January 2008 Non-Manufacturing ISM Report On Business®

FOR RELEASE: February 5, 2008


Contact: Andrea Waas
ISM, Vice President - Business & Public Relations
Tempe, Arizona
800/888-6276, Ext. 3009
E-mail: awaas@ism.ws

NMI (Non-Manufacturing Index) at 44.6%

The January 2008 Non-Manufacturing ISM Report On Business® is being released early today due to a possible breach of information. This early release time is for today's Report only.

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 January 2008.

This report reflects the U.S. Department of Commerce's recently completed annual adjustments to the seasonal adjustment factors used to calculate the indexes.


Business Activity Index at 41.9%
New Orders Index at 43.5%
Employment Index at 43.9%

(Tempe, Arizona) — Business activity in the non-manufacturing sector contracted in January for the first time in 58 months, 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. "The new NMI (Non-Manufacturing Index) at 44.6 percent indicates contraction within the non-manufacturing sector for January 2008. Non-manufacturing business activity contracted for the first time since March 2003," Nieves said. He added, "The New Orders Index contracted to 43.5 percent, the lowest since October 2001. The Employment Index contracted to 43.9 percent, the lowest since February 2002. The Prices Index decreased to 70.7 percent in January, indicating a slight slowing in price increases for January. According to the new NMI, only three non-manufacturing industries reported growth in January. Members' comments in January indicate that weakness in the economy coupled with increased costs have negatively affected their business. Members have also indicated that they are experiencing inflationary pressures. The overall indication in January is that non-manufacturing has come to the end of a long-term period of growth and has contracted for the month of January."

TOP PERFORMING INDUSTRIES (Based on the NMI)

The three industries reporting growth in January based on the new NMI composite index — listed in order — are: Utilities; Professional, Scientific & Technical Services; and Educational Services. The 14 industries reporting contraction in January — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Construction; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; Health Care & Social Assistance; Finance & Insurance; Information; Wholesale Trade; Retail Trade; Public Administration; Other Services*; and Real Estate, Rental & Leasing.

WHAT RESPONDENTS ARE SAYING ...
  • "Recession fears taking hold as cost containment strategies have been dusted off from 2002." (Finance & Insurance)
  • "Business [is] slow as normal after holiday rush." (Management of Companies & Support Services)
  • "Oil increases affecting delivery costs and the costs of goods." (Retail Trade)
  • "Business is tough coming into Q1 after a very tough, unprofitable Q4. Competitive pricing is driving rates to unreasonable levels as competition is over fleeted." (Real Estate, Rental & Leasing)
  • "... business activity is currently lower than normal at this time." (Wholesale Trade)

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
JANUARY 2008
  Non-Manufacturing Manufacturing
Index Series
Index
Jan.
Series
Index
Dec.
Percent
Point
Change
Direction Rate
of
Change
Trend**
(Months)
Series
Index
Jan.
Series
Index
Dec.
Percent
Point
Change
NMI/PMI 44.6 N/A N/A Contracting N/A 1 50.7 48.4 + 2.3
Business Activity/Production 41.9 54.4 - 12.5 Contracting From Growing 1 55.2 48.6 + 6.6
New Orders 43.5 53.9 - 10.4 Contracting From Growing 1 49.5 46.9 + 2.6
Employment 43.9 51.8 - 7.9 Contracting From Growing 1 47.1 48.7 - 1.6
Supplier Deliveries 49.0 52.5 - 3.5 Faster From Slowing 1 52.8 52.6 + 0.2
Inventories 44.5 50.5 - 6.0 Contracting From Growing 1 49.1 45.4 + 3.7
Prices 70.7 71.5 - 0.8 Increasing Slower 56 76.0 68.0 + 8.0
Backlog of Orders 46.0 49.0 - 3.0 Contracting Faster 5 44.0 43.0 + 1.0
New Export Orders 52.0 50.0 + 2.0 Growing From Unchanged 1 58.5 52.5 + 6.0
Imports 41.5 50.5 - 9.0 Contracting From Growing 1 52.5 48.0 + 4.5
Inventory Sentiment 57.0 64.5 - 7.5 "Too High" Slower 128 N/A N/A N/A
Customers' Inventories N/A N/A N/A N/A N/A N/A 49.5 51.5 - 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 for New Orders, Production, Employment, Supplier Deliveries and Inventories.

** Number of months moving in current direction.

Indexes reflect newly released seasonal adjustment factors.


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

Commodities Up in Price

Copper Wire; Corn (2); Cotton Products; Diesel Fuel (4); #2 Diesel Fuel (4); Fuel (12); Fuel Surcharges; Gasoline (5); Oil; Paper (3); Plastic Bags (2); Poly Products; Rental Vehicles (2); Scientific Equipment/Supplies; Soy Products; Steel Products; and #10 Window Envelopes.

Commodities Down in Price

Cheese; Electronics; and Wallboard/Sheetrock.

Commodities in Short Supply

Titanium is the only commodity reported in short supply.

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


SPECIAL QUESTIONS

Two additional questions were asked in a special poll of the non-manufacturing panel in January.

Question 1 — Is the turmoil in financial markets having any effect on your firm's ability to obtain regular or additional financing?

Yes — 14.6%
No — 85.4%

Question 2 — Indicate how you and your management feel about the next 12 months compared to 2007.

Better 16%
Same 42%
Worse 42%
Diffusion Index 37%


JANUARY 2008 NON-MANUFACTURING INDEX SUMMARIES



NMI (Non-Manufacturing Index)

Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. January's NMI at 44.6 percent indicates a contraction in the non-manufacturing sector. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

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

Business Activity

ISM's Non-Manufacturing Business Activity Index in January registered 41.9 percent, indicating a significant contraction in business activity in January from the seasonally adjusted 54.4 percent registered in December. This is the first contraction in the non-manufacturing sector since March 2003, when the index registered 46.3 percent, and the lowest Business Activity Index since registering 40 percent in October 2001. Two industries reported increased business activity, and 14 industries reported decreased activity for the month of January. Two industries reported no change from December. Comments from respondents include: "Pervasive economic weakness"; "Less customer demand, stiffer competition"; and "Fewer job orders, fewer inquiries about our capabilities."

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


Business Activity
%
Higher
%
Same
%
Lower

Index
January 2008 18 40 42 41.9
December 2007 24 54 22 54.4
November 2007 29 51 20 54.6
October 2007 29 51 20 55.5


THE LAST 12 MONTHS
Month Business
Activity Index
  Month Business
Activity Index
Jan 2008 41.9   Jul 2007 55.9
Dec 2007 54.4   Jun 2007 59.7
Nov 2007 54.6   May 2007 58.4
Oct 2007 55.5   Apr 2007 56.0
Sep 2007 55.7   Mar 2007 53.0
Aug 2007 56.3   Feb 2007 54.9
Average for 12 months — 54.7
High — 59.7
Low — 41.9

New Orders

ISM's Non-Manufacturing New Orders Index contracted to 43.5 percent in January, a significant reduction of 10.4 percentage points from the seasonally adjusted 53.9 percent registered in December. This is the first contraction of non-manufacturing new orders since March 2003 when the index registered 49.9 percent, and the lowest new orders index since it registered 40 percent in October 2001. Comments from respondents include: "Sluggish sales"; "Not as many opportunities"; and "Economic uncertainty."

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


New Orders
%
Higher
%
Same
%
Lower

Index
January 2008 18 46 36 43.5
December 2007 25 50 25 53.9
November 2007 20 63 17 52.0
October 2007 27 54 19 55.4

Employment

Employment activity in the non-manufacturing sector decreased in January for the first time in five months. ISM's Non-Manufacturing Employment Index for January registered 43.9 percent, a 7.9 percentage point decrease from the seasonally adjusted 51.8 percent reported in December. One industry reported increased employment, 12 industries reported a decrease, and 5 industries indicated employment is unchanged from December. Comments from respondents include: "Did not replace some positions"; "Reduced headcounts with hiring freezes in place"; and "Layoffs."

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


Employment
%
Higher
%
Same
%
Lower

Index
January 2008 6 70 24 43.9
December 2007 16 71 13 51.8
November 2007 17 68 15 51.4
October 2007 17 66 17 52.4

Supplier Deliveries

Supplier deliveries were faster in January with the index registering 49 percent. A reading above 50 percent indicates slower deliveries.

The industries reporting slowing in supplier deliveries in January are: Real Estate, Rental & Leasing; Accommodation & Food Services; Health Care & Social Assistance; Retail Trade; and Professional, Scientific & Technical Services. The industries reporting faster supplier deliveries in January are: Management of Companies & Support Services; Wholesale Trade; Educational Services; Finance & Insurance; Public Administration; and Information.


Supplier Deliveries
%
Slower
%
Same
%
Faster

Index
January 2008 8 82 10 49.0
December 2007 13 79 8 52.5
November 2007 10 83 7 51.5
October 2007 9 82 9 50.0

Inventories

ISM's Non-Manufacturing Inventories Index registered 44.5 percent in January, indicating that inventory levels contracted in January. Of the total respondents in January, 34 percent indicated they do not have inventories or do not measure them. Comments from members include: "Lowering inventories to improve cash position"; "Slower sales than forecasted"; and "Anticipated reduction for end of year."

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


Inventories
%
Higher
%
Same
%
Lower

Index
January 2008 14 61 25 44.5
December 2007 26 49 25 50.5
November 2007 22 57 21 50.5
October 2007 18 63 19 49.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in January for the 56th consecutive month. ISM's Non-Manufacturing Prices Index for January registered 70.7 percent, 0.8 percentage point lower than December's seasonally adjusted index of 71.5 percent. In January, the percentage of respondents reporting higher prices increased 4 percentage points to 41 percent. The percentage indicating no change in prices paid decreased 7 percentage points to 54 percent. The percentage of respondents noting lower prices increased 3 percentage points to 5 percent.

The industries reporting an increase in prices paid in January are: Mining; Utilities; Transportation & Warehousing; Accommodation & Food Services; Educational Services; Construction; Retail Trade; Information; Professional, Scientific & Technical Services; Wholesale Trade; Finance & Insurance; Management of Companies & Support Services; Public Administration; and Health Care & Social Assistance. The industries reporting a decrease in prices paid in January are: Agriculture, Forestry, Fishing & Hunting; Other Services*; and Real Estate, Rental & Leasing. The one industry with prices unchanged in January is Arts, Entertainment & Recreation.


Prices
%
Higher
%
Same
%
Lower

Index
January 2008 41 54 5 70.7
December 2007 37 61 2 71.5
November 2007 46 51 3 73.7
October 2007 30 67 3 66.1

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index contracted in January for the fifth consecutive month, registering 46 percent, 3 percentage points lower than the 49 percent reported in December. Of the total respondents in January, 44 percent indicated they do not measure backlog of orders.

The industries reporting an increase in order backlogs in January are: Utilities; Information; and Educational Services. The industries reporting lower backlog of orders in January are: Management of Companies & Support Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; Public Administration; Construction; and Wholesale Trade.


Backlog of Orders
%
Higher
%
Same
%
Lower

Index
January 2008 13 66 21 46.0
December 2007 20 58 22 49.0
November 2007 17 63 20 48.5
October 2007 4 79 17 43.5

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 month of January. The New Export Orders Index for January registered 52 percent, compared to December's index of 50 percent. Of the total respondents in January, 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 January are: Finance & Insurance; Management of Companies & Support Services; Retail Trade; and Professional, Scientific & Technical Services. The industries reporting a decrease in export orders in January are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; and Wholesale Trade.

New
Export Orders
%
Higher
%
Same
%
Lower

Index
January 2008 21 62 17 52.0
December 2007 22 56 22 50.0
November 2007 26 59 15 55.5
October 2007 26 60 14 56.0

Imports

The ISM Non-Manufacturing Imports Index contracted significantly in January. The index registered 41.5 percent, 9 percentage points lower than December's index of 50.5 percent. In January, 68 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 January are: Other Services* and Wholesale Trade. The industries reporting a decrease in imports for the month of January are: Public Administration; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; and Retail Trade.


Imports
%
Higher
%
Same
%
Lower

Index
January 2008 10 63 27 41.5
December 2007 14 73 13 50.5
November 2007 17 65 18 49.5
October 2007 23 65 12 55.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in January registered 57 percent, 7.5 percentage points lower than the 64.5 percent reported in December. This indicates that fewer non-manufacturing purchasing and supply executives feel discomfort with current levels of inventory in January than in December. In January, 23 percent of respondents felt their inventories were too high, nine percent indicated their inventories were too low, and 68 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in January are: Wholesale Trade; Management of Companies & Support Services; Health Care & Social Assistance; Accommodation & Food Services; Information; Professional, Scientific & Technical Services; and Retail Trade. The industries reporting that their inventories are too low are: Real Estate, Rental & Leasing; Public Administration; and Construction.


Inventory Sentiment
%Too
High
%About
Right
%Too
Low

Index
January 2008 23 68 9 57.0
December 2007 32 65 3 64.5
November 2007 28 67 5 61.5
October 2007 26 68 6 60.0

*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. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. 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 February 2008 data will be released at 10:00 a.m. (ET) on Wednesday, March 5, 2008.


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