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May 2005 Non-Manufacturing ISM Report On Business®

FOR RELEASE: June 3, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
Business Activity at 58.5%

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 2005.


Exports Index Up 9.5 Points to 62%
Prices Index Down 4 Points to 57.9%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in May 2005, 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™ Non-Manufacturing Business Survey Committee and coordinator of the Supply Chain Management Program, University of Houston-Downtown. "Non-manufacturing business activity increased for the 26th consecutive month in May," Kauffman said. He added, "Business activity increased at a slower rate in May than in April. However, the faster rates of increase for New Orders and Backlog of Orders in May indicate that business activity in non-manufacturing industries should continue at relatively healthy levels in the near-term future. The Prices Index declined in May compared to April, indicating that recent increases in energy and steel prices are being at least somewhat assimilated by various industries; this reflects the lack of continuing price increases in recent months for these basic commodities."

TOP PERFORMING INDUSTRIES

The 11 industries reporting growth in May — listed in order — are: Insurance; Real Estate; Communication; Utilities; Other Services*; Retail Trade; Health Services; Construction; Business Services; Public Administration; and Wholesale Trade. The five industries reporting activity the same as last month are: Agriculture; Mining; Transportation; Finance & Banking; and Legal Services. The one industry reporting decreased activity from the prior month is Entertainment.

WHAT RESPONDENTS ARE SAYING …
  • "Price increases and interest rates climbing could affect second half of year. A lot of bids now but not many in fall." (Construction)
  • "Business continues to be very strong and above budget." (Other Services)
  • "Steel pricing for pipe and fittings is leveling and dropping in some instances." (Utilities)
  • "Busy busy — increased business with less resources." (Insurance)
  • "Interest rate hike by Fed and weak dollar remain concerns." (Finance & Banking)
  • "Economic uncertainties and frequently fluctuating pricing for products and services globally are causing companies to postpone purchases." (Business Services)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
MAY 2005
  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 58.5 61.7 -3.2 Increasing Slower 26 54.9 56.7 -1.8
New Orders 59.7 58.8 +0.9 Increasing Faster 26 51.7 53.7 -2.0
Employment 53.4 53.3 +0.1 Increasing Faster 20 48.8 52.3 -3.5
Supplier Deliveries 53.5 53.0 +0.5 Slowing Faster 45 50.5 51.5 -1.0
Inventories 51.5 54.5 -3.0 Increasing Slower 4 47.8 47.9 -0.1
Prices 57.9 61.9 -4.0 Increasing Slower 24 58.0 71.0 -13.0
Backlog of Orders 56.5 54.0 +2.5 Increasing Faster 4 51.0 53.0 -2.0
New Export Orders 62.0 52.5 +9.5 Increasing Faster 22 54.9 57.2 -2.3
Imports 57.5 58.5 -1.0 Increasing Slower 25 53.9 56.7 -2.8
Inventory Sentiment 63.0 60.5 +2.5 "Too High" Greater 96 N/A N/A  
Customers' Inventories N/A N/A         47.5 41.5 +6.0

* 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 except for Backlog of Orders, Prices and Customers' Inventories.

** Number of months moving in current direction.

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

Commodities Up in Price

Advertising/Advertising Services; Air Fares (2); Asphalt/Asphalt Products (3); Beef (6); Building Materials/Supplies; Cardboard/Cardboard Boxes; Cellular Phone Service; Cement (2); Computer Hardware (PCs and related products); Construction-Related Goods and Services; Consulting Services; Copper (21); Dairy; #1 Diesel Fuel (3); #2 Diesel Fuel (5); Fuel (18); Fuel Surcharges (2); Furniture; Gasoline* (18); Gypsum Board/Products; Hotel Rates (6); Maintenance Contracts/Services; Network Equipment; Packaging Supplies/Materials (3); Paper/Paper Products (16); Personnel Resources; Photocopiers/Supplies; Plastic Items/Products (5); Plastics (17); Printer Supplies/Toner; Programming Services; Research Materials; Resin; Steel (19); Steel Products* (15); Tape; Transportation/Freight Charges (13); and Travel Costs.

Commodities Down in Price

Gasoline*; Lumber including Pine, Spruce and Treated; Printed Forms and Materials; Steel Products* (2); Telephone Network Access and Rates; and Unleaded Gasoline.

Commodities in Short Supply

Lumber; Roofing Shingles/Materials; and Tires.

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


MAY 2005 NON-MANUFACTURING INDEX SUMMARIES


Business Activity

ISM's Non-Manufacturing Business Activity Index in May decreased to 58.5 percent from April's 61.7 percent, indicating a slower rate of growth of activity in May. This month, 11 sectors report increased business activity, one is reporting decreased activity, and five indicate unchanged activity compared to April.

The industries reporting the highest rates of growth of business activity in May are: Insurance; Real Estate; Communication; Utilities; and Other Services*. The one industry reporting contraction of business activity in May is Entertainment.

Business
Activity
%Higher %Same %Lower Index
May 2005 30 61 9 58.5
Apr 2005 36 55 9 61.7
Mar 2005 37 56 7 63.1
Feb 2005 31 58 11 59.8

THE LAST 12 MONTHS
Month Business
Activity
Index
  Month Business
Activity
Index
May 05 58.5   Nov 04 61.9
Apr 05 61.7   Oct 04 61.5
Mar 05 63.1   Sep 04 58.7
Feb 05 59.8   Aug 04 59.3
Jan 05 59.2   Jul 04 63.4
Dec 04 63.9   Jun 04 61.1
Average for 12 months – 61.0
High – 63.9
Low – 58.5

New Orders

ISM's Non-Manufacturing New Orders Index increased to 59.7 percent in May from 58.8 percent in April. This indicates continued expansion of new orders but at a faster rate of growth than in April. Comments from members include: "Increased market share and successful penetration of new markets, coupled by an increasingly robust economy"; "Increased capital expenditure activity"; "Increased sales"; and "Increased spending."

Industries reporting the highest rates of growth of new orders in May are: Insurance; Real Estate; Other Services*; Utilities; and Communication. The industries reporting contraction of new orders in May are: Entertainment and Finance & Banking.

New
Orders
%Higher %Same %Lower Index
May 2005 30 62 8 59.7
Apr 2005 32 60 8 58.8
Mar 2005 33 59 8 62.1
Feb 2005 31 62 7 61.6

Employment

Employment activity in the non-manufacturing sector increased at a slightly faster rate in May compared to April. This was the 20th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for May is 53.4 percent, a rise of 0.1 percentage point from April's 53.3 percent. Ten industries are reporting increased employment, four report a decrease, and three indicate employment is unchanged from April. Comments from respondents include: "Added staff to handle new work"; "Staffing increased due to new projects and clients"; "Good economy — filling previously 'frozen' positions"; "Reacting to continued growth"; and "Expansion."

The industries reporting the highest rates of growth in employment in May are: Legal Services; Mining; Construction; Real Estate; Public Administration; and Business Services. The industries reporting reductions in employment in May are: Entertainment; Finance & Banking; Other Services*; and Communication.

Employment %Higher %Same %Lower Index
May 2005 21 68 11 53.4
Apr 2005 18 74 8 53.3
Mar 2005 24 67 9 57.1
Feb 2005 20 74 6 59.6

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 45th consecutive month in May. The index registered 53.5 percent, 0.5 percentage point higher than in April. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in May include: "Vendor performance issues"; "No factory inventories"; "Still less than 'ideal' deliveries in most categories"; and "Slower rail transit time."

The industries reporting the highest rates of slowing in supplier deliveries in May are: Communication; Utilities; Wholesale Trade; Construction; and Public Administration. The one industry reporting faster supplier deliveries in May is Retail Trade.

Supplier
Deliveries
%Slower %Same %Faster Index
May 2005 9 89 2 53.5
Apr 2005 9 88 3 53.0
Mar 2005 11 84 5 53.0
Feb 2005 10 85 5 52.5

NOTE: A list of commodities in short supply is available on page 3 of this report.

Inventories

ISM's Non-Manufacturing Inventories Index registered 51.5 percent in May, 3 percentage points lower than the 54.5 percent reported in April. This is the fourth consecutive month of higher inventories after a dip in inventory size in January. Of the total respondents in May, 30 percent indicate they do not have inventories or do not measure them. Comments from members include: "Replenishing bulk supplies"; "To accommodate increase in business activity"; "Spring retail business is increasing"; and "We are building to meet availability of some components."

The industries reporting the highest rates of inventory increases in May are: Legal Services; Real Estate; Retail Trade; Utilities; and Insurance. The industries reporting inventory decreases in May are: Entertainment; Construction; Public Administration; Communication; and Business Services.

Inventory
Change
%Higher %Same %Lower Index
May 2005 18 67 15 51.5
Apr 2005 24 61 15 54.5
Mar 2005 23 59 18 52.5
Feb 2005 25 54 21 52.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 24th consecutive month but at a slower rate of increase than in April. ISM's Non-Manufacturing Prices Index for May is 57.9 percent, down 4 percentage points from the 61.9 percent registered for April. In May, the percentage of members reporting higher prices dropped to 27 percent from 41 percent in April, the proportion indicating no change rose 11 percentage points to 68 percent, and the number noting lower prices increased 3 percentage points to 5 percent.

The industries reporting the highest rates of increase in prices paid in May are: Mining; Agriculture; Transportation; Utilities; and Business Services. The one industry reporting price decreases in May is Real Estate.

Prices %Higher %Same %Lower Index
May 2005 27 68 5 57.9
Apr 2005 41 57 2 61.9
Mar 2005 43 56 1 65.6
Feb 2005 43 54 3 66.4

NOTE: A list of commodities reported up in price and down in price is available on page 2 of this report.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 56.5 percent in May. This is an increase of 2.5 percentage points from the 54 percent reported for April. May's increase in order backlogs marks 24 out of the last 25 months that an increase has been reported in order backlogs. Of the total respondents in May, 42 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "More proposal requests"; "Closing more large bids"; "Inventory replenishment"; and "Continued strong demand impacting inventory levels."

The industries reporting the highest rates of increase in order backlogs in May are: Construction; Utilities; Communication; Insurance; and Other Services*. No industry is reporting a decrease in backlog of orders in May.

Backlog
of Orders
%Higher %Same %Lower Index
May 2005 17 79 4 56.5
Apr 2005 18 72 10 54.0
Mar 2005 17 79 4 56.5
Feb 2005 15 73 12 51.5

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 22nd consecutive month in May. The New Export Orders Index for May is 62 percent compared to April's 52.5 percent, indicating a faster rate of growth in May compared to April. Of the total respondents in May, 73 percent indicated they either do not perform, or do not separately measure, orders for work outside the United States.

The industries reporting the highest rates of increase in new export orders in May are: Finance & Banking; Insurance; Mining; Construction; and Other Services*. The one industry reporting a decrease in new export orders in May is Public Administration.

New Export
Orders
%Higher %Same %Lower Index
May 2005 31 62 7 62.0
April 2005 17 71 12 52.5
Mar 2005 15 73 12 51.5
Feb 2005 19 74 7 56.0

Imports

In May, the ISM Imports Index registered 57.5 percent, 1 percentage point lower than the 58.5 percent reported in April. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in May than in April. May's index marks the 25th consecutive month of import growth. In May, 67 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting the highest rates of increase in the use of imports in May are: Construction; Communication; Finance & Banking; Mining; and Wholesale Trade. The industries reporting decreases in the use of imports in May are: Entertainment; Utilities; and Public Administration.

Imports %Higher %Same %Lower Index
May 2005 22 71 7 57.5
Apr 2005 24 69 7 58.5
Mar 2005 21 76 3 59.0
Feb 2005 23 69 8 57.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in May registered 63 percent, 2.5 percentage points higher than the 60.5 percent reported in April. This indicates that non-manufacturing purchasing and supply executives feel a greater degree of discomfort with current levels of inventory in May than they did during April. In May, 30 percent of respondents felt their inventories were too high, 4 percent indicated their inventories were too low, and 66 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in May are: Construction; Communication; Wholesale Trade; Agriculture; and Business Services. No industry is reporting that their inventories are too low in May.

Inventory
Sentiment
%Too High %About Right %Too Low Index
May 2005 30 66 4 63.0
Apr 2005 28 65 7 60.5
Mar 2005 32 65 3 64.5
Feb 2005 35 59 6 64.5

*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 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, 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 2005 data will be released at 10:00 a.m. (ET) on July 6, 2005.



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