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August 2001 Non-Manufacturing NAPM Report On Business®

FOR RELEASE: September 6, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTRACTS IN AUGUST SAY PURCHASING AND SUPPLY EXECUTIVES IN LATEST NON-MANUFACTURING NAPM REPORT ON BUSINESS®

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing and supply reports released across the country or the Manufacturing NAPM 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 August 2001.

New Orders, Order Backlogs, Exports, Inventories, Employment, and Prices Decrease
Imports Increase and Supplier Deliveries are Faster

(Tempe, Arizona) — Business activity in the non-manufacturing sector shrank in August 2001 say the nation's purchasing and supply executives in the latest Non-Manufacturing NAPM Report On Business®.

The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the National Association of Purchasing Management's Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program, University of Houston-Downtown. "In August, NAPM's Non-Manufacturing Business Activity Index indicated decreased activity in the non-manufacturing economy compared to July," Kauffman said. "New Orders decreased and Order Backlogs shrank more rapidly in August than in July. Exports also decreased while Imports increased for the first time in eight months. Employment was reduced and Inventories continued to decline. Supplier Deliveries were faster in August for the first time since the inception of NAPM's non-manufacturing business survey in July 1997. Prices decreased in August for the second consecutive month, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing and supply executives felt a somewhat greater degree of discomfort with the level of inventories in August than they did in July," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 45.5 percent in August, 3.4 percentage points lower than in July and a new low for the index, indicating contraction in non-manufacturing economic activity. Reports from purchasing and supply executives indicate most industries are continuing to contract while a few indicate growth in August. Increased business activity in August was reported by 18 percent of members, compared to 21 percent in July. Of the industry groups reporting in the August NAPM non-manufacturing survey, 3 indicated increased activity, 10 indicated decreased activity, and 3 reported no change in activity compared to July. In July, 6 industry groups reported increased activity, 7 reported decreased activity, and 4 reported no change in activity level," said Kauffman.

"Overall in August, non-manufacturing industries continued to contract, in both business activity and new orders, compared to July. Also this month, the Backlog of Orders Index continued to indicate reduction of the number of orders not yet filled, non-manufacturing inventories decreased for the 10th consecutive month and more rapidly than in July, employment declined for the sixth consecutive month, and prices paid by non-manufacturers decreased for the second consecutive month," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index August
Index %
July
Index %
Index Change
from July
Direction &
Rate of Change
August
Index %
July
Index %
Index Change
from July
Business Activity/ Production 45.5 48.9 -3.4 Decreasing Faster 52.2 46.4 +5.8
New Orders 45.9 48.6 -2.7 Decreasing Faster 53.1 46.3 +6.8
Backlog of Orders 41.5 42.5 -1.0 Decreasing Faster 44.5 42.5 +2.0
New Export Orders 47.5 53.0 -5.5 Decreasing from Increasing 51.9 48.2 +3.7
Inventories 43.5 46.0 -2.5 Decreasing Faster 37.7 35.8 +1.9
Inventory Sentiment 65.5 61.5 +4.0 Increased Feeling of "too high" N/A    
Imports 53.8 49.9 +3.9 Increasing from Decreasing 49.7 47.3 +2.4
Prices 48.0 49.0 -1.0 Decreasing Faster 33.9 38.7 -4.8
Employment 45.9 46.4 -0.5 Decreasing Faster 40.8 37.2 +3.6
Supplier Deliveries 48.0 50.5 -2.5 Faster from Slower 46.5 47.4 -0.9

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing NAPM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Imports, and Employment.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index in August decreased 3.4 percentage points to 45.5 percent from July's 48.9 percent. August's Index continued the trend of contraction in business activity indicated in 4 of the last 5 months. Only three sectors reported increased business activity in August. The percent of members reporting increased activity in August is 18 percent compared to 21 percent in July. Members reporting decreased activity was 26 percent in August, the same as in July. Those reporting no change in activity in August totaled 56 percent, an increase of 3 percentage points from July's 53 percent.

The industries reporting growth of business activity in August were: Insurance; Entertainment; and Public Administration. The industries reporting the highest rates of contraction of business activity in August were: Communication; Real Estate; Construction; Wholesale Trade; and Agriculture.

Business
Activity
% Higher % Same % Lower Index
August 2001 18 56 26 45.5
July 2001 21 53 26 48.9
June 2001 30 50 20 52.1
May 2001 26 46 28 46.6

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index dropped to 45.9 percent in August from 48.6 percent in July. August's Index tied (with April 2001) for the lowest New Orders report since inception of NAPM's non-manufacturing business survey in July 1997. Comments from members included: "Orders are down from last month — customers are spending less," "Clients seeking to reduce expenses," "Company belt-tightening, scale back of capital expense," "Some new projects starting."

The industries reporting growth of new orders in August were: Insurance; Public Administration; Health Services; *Other Services; and Entertainment. The industries reporting the highest rates of contraction of new orders in August were: Communication; Wholesale Trade; Business Services; Construction; Transportation; and Agriculture.

New Orders % Higher % Same % Lower Index
August 2001 19 54 27 45.9
July 2001 20 52 28 48.6
June 2001 32 48 20 53.1
May 2001 27 49 24 48.6

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index registered 41.5 percent in August. This is the eighth consecutive monthly decline in order backlogs and the lowest Backlog of Orders Index since inception of NAPM's non-manufacturing business survey in July 1997. The August index is a decrease of 1 percentage point from July's 42.5 percent. Purchasing and supply executives' comments on backlogs of orders included: "Caught up with demand," "Major contracts completed," "Lower volume," and "Improved systems enabled analysis/forecasts to prevent backlogs." Of the total respondents in August, 31 percent indicated they do not measure backlog of orders.

The only industry reporting growth of backlog of orders in August was Entertainment. The industries reporting the highest rates of decline of order backlogs in August were: Agriculture; Retail Trade; Transportation; Finance and Banking; and Health Services.

Backlog
of Orders
% Higher % Same % Lower Index
August 2001 10 63 27 41.5
July 2001 9 67 24 42.5
June 2001 13 72 15 49.0
May 2001 16 61 23 46.5

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was faster in August than in July, registering an index value of 48 percent. This is the first Supplier Deliveries Index below 50 percent, indicating faster deliveries since the inception of NAPM's non-manufacturing business survey in July 1997. Comments from purchasing and supply executives included: "Quicker rail deliveries," "More supplier inventories, less demand (due to slowing economy)," "Supplier business is down," and "Improved supply chain processes, including inventories at distributors."

The industries that reported slowness of supplier deliveries in August were: Real Estate; Public Administration; and Finance and Banking. The industries that reported the highest rates of faster supplier deliveries in August were: Communication; Agriculture; Insurance; Utilities; and Health Services.

Supplier
Deliveries
% Higher % Same % Lower Index
August 2001 10 84 6 48.0
July 2001 5 89 6 50.5
June 2001 5 88 7 51.0
May 2001 3 90 7 52.0

Non-Manufacturing 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 decreased in August after increasing in July. The New Export Orders Index for August is 47.5 percent compared to July's 53 percent. Of the total respondents in August, 74 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 August were: Retail Trade and Wholesale Trade. Industries reporting decreases in new export orders in August were: Public Administration; *Other Services; Communication; and Business Services.

New Export
Orders
% Higher % Same % Lower Index
August 2001 13 69 18 47.5
July 2001 18 70 12 53.0
June 2001 16 67 17 49.5
May 2001 15 67 18 48.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in August for the first time in eight months. NAPM's Non-Manufacturing Imports Index for August was 53.8 percent, an increase of 3.9 percentage points from the 49.9 percent reported in July. In August, 69 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting increased use of imports in August were: Wholesale Trade; Business Services; and Retail Trade. Industries reporting decreased use of imports in August were: Construction; Transportation; Communication; and *Other Services.

Imports % Higher % Same % Lower Index
August 2001 15 77 8 53.8
July 2001 11 81 8 49.9
June 2001 14 72 14 48.6
May 2001 8 84 8 48.5

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in August for the 10th consecutive month and at a faster rate than in July. NAPM's Non-Manufacturing Inventories Index registered 43.5 percent in August, a decrease of 2.5 percentage points from the 46 percent reported in July. Of the total respondents in August, 28 percent indicated they do not have inventories. Comments from members included: "Aggressive inventory management," "Lower purchase levels, usage, working off inventory," "reduced 'stocking' inventories to 1-2 months supply due to sales slowdown," and "Still need to reduce."

The industries reporting inventory increases in August were: Insurance; Entertainment; Real Estate; and Construction. Industries reporting the highest rates of inventory decrease in August were: Transportation; Wholesale Trade; Retail Trade; Communication; and Health Services.

Inventory
Change
% Higher % Same % Lower Index
August 2001 13 61 26 43.5
July 2001 20 52 28 46.0
June 2001 20 57 23 48.5
May 2001 18 59 23 47.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in August registered 65.5 percent compared to 61.5 percent for July. This increase in the index level indicates that non-manufacturing purchasing and supply executives felt a greater degree of discomfort with current levels of inventory in August than they did during July. In August, 38 percent of members felt their inventories were too high (32 percent in July). Also in August, 7 percent indicated their inventories were too low (9 percent in July), and 55 percent said that their inventories were about right (59 percent in July).

The industries that reported the highest rates of feeling that their inventories were "too high" in August were: Transportation; Insurance; Entertainment; Utilities; and Wholesale Trade.

Inventory
Sentiment
% Too High % About Right % Too Low Index
August 2001 38 55 7 65.5
July 2001 32 59 9 61.5
June 2001 36 58 6 65.0
May 2001 35 57 8 63.5

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services decreased in August for the second consecutive month, indicating continued downward pressure on prices. NAPM's Non-Manufacturing Prices Index for August is 48 percent, 1 percentage point lower than July's 49 percent. The percentage of members reporting higher prices remained at 10 percent in August, the proportion indicating no change dropped 2 percentage points to 76 percent, and the number who noted lower prices rose 2 percentage points to 14 percent.

The industries that reported increases in prices paid in August were: Agriculture; Utilities; Construction; and Public Administration. The industries that reported the highest rates of price decreases in August were: Retail Trade; Insurance; Health Services; Wholesale Trade; and *Other Services.

Prices % Higher % Same % Lower Index
August 2001 10 76 14 48.0
July 2001 10 78 12 49.0
June 2001 20 71 9 55.5
May 2001 26 67 7 59.5

Non-Manufacturing Employment

Employment in the non-manufacturing sector contracted in August for the sixth consecutive month. NAPM's Non-Manufacturing Employment Index for August was 45.9 percent compared to 46.4 percent in July. Comments from members included: "Reducing headcount to reduce operating expenses," "Downsizing through attrition," and "Continuing force reductions to meet business levels."

Industries reporting growth in employment in August were: Insurance; Mining; and Utilities. Industries reporting the highest rates of reduction in employment in August were: Communication; Agriculture; Real Estate; Entertainment; and Wholesale Trade.

Employment % Higher % Same % Lower Index
August 2001 10 71 19 45.9
July 2001 14 70 16 46.4
June 2001 14 67 19 45.1
May 2001 15 65 20 46.6

*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.

Commodities Reported in Short Supply

Pharmaceuticals — 2nd month.

Commodities Reported Up in Price

Corn — 2nd month; Dairy — 3rd month; Petroleum Products — 4th month; Pork — 5th month.

Commodities Reported Down in Price

Computers (PCs) — 18th month; Copper and Copper Products; Corrugated; Diesel Fuel — 2nd month; Electricity; Energy — 2nd month; Exam (latex) gloves; Fuel — 2nd month (some reports of price increases); Gasoline — 2nd month; Lumber; Natural Gas; Packaging; Paper — 2nd month.

Data and Method of Presentation

The Non-Manufacturing NAPM 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. The resulting single index number is not seasonally adjusted.

A weighted composite index similar to the PMI that is so popular in the Manufacturing NAPM 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 NAPM Report on Business® is published monthly by the National Association of Purchasing Management, the largest supply management research and education organization in the United States. In May 2001 the membership of the National Association of Purchasing Management voted to change the association's name to the Institute for Supply Management™. The association, established in 1915, is the world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, organizations, and government. This change reflects recognition of the increasing strategic and global significance of supply management, and becomes effective January 1, 2002. For further information, see NAPM's Web site at www.ism.ws.

The full text version of the Non-Manufacturing NAPM Report on Business® is posted on NAPM'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 NAPM Report on Business® featuring the September 2001 data will be released at 10:00 a.m. (ET) on October 3, 2001.


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