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September 1999 Non-Manufacturing Report On Business®

FOR RELEASE: October 5, 1999

Contact: Zenobia Daruwalla
  NAPM Media Relations
  480/752-6276 ext. 3015
NON-MANUFACTURING BUSINESS ACTIVITY CONTINUES TO GROW IN SEPTEMBER 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 September 1999.

Business Activity Index Increases to 61.0%
New Orders, Export Orders, Inventories, and Prices Continue to Increase

(Tempe, Arizona) — Business in the non-manufacturing sector grew in September 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 September, NAPM's Non-Manufacturing Business Activity Index indicated increased activity at a higher rate of increase than in August, continuing a long-term growth trend," Kauffman said. "New Orders, Export Orders, Imports, and Backlog of Orders also increased in September, while Supplier Deliveries were slower than in August. Employment was unchanged. Inventories increased for the third time in the past nine months. Prices paid by non-manufacturing organizations for materials and services increased, and the Non-Manufacturing Inventory Sentiment Index indicated that purchasing executives are feeling a lower level of discomfort with the current level of inventories in September than they did in August," Kauffman said.

"NAPM's Non-Manufacturing Business Activity Index registered 61.0 percent in September, compared to 59.5 percent in August, reflecting a continued increase in non-manufacturing economic activity. Comments from purchasing executives are heavily positive on business activity in September. Increased business activity in September was reported by 33 percent of purchasers, an increase of two percentage points over the 31 percent reporting more activity in August. Of the industry groups reporting in the September NAPM non-manufacturing survey, fourteen indicated increased activity, one indicated decreased activity, and two reported no change in activity level. In August, thirteen industry groups reported increased activity, three indicated decreased activity, and one advised no change," said Kauffman.

In September, as in August, there were only scattered reports of shortages of qualified labor from the members of the NAPM Non-Manufacturing Business Survey Committee. NAPM's Non-Manufacturing Employment Index indicated no change in employment in September, dropping by 2.0 percentage points from its August mark. Prices paid by members' firms for purchased materials and services continue to be a concern. In September, the NAPM Non-Manufacturing Price Index reached another highest-since-survey-inception (July 1997) mark of 62.0 percent. A record 28 percent of members indicated higher overall prices paid in September compared to August. Some concerns have been raised about Y2K readiness. (See responses to the special question on the Y2K issue at the end of this release.)

"Overall in September, non-manufacturing industries continued their long-term growth trend. New orders and order backlogs strengthened this month, indicating continued business vigor. Labor problems appear to have subsided in September but higher purchase prices continue to be a concern for members," Kauffman commented.

NAPM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
Series September
Indexes
August
Indexes
September vs.
August Index
Change
Direction and
Rate of Change
Business Activity 61.0 59.5 +1.5 Increasing Faster
New Orders 61.0 59.5 +1.5 Increasing Faster
Backlog of Orders 52.5 51.5 +1.0 Increasing Faster
New Export Orders 62.5 58.0 +4.5 Increasing Faster
Inventory Change 52.0 52.0 0.0 Increasing at Same Rate
Inventory Sentiment 61.5 63.0 -1.5 Decreased Feeling of "too high"
Imports 58.5 52.5 +6.0 Increasing Faster
Prices 62.0 59.5 +2.5 Increasing Faster
Employment 50.0 52.0 -2.0 Unchanged from Increasing
Supplier Deliveries 54.0 53.5 +0.5 Slowing at Faster Rate

COMPARISON OF NAPM NON-MANUFACTURING AND NAPM MANUFACTURING SURVEYS*

Business Activity in non-manufacturing industries and production in manufacturing industries both grew in September 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 manufacturing. Backlog of orders increased at a faster rate for manufacturing in September. Non-manufacturing order backlogs also increased in September. Prices increased in September for both areas but increased faster for manufacturing. Employment in September was unchanged for non-manufacturing and increased more slowly in manufacturing. Inventories decreased in manufacturing but increased in non-manufacturing. New export orders increased for both sectors with non-manufacturing experiencing a higher rate of increase. Supplier delivery performance in September was reported to be slow by both sectors with manufacturing reporting the greater rate of slowness. Use of Imports was up in both sectors in September with a higher rate of increase in non-manufacturing.

Non-Manufacturing
Survey Questions
Indexes Manufacturing
Survey Questions
Indexes
Business Activity 61.0 Production 61.7
New Orders 61.0 New Orders 64.4
Backlog of Orders 52.5 Backlog of Orders 54.5
New Export Orders 62.5 New Export Orders 56.6
Inventory Change 52.0 Inventories 43.2
Inventory Sentiment 61.5
Imports 58.5 Imports 55.7
Prices 62.0 Prices 67.6
Employment 50.0 Employment 51.5
Supplier Deliveries 54.0 Supplier Deliveries 55.9

* 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 in September increased to 61.0 percent from 59.5 percent in August, indicating increased business activity at a faster rate of increase. Respondent comments in September were heavily positive, supporting the index's indication of increased business activity.

Purchasing executives reporting better business in September numbered 33 percent, an increase over the 31 percent reporting more activity in August. Members who indicated lower business activity in September numbered 11 percent, a slight change from the 12 percent in August. The industries reporting the highest rates of growth of business activity in September were: Legal Services; Entertainment; Mining; Health Services; and Finance and Banking.

Business Activity % Higher % Same % Lower Index
September 1999 33 56 11 61.0
August 1999 31 57 12 59.5
July 1999 31 57 12 59.5
June 1999 36 50 14 61.0

Non-Manufacturing New Orders

NAPM's Non-Manufacturing New Orders Index rose to 61.0 percent in September from 59.5 percent in August, indicating a faster rate of increase for new orders to non-manufacturers. September's New Orders Index indicates continued high levels of activity and portends continued non-manufacturing strength in the near future. Comments from respondents included: "New project," "Rise in activity," and "New rates and promotions."

The industries reporting the highest rates of growth of new orders in September were: Entertainment; Wholesale Trade; Agriculture; Mining; Construction; and *Other Services.

New Orders % Higher % Same % Lower Index
September 1999 31 60 9 61.0
August 1999 32 55 13 59.5
July 1999 28 54 18 55.0
June 1999 39 49 12 63.5

Non-Manufacturing Backlog of Orders

NAPM's Non-Manufacturing Backlog of Orders Index was 52.5 percent in September, indicating increased order backlogs compared to August. The Backlog of Orders Index for September indicates a small increase from August's 51.5 percent. Purchasing executives' comments on the backlog of orders report included: "Supply issues," "Many new orders," and "Longer supplier leadtimes." Of the total respondents in September, 25.4 percent indicated they do not measure backlog of orders.

The industries reporting the highest rates of growth of backlog of orders in September were: Agriculture; Communication; Mining; Business Services; and *Other Services.

Backlog of Orders % Higher % Same % Lower Index
September 1999 16 73 11 52.5
August 1999 18 67 15 51.5
July 1999 16 68 16 50.0
June 1999 17 70 13 52.0

Non-Manufacturing Supplier Deliveries

The delivery performance of suppliers to non-manufacturing organizations was at a slightly higher rate of slowness in September than in August. NAPM's Non-Manufacturing Supplier Deliveries Index for September was 54.0 percent compared to 53.5 percent in August. Comments from purchasing executives included: "Material and production constraints," "Demand greater than expected," and "Weather-related disruptions."

The industries that reported the slowest rates of supplier deliveries in September were: Wholesale Trade; Communication; Business Services; Agriculture; and Mining.

Supplier Deliveries % Higher % Same % Lower Index
September 1999 2 88 10 54.0
August 1999 4 85 11 53.5
July 1999 4 87 9 52.5
June 1999 3 86 11 54.0

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 seventh consecutive month in September, and at a faster rate of increase than in August. NAPM's Non-Manufacturing New Export Orders Index was 62.5 percent in September compared to 58.0 percent in August. The September New Export Orders Index was the highest since the inception of the NAPM non-manufacturing business survey in July 1997. Of the total respondents in September, 73.5 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 September were: Mining; Legal Services; Insurance; Communication; and Transportation.

New Export Orders % Higher % Same % Lower Index
September 1999 29 67 4 62.5
August 1999 24 68 8 58.0
July 1999 26 63 11 57.5
June 1999 22 63 15 53.5

Non-Manufacturing Imports

Use of imported materials by non-manufacturing industries increased in September for the eighth consecutive month and increased more rapidly than in August. NAPM's Non-Manufacturing Imports Index for September was 58.5 percent compared to 52.5 percent in August. The September Imports Index was the highest since March 1999 (58.5 percent). In September, 68.0 percent of respondents reported that they do not use or do not track use of imported materials.

The industries reporting the highest rates of growth in use of imports in September were: Business Services; Mining; Agriculture; Entertainment; and Communication.

Imports % Higher % Same % Lower Index
September 1999 21 75 4 58.5
August 1999 11 83 6 52.5
July 1999 19 77 4 57.5
June 1999 9 88 3 53.0

Non-Manufacturing Inventory Change

Material inventories maintained by non-manufacturing organizations increased in September for the third time in the past nine months and for the second consecutive month. NAPM's Non-Manufacturing Inventories Index registered 52.0 percent in September, the same as in August. The Inventory Change Index for August and September was the highest since April 1998 (52.5 percent). Of the total respondents in September, 23.5 percent indicated they do not have inventories. Comments from member purchasers included: "Preparing for new business," "Y2K preparedness," "Reduction of MRO inventory," and "Busy season."

The industries reporting the highest rates of growth of inventories in September were: Wholesale Trade; Transportation; Real Estate; Construction; and Retail Trade.

Inventory Change % Higher % Same % Lower Index
September 1999 20 64 16 52.0
August 1999 24 56 20 52.0
July 1999 19 61 20 49.5
June 1999 24 51 25 49.5

Non-Manufacturing Inventory Sentiment

The NAPM Non-Manufacturing Inventory Sentiment Index in September registered 61.5 percent compared to 63.0 percent for August. This reduced index level indicates that non-manufacturing purchasing executives felt a lower degree of discomfort with current levels of inventory in September than they did during August. In September, 29 percent of members felt their inventories were too high (38 percent in August). Also in September, 6 percent indicated their inventories were too low (12 percent in August), and 65 percent said that their inventories were about right (50 percent in August).

The industries that reported the highest rates of feeling that their inventories were "too high" in September were: Legal Services; Communication; Utilities; Construction; and Wholesale Trade.

Inventory Sentiment % Higher % Same % Lower Index
September 1999 29 65 6 61.5
August 1999 38 50 12 63.0
July 1999 33 56 11 61.0
June 1999 30 62 8 61.0

Non-Manufacturing Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in September for the seventh consecutive month and at a higher rate of increase than in August. NAPM's Non-Manufacturing Price Index for September was 62.0 percent, compared to 59.5 percent in August. The September value is the highest level the Price Index has reached since the inception of NAPM's Non-Manufacturing business survey in July 1997, and September is the third consecutive month in which the Price Index has set record high levels.

The industries that reported the highest rates of increase in prices paid in September were: Wholesale Trade; Construction; Mining; Business Services; and *Other Services.

Prices % Higher % Same % Lower Index
September 1999 28 68 4 62.0
August 1999 24 71 5 59.5
July 1999 22 71 7 57.5
June 1999 17 74 9 54.0

Non-Manufacturing Employment

Employment in the non-manufacturing sector ended six consecutive months of increase in September and indicated no change in employment from the preceding month. September was the first month not indicating increased non-manufacturing employment since February 1999 (49.5 percent). NAPM's Non-Manufacturing Employment Index for September was 50.0 percent compared to 52.0 percent for August.

The industries reporting the highest rates of growth of employment in September were: Communication; Health Services; Business Services; *Other Services; and Finance and Banking.

Employment % Higher % Same % Lower Index
September 1999 14 72 14 50.0
August 1999 15 74 11 52.0
July 1999 21 71 8 56.5
June 1999 24 67 9 57.5

*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

Aircraft Parts; Gypsum Board (drywall) — 7th month; Various types of labor — 4th month; Steel Beams.

Commodities Reported Up in Price

Beef; Business Forms; Chemicals; Copper; Corrugated Containers — 7th month; Envelopes; Fuel — 7th month; Fuel Oil — 2nd month; Gasoline — 7th month; Gypsum Board (drywall) — 5th month; Labor; Oil; Paper — 6th month; Paper Products; Polybags; Polyethylene; PVC; Stainless Steel Products.

Commodities Reported Down in Price

Computers — 17th month.

Y2K Special Question

This month business survey committee members were asked special questions regarding the Year 2000. Questions focused on inventory and production issues.

Members were asked if they planned to build inventories because of continuity of supply concerns related to Y2K. Twenty-six percent of the respondents indicated that they plan to build inventories with 74 percent indicating they would not. Responses received in May 1999 to this same question indicated that 26.6 percent planned to build inventories.

For those who indicated they planned on building inventories, the respondents listed a total of 70 different commodities that they expect to stockpile. However, none of the commodities had sufficient responses to signal major concerns. The following commodity groups were mentioned most often: Drugs/Pharmaceuticals; Business forms; Food items; Generators; Medical supplies; MRO items; Office supplies; Paper and Paper products; and Water treatment chemicals The inventories that will be stockpiled represent an average of 16.6 percent of their organization's overall inventories.

Based on the responses below, the majority of those who are going to build inventories will be doing so in the fall.

Prior to June 1999 10%
June 1999 4%
July 1999 4%
August 1999 4%
September 1999 20%
October 1999 27%
November 1999 20%
December 1999 11%

The additional days of supply they will add are:

1-10 34%
11-20 16%
21-30 29%
31-40 9%
41-50 5%
50+ 7%

From the above responses, purchasing managers in non-manufacturing industries will stockpile some critical materials to protect against a possible supply disruption, but they will be very selective in what they stockpile and in what quantity, with 50 percent indicating 20 or less days' supply. At the same time 99 percent of respondents are confident or very confident that their organization is ready for Y2K and will be able to continue operation. While almost all purchasers are confident that their suppliers are ready for Y2K (98 percent), the proportion that is very confident is substantially less for suppliers than for their own organization (77 percent for their organization to 46 percent for their suppliers organizations).

Purchasing managers' comments on Y2K readiness followed their answers to the questions. They are confident that Y2K will not pose a major challenge to their supply chains. A few mentioned concerns with offshore suppliers. Based on these responses, it appears that the non-manufacturing sector is prepared for Y2K.

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® is not 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 182 affiliates with more than 45,000 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. (ET).

The next Non-Manufacturing NAPM Report on Business® featuring the October 1999 data will be released at 10:00 a.m. (EST) on November 3, 1999.



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