FOR RELEASE: January 4, 2002
|ISM Media Relations|
|800/888-6276, ext. 3015|
DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing and supply reports released across the country or the Manufacturing ISM Report On Business®. The national non-manufacturing report's information reflects the entire United States, while the regional reports cover only their local vicinity. 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 December 2001.
(Tempe, Arizona) — Business activity in the non-manufacturing sector increased more strongly in December 2001 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's™ Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown. "In December, ISM's Non-Manufacturing Business Activity Index indicated an increase growth for the second consecutive month," Kauffman said. He also added, "This second month of non-manufacturing growth, and at a higher rate of growth than in November, appears to indicate that November's growth was not entirely due to a rebound from October's low point following the events of September 11th. Also this month, increases were recorded by six of the Report's nine other indexes. Of the Report's 10 indexes, six are primarily activity-oriented: Business Activity, New Orders, Backlog of Orders, Export Orders, Imports, and Employment. Of these, in addition to Business Activity, New Orders, Export Orders, and Imports registered increases in December and Backlog of Orders and Employment decreased more slowly than in November. The Inventory Sentiment Index, which had risen to a near record high in October, eased again in December but still indicated relatively strong feelings by members that they have more inventory than they would like to have. Supplier Deliveries indicated slower performance for the fourth month, again with a number of comments about transportation delays stemming from the September 11th events. After three months of recording the highest rate of decline in New Orders, the Transportation sector had the second highest rate of increase in New Orders for December."
"ISM's Non-Manufacturing Business Activity Index registered 54.2 percent in December, 2.9 percentage points higher than in November, indicating continued growth in non-manufacturing economic activity. Reports from purchasing and supply executives indicate 11 industry groups contracted or had no change from November, while six indicated growth in December. Increased business activity in December was reported by 21 percent of members, compared to 23 percent in November. Reduced activity was reported by 27 percent of members compared to 25 percent in November. In December the remaining 52 percent of members indicated no change in business activity, the same proportion as in November," said Kauffman.
"Overall in December, non-manufacturing industries experienced a second month of growth in business activity following the dramatic drop-off of activity in October. Four activity-oriented indexes recorded growth in December, with two indicating contraction. The Prices Index remained at a record low level for the second consecutive month, indicating very little inflationary pressure on non-manufacturing industries at the present time," Kauffman commented.
Significant reports of commodities in short supply, or up or down in price in December included only one commodity in short supply, Pharmaceuticals. Also, only one commodity, Pork, was reported increasing in price (there were also some reports of price increases for Beef but there were more reports of price decreases than of increases). Price reductions were reported for 18 commodities, with the highest number of reports for Computers (PCs), Beef, Diesel Fuel, Fuel, Gasoline, and Office Supplies.
Rate of Change
|Business Activity / Production||54.2||51.3||+2.9||Increasing Faster||50.6||47.1||+3.5|
|New Orders||52.6||48.3||+4.3||Increasing from Decreasing||54.9||48.8||+ 6.1|
|Supplier Deliveries||53.5||52.5||+1.0||Slowing Slower||48.0||47.3||+0.7|
|Backlog of Orders||46.5||42.0||+4.5||Decreasing Slower||39.5||38.5||+1.0|
|New Export Orders||55.0||48.5||+6.5||Increasing from Decreasing||48.0||49.3||-1.3|
|Inventory Sentiment||66.5||67.0||-0.5||Decreased Feeling of "too high"||N/A|
* Manufacturing ISM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing ISM Report On Business®data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment.
ISM's Non-Manufacturing Business Activity Index in December rose 2.9 percentage points to 54.2 percent from November's 51.3 percent. The December Business Activity Index is at its highest level since December 2000 (61.1 percent). In December, six sectors reported increased business activity, eight sectors reported decreased activity, and three sectors indicated no change in activity from November. The percent of members reporting increased activity in December was 21 percent compared to 23 percent in November. Members reporting decreased activity was 27 percent in December, compared to 25 percent in November. Those reporting no change in activity in December totaled 52 percent, the same as in November.
The industries reporting the highest rates of growth of business activity in December were: Legal Services; Health Services; Business Services; Entertainment; and Insurance. The industries reporting the highest rates of contraction of business activity in December were: Wholesale Trade; Finance and Banking; Real Estate; Public Administration; and Construction.
|% Higher||% Same||% Lower||Index|
ISM's Non-Manufacturing New Orders Index increased to 52.6 percent in December from 48.3 percent in November. The December Index reversed five months of decreases in New Orders and was the highest New Orders Index since June 2001 (53.1 percent). Comments from members included: "Increased demand"; "Seasonal and promotions selling higher pieces at lower margins," "Slowdown in sales activity," and "Year-end contract volume continued with deep year-end discounts being offered by suppliers."
The industries reporting the highest rates of growth of new orders in December were: Legal Services; Transportation; Agriculture; Business Services; and Entertainment. The industries reporting the highest rates of contraction of new orders in December were: Utilities; Mining; Real Estate Construction; and Wholesale Trade.
|New Orders||% Higher||% Same||% Lower||Index|
Employment in the non-manufacturing sector contracted in December for the 10th consecutive month. ISM's Non-Manufacturing Employment Index for December was 45.1 percent compared to 44.3 percent in November. Comments from members included: "Continue reduction of staff — low revenue," "Reduction in work force," "Layoffs to get expenses in line with revenue," and "Early retirement incentives."
The industries reporting growth in employment in December were: Health Services and Retail Trade. Industries reporting the highest rates of reduction in employment in December were: Insurance; Wholesale Trade; Finance and Banking; Utilities; Agriculture, and Public Administration.
|Employment||% Higher||% Same||% Lower||Index|
The delivery performance of suppliers to non-manufacturing organizations was slower for the fourth consecutive month in December, registering an index value of 53.5 percent, one percentage point above November's 52.5 percent. Comments from purchasing and supply executives concerning supplier deliveries in December included: "Holiday season delays at USPS," "Due to flight delays because of 9/11," "Cannot keep up with demand," and "Holiday changes/personnel."
The industries that reported the highest rates of slowness of supplier deliveries in December were: Legal Services; Utilities; Entertainment; Business Services; and Construction. The industries that reported faster supplier deliveries in December were: Finance and Banking, and Wholesale Trade.
|% Higher||% Same||% Lower||Index|
Material inventories maintained by non-manufacturing organizations decreased in December for the 14th consecutive month at a slightly faster rate than in November. ISM's Non-Manufacturing Inventories Index registered 48.5 percent in December, a decrease of 1 percentage point from the 49.5 percent reported in November. Of the total respondents in December, 28 percent indicated they do not have inventories. Comments from members included: "Serious effort to reduce inventory"; "Continuing assertive efforts to rid warehouse of slow stock"; "Not restocking to earlier levels"; and "Continuing to reduce inventory, especially aged and discontinued stock."
The industries reporting the highest rates of inventory increase in December were: Legal Services; Retail Trade; Finance and Banking; Business Services; and Communication. Industries reporting the highest rates of inventory decrease in December were: Agriculture; Transportation; Real Estate; Construction; and Public Administration.
|% Higher||% Same||% Lower||Index|
Prices paid by non-manufacturing organizations for purchased materials and services dropped in December for the sixth consecutive month, indicating continued downward pressure on prices. ISM's Non-Manufacturing Prices Index for December is 38.5 percent, the same as in November and remaining at the lowest level recorded by this index since inception of ISM's non-manufacturing business survey in July 1997. The percentage of members reporting higher prices decreased 2 percentage points to 4 percent in December, the proportion indicating no change rose 4 percentage points to 69 percent, and the number who noted lower prices decreased 2 percentage points to 27 percent.
No industries reported increases in prices paid in December. The industries that reported the highest rates of price decreases in December were: Finance and Banking; Entertainment; Business Services; Real Estate; Insurance; and Retail Trade.
|Prices||% Higher||% Same||% Lower||Index|
ISM's Non-Manufacturing Backlog of Orders Index registered 46.5 percent in December. This is the 12th consecutive monthly decline in order backlogs. The December index is an increase of 4.5 percentage points from November's 42 percent. Purchasing and supply executive' comments on backlogs of orders included: "Distribution centers over capacity," "Economy and activity for our products are on the increase," "Looking better," and "Catching up." Of the total respondents in December, 33 percent indicated they do not measure backlog of orders.
The industries reporting growth of backlog of orders in December were: Legal Services; Entertainment; Business Services; Real Estate; and Public Administration. The industries reporting the highest rates of decline of order backlogs in December were: Agriculture; Finance and Banking; Transportation; Construction; Communication; and Wholesale Trade.
|% Higher||% Same||% Lower||Index|
Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically-based personnel increased in December after two months of decreases. The New Export Orders Index for December was 55 percent compared to November's 48.5 percent. Of the total respondents in December, 73 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.
The industries reporting increases in new export orders in December were: Public Administration; *Other Services; Wholesale Trade; Business Services; and Communication. Industries reporting decreases in new export orders in December were: Entertainment; Retail Trade; and Construction.
|% Higher||% Same||% Lower||Index|
Use of imported materials by non-manufacturing industries increased in December for the second consecutive month. ISM's Non-Manufacturing Imports Index for December was 57.9 percent, an increase of 5.5 percentage points from the 52.4 percent reported in November. In December, 67 percent of respondents reported that they do not use or do not track use of imported materials.
The industries reporting the highest rates of increase in use of imports in December were: Transportation; Utilities; Health Services; Wholesale Trade; and Business Services. Industries reporting decreased use of imports in December were: Entertainment and Communication.
|Imports||% Higher||% Same||% Lower||Index|
The ISM Non-Manufacturing Inventory Sentiment Index in December registered 66.5 percent compared to 67 percent for November. This decrease in the index level indicates that non-manufacturing purchasing and supply executives felt a lesser degree of discomfort with current levels of inventory in December than they did during November. December's lower index marks the second month of decline in this index. In December, 37 percent of members felt their inventories were too high (38 percent in November). Also in December, 4 percent indicated their inventories were too low (same percentage as in November), and 59 percent said that their inventories were about right (58 percent in November).
The industries that reported the highest rates of feeling that their inventories were "too high" in December were: Legal Services; Mining; Insurance; Wholesale Trade; and Communication. No industry reported its inventories were too low.
|% Too High||% About Right||% Too Low||Index|
*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.
Pharmaceuticals — 2nd month.
Beef — 2nd month (some reports of price increases); Caustic Soda; Cheese — 2nd month; Coffee; Computers (PCs) — 22nd month; Copper Products — 3rd month; Diesel Fuel — 3rd month; Energy; Fuel — 3rd month; Gasoline — 3rd month; Labor; Lumber; Natural Gas — 5th month; Office Supplies; Paper — 2nd month; Plywood; Software; Steel.
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, Imports, 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, 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 world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies, and government. In May 2001 the membership of NAPM voted to change the association's name from the National Association of Purchasing Management to the Institute for Supply Management™ to reflect the increasing strategic and global significance of supply management. For further information, see the ISM Web site at www.ism.ws.
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 January 2002 data will be released at 10:00 a.m. (ET) on February 5, 2002.