sector increased at a faster rate in February compared to January. This was the 31st consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for February is 52.2 percent, a 0.5 percentage point increase from the seasonally adjusted 51.7 percent reported in January. Seven industries reported increased employment, eight reported a decrease, and three indicated employment is unchanged from January. Comments from respondents include: "Planned workforce reduction of 10 percent"; "Layoffs because of slowing sales"; and "Ramping for more upcoming work."

The industries reporting growth in employment in February are: Other Services*; Transportation & Warehousing; Health Care & Social Assistance; Educational Services; Professional, Scientific & Technical Services; Public Administration; and Retail Trade. The eight industries reporting a reduction in employment in February are: Mining; Arts, Entertainment & Recreation; Construction; Real Estate, Rental & Leasing; Accommodation & Food Services; Finance & Insurance; Utilities; and Wholesale Trade.


Employment
%
Higher
%
Same
%
Lower

Index
February 2007 18 65 17 52.2
January 2007 15 69 16 51.7
December 2006 17 71 12 53.2
November 2006 18 68 14 51.9

Supplier Deliveries

In February, the delivery performance of suppliers to non-manufacturing organizations was slower than in January. The index registered 52.5 percent, 1 percentage point lower than in January, indicating slowing at a slower rate. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in February include: "Delay in manufacturer supplies"; "Winter weather"; and "Worldwide demand is up."

The industries reporting slowing in supplier deliveries in February are: Other Services*; Wholesale Trade; Accommodation & Food Services; Professional, Scientific & Technical Services; Health Care & Social Assistance; and Public Administration. The four industries reporting faster supplier deliveries in February are: Agriculture, Forestry, Fishing & Hunting; Retail Trade; Finance & Insurance; and Utilities.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
February 2007 10 85 5 52.5
January 2007 15 77 8 53.5
December 2006 10 82 8 51.0
November 2006 6 88 6 50.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 50.5 percent in February, an increase of 3.5 percentage points compared to January. Inventories are expanding after a one-month contraction. Of the total respondents in February, 33 percent indicated they do not have inventories or do not measure them. Comments from members include: "Sales lower than forecast" and "Increase of work and extended deliveries are requiring bigger inventory levels."

The industries reporting increases in inventories in February are: Health Care & Social Assistance; Information; Professional, Scientific & Technical Services; Utilities; and Finance & Insurance. The industries reporting decreases in inventories in February are: Real Estate, Rental & Leasing; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Management of Companies & Support Services; Transportation & Warehousing; Accommodation & Food Services; Retail Trade; Public Administration; and Wholesale Trade.


Inventories
%
Higher
%
Same
%
Lower

Index
February 2007 23 55 22 50.5
January 2007 18 58 24 47.0
December 2006 25 57 18 53.5
November 2006 25 53 22 51.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in February for the 45th consecutive month (following the recent seasonal adjustments). ISM's Non-Manufacturing Prices Index for February is 53.8 percent, 1.4 percentage points lower than January's seasonally adjusted index of 55.2 percent. In February, the percentage of respondents reporting higher prices decreased by 6 percentage points to 17 percent as compared to January. The percentage indicating no change increased from 62 percent in January to 74 percent in February. The percentage of respondents noting lower prices decreased from 15 percent in January to 9 percent in February.

The industries reporting an increase in prices paid in February are: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Accommodation & Food Services; Utilities; Health Care & Social Assistance; Public Administration; Wholesale Trade; Finance & Insurance; and Professional, Scientific & Technical Services. The three industries reporting a decrease in prices in February are: Information; Retail Trade; and Educational Services.


Prices
%
Higher
%
Same
%
Lower

Index
February 2007 17 74 9 53.8
January 2007 23 62 15 55.2
December 2006 20 71 9 59.7
November 2006 21 65 14 57.2

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 47 percent in February, 2 percentage points lower than the 49 percent reported in January. This indicates that order backlogs are contracting for the third consecutive month. Of the total respondents in February, 45 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments include: "Less new start orders"; and "Due to downturn, we are able to get backlog orders out and shipped."

The industries reporting an increase in order backlogs in February are: Other Services* and Public Administration. The seven industries reporting a decrease in order backlogs in February are: Management of Companies & Support Services; Construction; Educational Services; Real Estate, Rental & Leasing; Retail Trade; Information; and Wholesale Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
February 2007 15 64 21 47.0
January 2007 17 64 19 49.0
December 2006 13 70 17 48.0
November 2006 25 59 16 54.5

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 20th consecutive month in February. The February index marks 42 of the past 43 months that the index has exhibited growth. The New Export Orders Index for February is 59 percent, compared to January's index of 55 percent. Of the total respondents in February, 72 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 February are: Arts, Entertainment & Recreation; Information; Professional, Scientific & Technical Services; Accommodation & Food Services; Wholesale Trade; Finance & Insurance; and Retail Trade. The two industries reporting a decrease in new export orders in February are: Construction and Mining.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
February 2007 25 68 7 59.0
January 2007 29 52 19 55.0
December 2006 32 59 9 61.5
November 2006 30 57 13 58.5

Imports

In February, the ISM Non-Manufacturing Imports Index registered 54 percent, 2 percentage points higher than January's index of 52 percent, indicating that use of imports increased in February for the 13th consecutive month, at a faster rate than in January. In February, 66 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 February are: Transportation & Warehousing; Information; Accommodation & Food Services; and Other Services*. The three industries reporting a decrease in imports for the month of February are: Public Administration; Arts, Entertainment & Recreation; and Retail Trade.


Imports
%
Higher
%
Same
%
Lower

Index
February 2007 18 72 10 54.0
January 2007 14 76 10 52.0
December 2006 30 64 6 62.0
November 2006 28 63 9 59.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in February registered 61.5 percent, 4 percentage points lower than the 65.5 percent reported in January. This indicates that non-manufacturing purchasing and supply executives feel less discomfort with current levels of inventory in February than they did during January. In February, 30 percent of respondents felt their inventories were too high, 7 percent indicated their inventories were too low, and 63 percent said that their inventories were about right.

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


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
February 2007 30 63 7 61.5
January 2007 35 61 4 65.5
December 2006 34 59 7 63.5
November 2006 24 66 10 57.0

*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 March 2007 data will be released at 10:00 a.m. (ET) on Wednesday, April 4, 2007.


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