FOR RELEASE: February 5, 2007

January 2007 Non-Manufacturing ISM Report On Business®

Business Activity at 59%

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 January 2007.

This report reflects the U.S. Department of Commerce's recently completed annual adjustment to seasonal factors used to calculate the indexes.

New Orders Index at 55.4%
Employment Index at 51.7%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased at a faster rate in January 2007, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Hotels Corporation. "Non-manufacturing business activity increased for the 46th consecutive month in January," Nieves said. He added, "Business Activity increased at a faster rate in January than in December. New Orders and Employment increased at slower rates than in December. The Prices Index decreased 4.5 percentage points this month to 55.2 percent. Seven non-manufacturing industries reported increased activity in January. Members' comments in January are mostly positive concerning current business conditions. The overall indication in January is continued economic growth in the non-manufacturing sector at a faster pace than in December."

TOP PERFORMING INDUSTRIES

The seven industries reporting growth in January — listed in order — are: Utilities; Transportation & Warehousing; Professional, Scientific & Technical Services; Information; Other Services*; Finance & Insurance; and Health Care & Social Assistance. The three industries reporting activity the same as last month are: Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; and Real Estate, Rental & Leasing. The seven industries reporting decreased activity from December to January are: Arts, Entertainment & Recreation; Accommodation & Food Services; Management of Companies & Support Services; Educational Services; Public Administration; Retail Trade; and Construction.

WHAT RESPONDENTS ARE SAYING ...

• "Revenue is better and costs are starting to come down — especially petroleum-related costs." (Agriculture, Forestry, Fishing & Hunting)
• "Activity continues to exceed plans." (Health Care & Social Assistance)
• "Our sales continue to lag behind expectations, causing plans for deeper cost-cutting measures." (Retail Trade)
• "2007 off to a brisk start!" (Utilities)
• "More requests for services, particularly offshoring." (Professional, Scientific & Technical Services)

* 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 for New Orders, Production, Employment, Supplier Deliveries and Inventories.

** Number of months moving in current direction Indexes reflect newly released seasonal adjustment factors.

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

Commodities Up in Price

Acoustical Tile; Airfare; Aluminum; Copier Paper; Freight/Shipping; Gasoline* (3); Healthcare; Health Insurance; Hotel Costs (8); Medical Supplies; Office Supplies and Equipment; Paper (36); Plywood; Stainless Steel; and Steel (3).

Commodities Down in Price

Carbon Steel; Copper; Fuel (5); Gasoline*; Natural Gas; Polyethylene Products (2); Pork Products; and PVC Products.

Commodities in Short Supply

Drugs/Drug-Related Products; Skilled Labor; and Tires.

Note: The number of consecutive months the commodity is listed is indicated after each item.

* Reported as both up and down in price.

JANUARY 2007 NON-MANUFACTURING INDEX SUMMARIES

Business Activity

ISM's Non-Manufacturing Business Activity Index in January registered 59 percent compared to the seasonally adjusted 56.7 percent registered in December, indicating a faster rate of growth in business activity in January. The implication is that non-manufacturing business activity is continuing to increase for the 46th consecutive month. Seven industries reported increased business activity, seven reported decreased activity, and three indicated unchanged activity compared to December.

The industries reporting growth of business activity in January are: Utilities; Transportation & Warehousing; Professional, Scientific & Technical Services; Information; Other Services*; Finance & Insurance; and Health Care & Social Assistance. The seven industries reporting contraction of business activity in January are: Arts, Entertainment & Recreation; Accommodation & Food Services; Management of Companies & Support Services; Educational Services; Public Administration; Retail Trade; and Construction.

New Orders

ISM's Non-Manufacturing New Orders Index decreased to 55.4 percent in January from the seasonally adjusted 55.6 percent registered in December. This indicates continued expansion of new orders, but at a slower rate than in December. Comments from members include: "Slowing sales" and "New business should kick in shortly."

Industries reporting growth of new orders in January are: Transportation & Warehousing; Information; Utilities; Finance & Insurance; Other Services*; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Wholesale Trade; and Health Care & Social Assistance. The industries reporting contraction of new orders in January are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Accommodation & Food Services; Public Administration; Educational Services; Retail Trade; and Construction.

Employment

Employment activity in the non-manufacturing sector increased at a slower rate in January compared to December. This was the 30th consecutive monthly increase in non-manufacturing employment. ISM's Non-Manufacturing Employment Index for January is 51.7 percent, a decrease of 1.5 percentage points from the seasonally adjusted 53.2 percent reported in December. Five industries reported increased employment, eight reported a decrease, and four indicated employment is unchanged from December. Comments from respondents include: "Layoffs due to slowing sales"; "Reduced demand"; and "Backlog of unfilled positions."

The industries reporting growth in employment in January are: Other Services*; Transportation & Warehousing; Real Estate, Rental & Leasing; Finance & Insurance; and Wholesale Trade. The eight industries reporting a reduction in employment in January are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Construction; Accommodation & Food Services; Information; Educational Services; and Professional, Scientific & Technical Services.

Supplier Deliveries

In January, the delivery performance of suppliers to non-manufacturing organizations was slower than in December. The index registered 53.5 percent, 2.5 percentage points higher than in December, indicating slowing at a faster rate. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in January include: "Supply chain pipe is clearing out"; "Winter storm caused some delays for 2-3 days"; and "Suppliers are having some issues with finished goods used in final assembly."

The industries reporting slowing in supplier deliveries in January are: Utilities; Accommodation & Food Services; Other Services*; Professional, Scientific & Technical Services; Information; Health Care & Social Assistance; Educational Services; and Wholesale Trade. The four industries reporting faster supplier deliveries in January are: Transportation & Warehousing; Management of Companies & Support Services; Finance & Insurance; and Public Administration.

Inventories

ISM's Non-Manufacturing Inventories Index registered 47 percent in January, a decrease of 6.5 percentage points compared to December. This is the first time in 24 months that there has been contraction in non-manufacturing inventories. Of the total respondents in January, 32 percent indicated they do not have inventories or do not measure them. Comments from members include: "Planned inventory reductions" and "Inventory will be increased over the next few months to meet strong demand."

The industries reporting increases in inventories in January are: Agriculture, Forestry, Fishing & Hunting; Other Services*; Wholesale Trade; and Professional, Scientific & Technical Services. The industries reporting decreases in inventories in January are: Arts, Entertainment & Recreation; Public Administration; Real Estate, Rental & Leasing; Accommodation & Food Services; Management of Companies & Support Services; Construction; Utilities; Information; and Retail Trade.

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in January for the 44th consecutive month (following the recent seasonal adjustments). ISM's Non-Manufacturing Prices Index for January is 55.2 percent, 4.5 percentage points lower than December's seasonally adjusted index of 59.7 percent. In January, the percentage of respondents reporting higher prices increased by 3 percentage points to 23 percent as compared to December. The percentage indicating no change decreased from 71 percent in December to 62 percent in January. The percentage of respondents noting lower prices increased from 9 percent in December to 15 percent in January.

The industries reporting an increase in prices paid in January are: Utilities; Other Services*; Arts, Entertainment & Recreation; Finance & Insurance; Retail Trade; Health Care & Social Assistance; Professional, Scientific & Technical Services; Wholesale Trade; and Public Administration. The six industries reporting a decrease in prices in January are: Agriculture, Forestry, Fishing & Hunting; Construction; Information; Transportation & Warehousing; Real Estate, Rental & Leasing; and Educational Services.

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index registered 49 percent in January, 1 percentage point higher than the 48 percent reported in December. This indicates that order backlogs are contracting for the second consecutive month. Of the total respondents in January, 44 percent indicated they do not measure backlog of orders. Purchasing and supply executives' comments include: "Suppliers catching up with orders"; "Fewer open orders"; and "Pushed a lot of orders out the door at year-end."

The industries reporting an increase in order backlogs in January are: Agriculture, Forestry, Fishing & Hunting; Information; Other Services*; Utilities; Construction; Retail Trade; and Finance & Insurance. The six industries reporting a decrease in order backlogs in January are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Health Care & Social Assistance; Wholesale Trade; Public Administration; and Professional, Scientific & Technical Services.

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 19th consecutive month in January. The January index marks 41 of the past 42 months that the index has exhibited growth. The New Export Orders Index for January is 55 percent, compared to December's index of 61.5 percent. Of the total respondents in January, 72 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The industries reporting an increase in new export orders in January are: Information; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; and Retail Trade. The five industries reporting a decrease in new export orders in January are: Public Administration; Educational Services; Management of Companies & Support Services; Other Services*; and Wholesale Trade.

Imports

In January, the ISM Non-Manufacturing Imports Index registered 52 percent, 10 percentage points lower than December's index of 62 percent, indicating that use of imports increased in January for the 12th consecutive month, but at a slower rate than in December. In January, 66 percent of respondents reported that they do not use or do not track the use of imported materials.

The industries reporting an increase in the use of imports in January are: Transportation & Warehousing; Information; Agriculture, Forestry, Fishing & Hunting; and Wholesale Trade. The five industries reporting a decrease in imports for the month of January are: Public Administration; Arts, Entertainment & Recreation; Management of Companies & Support Services; Accommodation & Food Services; and Retail Trade.

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in January registered 65.5 percent, 2 percentage points higher than the 63.5 percent reported in December. This indicates that non-manufacturing purchasing and supply executives feel more discomfort with current levels of inventory in January than they did during December. In January, 35 percent of respondents felt their inventories were too high, 4 percent indicated their inventories were too low, and 61 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in January are: Accommodation & Food Services; Wholesale Trade; Other Services*; Agriculture, Forestry, Fishing & Hunting; Construction; Transportation & Warehousing; Finance & Insurance; Professional, Scientific & Technical Services; Information; Retail Trade; and Public Administration. The one industry reporting that their inventories are too low is Utilities.

*Other Services include:
Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating 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 purchasing and supply executives nationwide. Membership of the Non-Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). The Non-Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Other Services*; and Public Administration.

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.

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 February 2007 data will be released at 10:00 a.m. (ET) on Monday, March 5, 2007.

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