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November 2003 Non-Manufacturing ISM Report On Business®

FOR RELEASE: December 3, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015

Business Activity at 60.1%

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 November 2003.

New Orders, Order Backlogs, Employment, Inventories, Imports, Prices, Exports Increase

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased in November 2003, 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 purchasing and supply management program, University of Houston-Downtown. "Non-manufacturing Business Activity increased for the eighth consecutive month in November," Kauffman said. He added, "Also in November, New Orders, Order Backlogs, Employment, Inventories, Prices, Imports, and Exports increased."

Purchasing and supply executives report that business activity continued to increase in November in the non-manufacturing sector, but at a lower rate of increase than in October. The Business Activity Index for November is 60.1 percent. November's index thus indicates continued relatively strong growth across non-manufacturing industries. In the non-manufacturing sector, 13 industry groups grew in November, while two contracted and two reported no change from October. Increased business activity in November was reported by 34 percent of members, compared to 38 percent in October. Reduced activity was reported by 12 percent of members, the same as in October. In November, the remaining 54 percent of members indicated no change in business activity compared to 50 percent in October.

The Backlog of Orders Index declined by 1.5 percentage points to 52.5 percent, indicating growth in order backlogs for the seventh consecutive month but at a slower rate of increase than in October. The November New Orders Index decreased from 64.4 percent in October to 60.1 percent in November. This reflects a slower rate of increase of new orders in November compared to October. Members reported that the prices they pay increased in November for the sixth consecutive month. November's Prices Index is 58 percent, down from 58.7 percent in October. This month, eight industry groups reported paying higher prices compared to October, five reported paying the same, and four reported paying lower prices. Members' general comments on business in November continue to indicate optimism concerning economic activity. Specific comments include: "General business conditions improving"; "Slowly recovering leisure travel market appears stronger for next quarter than [it was] last year, but absent long-range commitments"; "Business volume continues to improve at a healthy pace"; and "Business is still strong and the economy is improving."

In addition, Inventories increased after five consecutive months of decreases. With regard to Inventory Sentiment, members reported an increased level of concern that inventories are too high. New Export Orders increased for the fourth consecutive month, Imports increased for the seventh consecutive month, and Employment increased for the second consecutive month. Supplier Deliveries indicated slower performance for the 27th consecutive month.

Significant reports of commodities in short supply or up or down in price in November indicate that there are no commodities in short supply. Price increases are reported for aluminum/aluminum cans; asphalt/asphalt products; beef/beef products; cheese; copper; dairy products; #2 heating fuel; oil; pork/pork products; printing services; produce; soy oil; and steel. Cable/cable products; cellular phones; Computers (including desktop and laptop) and computer equipment; conduit and fittings; #2 diesel fuel; fuel; gasoline; medical supplies; memory products; network hardware and switches; paper; and petroleum products were reported down in price.

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
  Non-Manufacturing Manufacturing
Index November
Index %
October
Index %
Index
Change
from
October
Direction
& Rate of
Change
November
Index %
October
Index %
Index
Change
from
October
Business Activity / Production 60.1 64.7 -4.6 Increasing slower 68.3 62.6 +5.7
New Orders 60.1 64.4 +4.3 Increasing slower 73.7 64.3 +9.4
Employment 54.9 52.9 +2.0 Increasing faster 51.0 47.7 +3.3
Supplier Deliveries 53.0 53.0 0 Slowing at same rate 56.0 53.9 +2.1
Inventories 51.0 49.0 +2.0 Increasing from decreasing 50.0 44.5 +5.5
Prices 58.0 58.7 -0.7 Increasing slower 64.0 58.5 +5.5
Backlog of Orders 52.5 54.0 -1.5 Increasing slower 59.0 53.5 +5.5
New Export Orders 54.5 58.0 -3.5 Increasing slower 57.9 59.6 -1.7
Imports 57.5 56.0 +1.5 Increasing faster 62.4 57.3 +5.1
Inventory Sentiment 62.0 60.0 +2.0 Greater feeling of "too high" N/A N/A  
Customers' Inventories N/A N/A     39.5 39.0 +0.5

* 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.

Business Activity

ISM's Non-Manufacturing Business Activity Index in November decreased to 60.1 percent from October's 64.7 percent, indicating a somewhat slower rate of growth of activity in November. November's index continues the period of growth in non-manufacturing business activity as reflected over the past eight months. With the exception of March 2003, growth in business activity has been reported by ISM members every month beginning with February 2002. This month 13 sectors reported increased business activity, two sectors reported decreased activity, and two reported unchanged activity compared to October.

The industries reporting the highest rates of growth of business activity in November are: Agriculture; Transportation; Finance & Banking; Insurance; and Entertainment. The industries reporting contraction of business activity in November are: Wholesale Trade and Communication.

Business
Activity
% Higher % Same % Lower Index
November 2003 34 54 12 60.1
October 2003 38 50 12 64.7
September 2003 38 53 9 63.3
August 2003 38 49 13 65.1

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 60.1 percent in November from 64.4 percent in October. This indicates continued expansion of new orders but at a slower rate of growth than in October. Comments from members include: "New contracts"; "More client requests"; "Local economy picking up in commercial lending"; and "Opening new stores in new markets."

The industries reporting the highest rates of growth of new orders in November are: Legal Services; Finance & Banking; Health Services; Transportation; and Insurance. There are no industries reporting contraction of new orders in November.

New
Orders
% Higher % Same % Lower Index
November 2003 33 57 10 60.1
October 2003 37 50 13 64.4
September 2003 33 54 13 59.9
August 2003 39 52 9 67.6

Employment

Employment in the non-manufacturing sector in November expanded for the second consecutive month after decreasing slightly in October. ISM's Non-Manufacturing Employment Index for November is 54.9 percent compared to 52.9 percent in October. November's Employment Index indicates that non-manufacturing employment expanded at a faster rate in November than in October. It is also the highest Employment Index since March 2000 when the index reached 55 percent. Comments from respondents include: "Improving job market"; "Higher workload"; "Additional person hired to help handle new account"; "Adjust to business conditions"; and "Resident census in our nursing homes has increased."

The industries reporting the highest rates of growth in employment in November are: Legal Services; Entertainment; Transportation; Finance & Banking; and Health Services. Industries reporting reduction in employment in November are: Insurance; Business Services; Real Estate; Construction; Public Administration; and Agriculture.

Employment % Higher % Same % Lower Index
November 2003 20 69 11 54.9
October 2003 19 65 16 52.9
September 2003 15 67 18 49.1
August 2003 18 66 16 51.0

Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was slower for the 27th consecutive month in November. The index registered 53 percent, the same as in October. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in November include: "Very low inventories being kept"; "Suppliers over extending"; "Poor staffing levels by suppliers"; and "Experiencing more backorders."

The industries reporting the highest rates of slowing in supplier deliveries in November are: Real Estate; Entertainment; Business Services; Public Administration; and Wholesale Trade. The industries reporting faster supplier deliveries in November are: Finance & Banking and Utilities.

Supplier
Deliveries
% Slower % Same % Faster Index
November 2003 9 88 3 53.0
October 2003 12 82 6 53.0
September 2003 11 88 1 55.0
August 2003 8 89 3 52.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 51 percent in November, 2 percentage points higher than the 49 percent reported in October. November's index reflects the first increase in material inventories maintained by non-manufacturing organizations (index value greater than 50) after five consecutive monthly decreases. Of the total respondents in November, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: "Increased volume"; "New products brought into stock"; "Higher levels in anticipation of increased activity in coming months"; and "Extra 30 days of supply before price increase."

The industries reporting the highest rates of inventory increases in November are: Communication; Health Services; Real Estate; Entertainment; and Retail Trade. The industries reporting inventory decreases in November are: Insurance; Finance & Banking; Mining; Public Administration; and Other Services*.

Inventory
Change
% Higher % Same % Lower Index
November 2003 22 58 20 51.0
October 2003 20 58 22 49.0
September 2003 20 55 25 47.5
August 2003 23 52 25 49.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in November for the sixth consecutive month, but at a slower rate of increase than in October. ISM's Non-Manufacturing Prices Index for November is 58 percent, a decrease of 0.7 percentage point from the 58.7 percent registered for October. In November, the percentage of members reporting higher prices decreased 1 percentage point to 18 percent from 19 percent in October, the proportion indicating no change also dropped 1 percentage point to 73 percent, and the number who noted lower prices increased 2 percentage points to 9 percent.

The industries reporting the highest rates of increase in prices paid in November are: Legal Services; Entertainment; Wholesale Trade; Agriculture; and Construction. Industries reporting price decreases in November are: Business Services; Utilities; Public Administration; and Other Services*.

Prices % Higher % Same % Lower Index
November 2003 18 73 9 58.0
October 2003 19 74 7 58.7
September 2003 23 70 7 60.1
August 2003 16 77 7 55.7

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 52.5 percent in November. This is a decrease of 1.5 percentage points from October's 54 percent and represents the seventh consecutive month of growth in order backlogs. Of the total respondents in November, 37 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments on backlogs of orders include: "Economy appears to be improving"; "Secured contracts for work in new market area"; "Still awaiting delivery of some primary goods and services"; and "More proposals being requested."

The industries reporting the highest rates of growth in backlog of orders in November are: Construction; Entertainment; Health Services; Communication; Business Services; and Other Services*. The industries reporting a decline of order backlogs in November are: Finance & Banking; Mining; and Retail Trade.

Backlog
of Orders
% Higher % Same % Lower Index
November 2003 17 71 12 52.5
October 2003 20 68 12 54.0
September 2003 22 70 8 57.0
August 2003 16 71 13 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 fourth consecutive month in November. The New Export Orders Index for November is 54.5 percent compared to October's 58 percent, indicating a slower rate of growth in November compared to October. Of the total respondents in November, 74 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 increases in new export orders in November are: Transportation; Other Services*; Mining; Communication; and Retail Trade. The industries reporting decreases in new export orders in November are: Construction and Business Services.

New Export
Orders
% Higher % Same % Lower Index
November 2003 25 59 16 54.5
October 2003 18 80 2 58.0
September 2003 23 66 11 56.0
August 2003 24 69 7 58.5

Imports

In November, the ISM Imports Index registered 57.5 percent, up from 56 percent in October. This indicates that use of imported materials by non-manufacturing industries increased at a faster rate in November than in October. November's index marks the seventh consecutive month of import growth after April's index value of 50 percent indicated no change in imports compared to March. In November, 63 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 November are: Finance & Banking; Business Services; Retail Trade; Communication; and Health Services. The only industry reporting decreased use of imports in November is Wholesale Trade.

Imports % Higher % Same % Lower Index
November 2003 23 69 8 57.5
October 2003 21 70 9 56.0
September 2003 20 70 10 55.0
August 2003 23 74 3 60.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in November registered 62 percent, 2 percentage points higher than the 60 percent reported for October. This indicates that non-manufacturing purchasing and supply executives feel a somewhat greater degree of discomfort with current levels of inventory in November than they did during October. In November, 30 percent of respondents felt their inventories were too high, 6 percent indicated their inventories were too low, and 64 percent said that their inventories were about right.

The industries reporting the highest rates of feeling that their inventories are too high in November are: Construction; Communication; Agriculture; Mining; Wholesale Trade; and Business Services. There are no industries reporting that their inventories are too low in November.

Inventory
Sentiment
%
Too
High
%
About
Right
%
Too
Low
Index
November 2003 30 64 6 62.0
October 2003 27 66 7 60.0
September 2003 26 69 5 60.5
August 2003 30 64 6 62.0

*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

None.

Commodities Reported Up in Price

Aluminum/Aluminum Cans; Asphalt and Asphalt Products; Beef/Beef Products — 11th month; Cheese — 3rd month; Copper — 3rd month; Dairy Products — 5th month; #2 Heating Fuel — 2nd month; Oil; Pork/Pork Products; Printing Services; Produce — 2nd month; Soy Oil — 2nd month; Steel.

Commodities Reported Down in Price

Cable/Cable Products; Cellular Phones; Computers (including desktop and laptop)/Computer Equipment — 3rd month; Conduit and Fittings; #2 Diesel Fuel — 2nd month; Fuel — 2nd month; Gasoline — 2nd month; Medical Supplies — 2nd month; Memory Products; Network Hardware and Switches; Paper — 4th month; Petroleum Products.

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, 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 data presented herein is obtained from a survey of 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.

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.

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 December 2003 data will be released at 10:00 a.m. (ET) on January 6, 2004.



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