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June 1999 Non-Manufacturing Report On Business®

FOR RELEASE: July 6, 1999

Contact: Zenobia Daruwalla
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
Non-Manufacturing Business Activity Continues Strong in June Say Purchasing Executives in Latest Non-Manufacturing NAPM Report On Business®

DO NOT CONFUSE THIS NATIONAL NON-MANUFACTURING REPORT with the various regional purchasing 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 June 1999.

Business Activity Index at 61.0%

New Orders, Backlog of Orders, Employment, and Prices Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in June 1999 say the nation's purchasing 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 June, NAPM's Non-Manufacturing Business Activity Index indicated increased activity compared to May, continuing a long-term growth trend," Kauffman said. "New Orders, Backlog of Orders, and use of Imports also increased in June, while Supplier Deliveries were slower. Inventories of non-manufacturing firms shrank slightly, and New Export Orders increased. Prices paid by non-manufacturing organizations for materials and services increased, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling the same level of discomfort with the current level of inventories in June as they did in May," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index indicated increased business activity, and at a faster rate of increase, by rising from 60.0 percent in May to 61.0 percent in June. Comments from purchasing executives are heavily positive on business activity in June. Increased business activity in June was reported by 36 percent of purchasers compared to 30 percent who reported increased business in May. Of the industry groups reporting in the June NAPM non-manufacturing survey, ten indicated increased activity, four indicated decreased activity, and two reported no change in activity level. In May, thirteen industry groups reported increased activity, one indicated decreased activity, and three advised no change," said Kauffman.

Availability of qualified labor continues to be a concern for a number of non-manufacturing industries. Overall, various members reported shortages of computer programmers, contract administrators, labor in general, qualified labor, senior buyers, and temporary help. One member commented, "Open position not filled due to tight job market." Also, extremely low local unemployment rates are reported, and many members report use of temporary and summer help. In contrast, a few industries, in the mining group in particular, report hiring freezes.

"Overall in June, non-manufacturing industries are continuing their long-term growth trend. Stronger growth of new orders and order backlogs portend a faster rate of growth in the near term future. Higher prices for some purchased items and ability to hire qualified labor continue to be areas of concern," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series June
Indexes
May
Indexes
June vs. May
Index Change
Direction and
Rate of Change
Business Activity 61.0 60.0 +1.0 Increasing Faster
New Orders 63.5 59.5 +4.0 Increasing Faster
Backlog of Orders 52.0 50.5 +1.5 Increasing Faster
New Export Orders 53.5 58.5 -5.0 Increasing Slower
Inventory Change 49.5 51.5 -2.0 Decrease from Increase
Inventory Sentiment 61.0 61.0 0.0 Same feeling of "too high"
Imports 53.0 55.5 -2.5 Increasing Slower
Prices 54.0 54.0 0.0 Increasing at Same Rate
Employment 57.5 54.0 +3.5 Increasing Faster
Supplier Deliveries 54.0 54.0 0.0 Slowing at Same Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in June with a faster rate of growth in manufacturing production. New orders also increased for both the non-manufacturing and manufacturing sectors with a greater rate of increase for non-manufacturing. Backlog of orders increased for both sectors with a faster rate of increase in manufacturing. Prices increased in June for both areas but increased faster for non-manufacturing. Inventories decreased in both sectors. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in June was reported to be slower than in May by both sectors with non-manufacturing reporting the greater rate of slowness. Use of Imports was up in both sectors in June with a slightly higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 61.0 Production 63.0
New Orders 63.5 New Orders 61.7
Backlog of Orders 52.0 Backlog of Orders 54.5
New Export Orders 53.5 New Export Orders 53.3
Inventory Change 49.5 Inventories 44.1
Inventory Sentiment 61.0    
Imports 53.0 Imports 52.9
Prices 54.0 Prices 53.5
Employment 57.5 Employment 51.9
Supplier Deliveries 54.0 Supplier Deliveries 53.1

* Manufacturing NAPM Report On Business® data is seasonally adjusted except for Backlog of Orders. Non-Manufacturing NAPM Report on Business® data is not seasonally adjusted.

Non-Manufacturing Business Activity

NAPM's Non-Manufacturing Business Activity Index rose to 61.0 percent in June from 60.0 percent in May. Respondent comments in June were heavily positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in June numbered 36 percent compared to the 30 percent who said things were better in May, and 14 percent indicated worse business in June, compared to 10 percent who said business was worse in May. The industries reporting the highest rates of growth of business activity in June were: Finance and Banking; Public Administration; *Other Services; Transportation; Communication; and Business Services.

Business
Activity
% Higher % Same % Lower Index
June 1999 36 50 14 61.0
May 1999 30 60 10 60.0
April 1999 38 52 10 64.0
March 1999 35 55 10 62.5
February 1999 27 60 13 57.0
January 1999 29 50 21 54.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index increased to 63.5 percent in June from 59.5 percent in May, resuming an up-trend that began in January and reaching the highest level since May 1998 (also 63.5 percent). Comments from respondents included: "Increased sales," "New service and rate plans," "Construction season," and "Company expansion." The industries reporting the highest rates of growth of new orders in June were: Business Services; Communication; Finance and Banking; *Other Services; and Agriculture.

New Orders % Higher % Same % Lower Index
June 1999 39 49 12 63.5
May 1999 30 59 11 59.5
April 1999 36 53 11 62.5
March 1999 33 55 12 60.5
February 1999 25 63 12 56.5
January 1999 27 53 20 53.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index indicated 52.0 percent in June, an increase from May's 50.5 percent, but continuing increases in order backlogs for a fifth consecutive month after four months of reductions. Purchasing executives' comments on the backlog of orders report included: "New services being introduced," "More (construction) bids being awarded," "Suppliers caught short," and "Manufacturers keeping less floor stock." Of the total respondents in June, 25.8 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in June were: Communication; Retail Trade; Public Administration; Business Services; and Agriculture.

Backlog
of Orders
% Higher % Same % Lower Index
June 1999 17 70 13 52.0
May 1999 13 75 12 50.5
April 1999 17 68 15 51.0
March 1999 22 67 11 55.5
February 1999 14 75 11 51.5
January 1999 15 68 17 49.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was somewhat slower in June, and at the same rate of slowness as in May. NAPM's Non-Manufacturing Supplier Deliveries Index for June was 54.0 percent. Comments from purchasing executives included: "Rail deliveries slower than last month," "More orders have been placed on factories," and "Lower vendor inventories."

The industries that reported slower supplier deliveries in June were: Finance and Banking; Wholesale Trade; Retail Trade; Agriculture; and Entertainment.

Supplier
Deliveries
% Higher % Same % Lower Index
June 1999 3 86 11 54.0
May 1999 2 88 10 54.0
April 1999 3 91 6 51.5
March 1999 5 85 10 52.5
February 1999 5 87 8 51.5
January 1999 6 79 15 54.5

Non-Manufacturing New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by U.S. based personnel increased for the fourth consecutive month in June, although at a slower rate of increase than in May. NAPM's Non-Manufacturing New Export Orders Index was 53.5 percent in June compared to 58.5 percent in May. Of the total respondents in June, 76.6 percent indicated they either do not perform, or do not separately measure, orders for work outside the U.S.

The industries with the highest rates of growth of new export orders in June were: Insurance; Business Services; Real Estate; Transportation; and Wholesale Trade.

New Export
Orders
% Higher % Same % Lower Index
June 1999 22 63 15 53.5
May 1999 23 71 6 58.5
April 1999 24 65 11 56.5
March 1999 22 73 5 58.5
February 1999 10 75 15 47.5
January 1999 14 65 21 46.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in June for the fifth time after four months of decreases. NAPM's Non-Manufacturing Imports Index for June was 53.0 percent compared to 55.5 percent in May. In June, 72.0 percent of respondents reported that they do not use or do not track use of imported materials.

The only three industries reporting growth in use of imports in June were: Utilities; Construction; and Retail Trade.

Imports % Higher % Same % Lower Index
June 1999 9 88 3 53.0
May 1999 15 81 4 55.5
April 1999 17 73 10 53.5
March 1999 22 73 5 58.5
February 1999 11 81 8 51.5
January 1999 9 78 13 48.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations decreased in June. NAPM's Non-Manufacturing Inventories Index registered 49.5 percent in June, compared to 51.5 percent in May. Of the total respondents in June, 23.3 percent indicated they do not have inventories. Comments from member purchasers included: "Reduced MRO warehouse inventories," "Not restocking, using old stock," "Seasonal increase," and "Increased inventory to minimize backorders."

The industries reporting the highest rates of growth of inventories in June were: Transportation; Agriculture; Business Services; Real Estate; and Public Administration.

The industries reporting the highest rates of contraction of inventories in June were: Communication;
*Other Services; Mining; Utilities; and Retail Trade.

Inventory
Change
% Higher % Same % Lower Index
June 1999 24 51 25 49.5
May 1999 23 57 20 51.5
April 1999 19 59 22 48.5
March 1999 19 57 24 47.5
February 1999 23 53 24 49.5
January 1999 20 54 26 47.0

Non-Manufacturing Inventory Sentiment

The June NAPM Non-Manufacturing Inventory Sentiment Index of 61.0 percent is the same as in May. The June index of inventory sentiment indicates that non-manufacturing purchasing executives felt the same degree of discomfort with current levels of inventory in both months. In June, 30 percent of members felt their inventories were too high (same as in May). Also in June, 8 percent indicated their inventories were too low (also same as in May), and 62 percent said that their inventories were about right, the same as in May.

The industries that reported the highest rates of feeling that their inventories were "too high" in June were: Communication; Business Services; Entertainment; Finance and Banking; Utilities; and Wholesale Trade.

Inventory
Sentiment
% Higher % Same % Lower Index
June 1999 30 62 8 61.0
May 1999 30 62 8 61.0
April 1999 32 62 6 63.0
March 1999 28 67 5 61.5
February 1999 29 63 8 60.5
January 1999 29 64 7 61.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in June for the fourth consecutive month and at the same rate of increase as in May. NAPM's Non-Manufacturing Price Index for both May and June was 54.0 percent. Despite the increase indicated by the index, some members commented on decreased prices, for some steel products and chemicals in particular.

The industries that reported the highest rates of increase in prices paid in June were: Retail Trade; Business Services; Utilities; Wholesale Trade; and Public Administration.

Prices % Higher % Same % Lower Index
June 1999 17 74 9 54.0
May 1999 18 72 10 54.0
April 1999 20 71 9 55.5
March 1999 15 71 14 50.5
February 1999 8 77 15 46.5
January 1999 11 72 17 47.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector registered its fourth consecutive monthly increase in June, reaching its highest level since inception of NAPM's non-manufacturing business survey in July 1997. NAPM's Non-Manufacturing Employment Index for June was 57.5 percent compared to 54.0 percent for May. Comments from purchasers included: "Overall company growth," "Opened new division," "Hiring freeze lifted," and "More business."

The industries reporting the highest rates of growth of employment in June were: Finance and Banking; Transportation; Entertainment; Utilities; and *Other Services.

Employment % Higher % Same % Lower Index
June 1999 24 67 9 57.5
May 1999 17 74 9 54.0
April 1999 18 71 11 53.5
March 1999 17 70 13 52.0
February 1999 11 77 12 49.5
January 1999 12 75 13 49.5

*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.

Commodities Reported in Short Supply

Cement; Contract Labor — 2nd month; Gypsum Board (drywall) — 4th month; Various types of labor; Laptop Computers — 5th month.

Commodities Reported Up in Price

Cement/Concrete; Corrugated Containers — 4th month; Gypsum Board (drywall) — 2nd month; Fuel — (also reports of price decreases) — 4th month; Gasoline — 4th month; Lumber; Paper — 3rd month (also equal reports of price decreases); Paper Goods; Plastic; Polybags; Soybean Meal.

Commodities Reported Down in Price

Computers — 14th month; Fuel; Furniture — 2nd month; Office Supplies; PCs — 18th 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 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 industries 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 Purchasing Managers Index (PMI) that is so popular in the Manufacturing NAPM Report on Business® will not be available. Several years of data will need to be developed before that type of non-manufacturing indicator could 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 purchasing and supply management research and education organization in the United States. NAPM is comprised of 180 affiliates with more than 44,000 members in the United States and Puerto Rico.

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. (EDT).

The next Non-Manufacturing NAPM Report on Business® featuring the July 1999 data will be released at 10:00 a.m. (EDT) on August 4, 1999.



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