NMI December 2004 Report
Purchasing and supply executives report that business activity continued to increase in December in the non-manufacturing sector, with the fastest rate of increase since July 2004. The Business Activity Index for December is 63.1 percent, up 1.8 percentage points from November’s 61.3 percent. December’s index indicates continued growth across most non-manufacturing industries. In December, 13 industry groups reported growth, two indicated contraction, and two reported business unchanged from November. Increased business activity in December was reported by 36 percent of members, compared to 34 percent in November. Reduced activity was reported by 14 percent of members, compared to 9 percent in November. In December, the remaining 50 percent of members indicated no change in business activity, compared to 57 percent that reported no change in November.
The Backlog of Orders Index increased to 56.5 percent, indicating a higher rate of increase than in November and growth in order backlogs for the 20th consecutive month. The December New Orders Index increased from 59.9 percent in November to 60.3 percent in December. This indicates a slightly faster rate of increase of new orders in December compared to November. Members reported that the prices they pay increased in December for the 33rd consecutive month, with a slightly faster rate of increase than in November. December’s Prices Index is 71.4 percent, a rise of 0.4 percentage point from the 74 percent reported in November. This month, 38 percent of all respondents and 13 of 17 non-manufacturing industries reported paying higher prices compared to November. Many of members’ comments regarding business in December indicate continued positive business conditions but with continued concern for inflationary pressures. Specific comments include: “Successful 2004 year tempered by inflation fears and huge federal debt. Outlook for 2005 is guarded”; “Coal business is steady and strong”; “Significant increase in shipping costs”; “Continued expectations and price increases into 2005”; and “Gradually improving demand due to improving employment growth.”
In addition, Inventories increased in December for the second month after being reported unchanged in October. With regard to Inventory Sentiment for December, members reported a higher level of concern than in November that inventories are too high. New Export Orders increased for the 17th consecutive month and Imports increased for the 20th consecutive month. Employment increased for the fifth consecutive month. Supplier Deliveries indicated slower performance for the 40th consecutive month.
Significant reports of commodities in short supply or up or down in price in December indicate that construction labor and services; electric utility hardware; ethanol/ethyl alcohol; lumber; metals and metal products; roofing materials; steel; steel products; and tires are in short supply. Price increases are reported for airfares; aluminum; beef; cheese; chemicals; copper; copper cable and wire; electrical connectors and fittings; fuel; gasoline; hotel costs; lettuce; metals and metal products; natural gas; office supplies; paper products; personnel; plastic bags; plastic resin; plastics; polybags; pork/pork trimmings; resin/resin based products; roofing shingles; shipping and transportation costs; steel; steel products; tomatoes; welding supplies; and wood products. Price decreases are reported for chemicals; computer hardware; diesel fuel; fuel; fuel oil; gasoline; petroleum products/petroleum based products; pine, spruce, and treated lumber; produce; soy oil; tomatoes; and unleaded gasoline. ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE and COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS(a)
Non-Manufacturing
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Index December November Index Direction
Index % Index % Change & Rate of
from Change
November
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Business Activity/Production 63.1 61.3 +1.8 Increasing
faster
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New Orders 60.3 59.9 +0.4 Increasing
faster
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Employment 54.9 55.0 -0.1 Increasing
slower
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Supplier Deliveries 55.5 55.0 +0.5 Slowing
faster
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Inventories 56.0 52.5 +3.5 Increasing
faster
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Prices 71.4 71.0 +0.4 Increasing
faster
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Backlog of Orders 56.5 54.0 +2.5 Increasing
faster
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New Export Orders 55.5 53.5 +2.0 Increasing
faster
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Imports 61.0 62.0 -1.0 Increasing
slower
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Inventory Sentiment 64.0 61.5 +2.5 Greater
feeling
of "too
high"
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Customers' Inventories N/A N/A N/A
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Manufacturing
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Index December November Index
Index % Index % Change
from
November
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Business Activity/Production 56.9 57.0 -0.1
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New Orders 67.4 61.5 +5.9
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Employment 52.7 57.6 -4.9
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Supplier Deliveries 54.9 56.5 -1.6
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Inventories 53.4 50.7 +2.7
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Prices 72.0 74.0 -2.0
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Backlog of Orders 54.0 47.5 +6.5
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New Export Orders 60.0 54.7 +5.3
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Imports 61.1 58.4 +2.7
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Inventory Sentiment N/A N/A N/A
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Customers' Inventories 44.0 43.5 +0.5
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(a) Non-Manufacturing ISM Report On Business(R) data is seasonally adjusted for Business Activity, New Orders, Prices, and Employment. Manufacturing ISM Report On Business(R) data is seasonally adjusted except for Backlog of Orders, Prices, and Customers’ Inventories. Business Activity
ISM’s Non-Manufacturing Business Activity Index in December increased to 63.1 percent from November’s 61.3 percent, indicating a faster rate of growth of activity in December. December’s index was the highest since 64.8 percent was recorded in July of this year. This month, 13 sectors reported increased business activity, two reported decreased activity, and two reported unchanged activity compared to November. The industries reporting the highest rates of growth of business activity in December are: Communication; Entertainment; Health Services; Retail Trade; and Business Services. The industries reporting contraction of business activity in December are: Real Estate and Public Administration.
Business Activity % Higher % Same % Lower Index December 2004 36 50 14 63.1 November 2004 34 57 9 61.3 October 2004 34 51 15 59.8 September 2004 35 49 16 56.7
New Orders
ISM’s Non-Manufacturing New Orders Index increased to 60.3 percent in December from 59.9 percent in November. This indicates continued expansion of new orders at a slightly faster rate of growth than in November. Comments from members include: “More client proposal requests”; “Local economy improving”; “Increased patient demand for services”; and “Increased capital goods orders.”
Industries reporting the highest rates of growth of new orders in December are: Insurance; Finance & Banking; Communication; Health Services; Wholesale Trade; and Utilities. Industries reporting contraction of new orders in December are: Legal Services; Real Estate; Agriculture; and Public Administration.
New Orders % Higher % Same % Lower Index December 2004 36 46 18 60.3 November 2004 32 57 11 59.9 October 2004 33 53 14 60.5 September 2004 34 50 16 58.5
Employment
Employment activity in the non-manufacturing sector increased in December compared to November but at a slightly slower rate. This was the fifth consecutive monthly increase after experiencing no change in July compared to June. ISM’s Non-Manufacturing Employment Index for December is 54.9 percent, a drop of 0.1 percentage point from November’s 55 percent. Eight industries reported increased employment, five reported decreases, and four indicated employment was unchanged from November. Comments from respondents include: “Continued rightsizing”; “Added additional personnel to handle add/change business”; “Filling long-open vacancies after expiration of hiring freeze”; “Seasonal shift and more advertising driving more business”; and “Staffing at new stores and at corporate HQ.”
The industries reporting the highest rates of growth in employment in December are: Entertainment; Finance & Banking; Health Services; Retail Trade; Construction; and Public Administration. The industries reporting reduction in employment in December are: Agriculture; Insurance; Utilities; Business Services; and Other Services(b).
Employment % Higher % Same % Lower Index December 2004 19 70 11 54.9 November 2004 18 74 8 55.0 October 2004 17 75 8 55.8 September 2004 19 69 12 54.6
Supplier Deliveries
The delivery performance of suppliers to non-manufacturing organizations was slower for the 40th consecutive month in December. The index registered 55.5 percent, 0.5 percentage point higher than November’s 55 percent. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in December include: “Backorders, freight capacity”; “Large number of orders and lack of supply onhand”; “Trucking problems”; and “Supplier shortages in raw materials and production capabilities.”
The industries reporting the highest rates of slowing in supplier deliveries in December are: Legal Services; Entertainment; Communication; Agriculture; Mining; and Transportation. The one industry reporting faster supplier deliveries in December is Finance & Banking.
Supplier Deliveries % Slower % Same % Faster Index December 2004 15 81 4 55.5 November 2004 13 84 3 55.0 October 2004 13 86 1 56.0 September 2004 15 81 4 55.5
Inventories
ISM’s Non-Manufacturing Inventories Index registered 56 percent in December, 3.5 percentage points higher than the 52.5 percent reported in November. This reading indicates increased inventories in both November and December, after an unchanged report in October. Of the total respondents in December, 31 percent indicate they do not have inventories or do not measure them. Comments from members include: “Some projects put on hold until next year, inventory already purchased”; “Selling off surplus inventory”; “Need these higher levels to support new stores”; and “Slightly higher due to purchases of repair parts.”
The industries reporting the highest rates of inventory increases in December are: Agriculture; Transportation; Wholesale Trade; Health Services; and Utilities. The industries reporting inventory decreases in December are: Insurance; Finance & Banking; Other Services(b); and Business Services.
Inventory Change % Higher % Same % Lower Index December 2004 32 48 20 56.0 November 2004 24 57 19 52.5 October 2004 22 56 22 50.0 September 2004 25 53 22 51.5
Prices
Prices paid by non-manufacturing organizations for purchased materials and services increased in December for the 33rd consecutive month and at a slightly faster rate of increase than in November. ISM’s Non-Manufacturing Prices Index for December rose to 71.4 percent, up 0.4 percentage point from the 71 percent registered for November. In December, the percentage of members reporting higher prices remained constant at 38 percent, the same as in November, the proportion indicating no change dropped 1 percentage point to 57 percent, and the number who noted lower prices increased 1 percentage point to 5 percent.
The industries reporting the highest rates of increase in prices paid in December are: Agriculture; Wholesale Trade; Construction; Utilities; and Entertainment. The industries reporting price decreases in December are: Real Estate; Transportation; and Mining.
Prices % Higher % Same % Lower Index December 2004 38 57 5 71.4 November 2004 38 58 4 71.0 October 2004 44 53 3 74.1 September 2004 35 62 3 67.1
Backlog of Orders
ISM’s Non-Manufacturing Backlog of Orders Index registered 56.5 percent in December. This is an increase of 2.5 percentage points from the 54 percent reported for November and indicates a faster rate of increase in December. December is the 20th consecutive month of growth in order backlogs. Of the total respondents in December, 44 percent indicated they do not measure backlog of orders. Purchasing and supply executives’ comments on backlogs of orders include: “Higher volume on some products due to higher business activity”; “Manufacturing deliveries have slowed”; “Due to extended leadtimes, backlogs for materials have increased”; and “Vendor shortages, unable to keep up with demands.”
The industries reporting the highest rates of growth in backlog of orders in December are: Finance & Banking; Entertainment; Construction; Communication; and Retail Trade. The one industry reporting a decline of order backlogs in December is Health Services.
Backlog of Orders % Higher % Same % Lower Index December 2004 21 71 8 56.5 November 2004 18 72 10 54.0 October 2004 17 71 12 52.5 September 2004 20 65 15 52.5
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 17th consecutive month in December. The New Export Orders Index for December is 55.5 percent compared to November’s 53.5 percent, indicating a faster rate of growth in December compared to November. Of the total respondents in December, 76 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 December are: Entertainment; Finance & Banking; Mining; Wholesale Trade; and Retail Trade. The one industry reporting a decrease in new export orders in December is Public Administration.
New Export Orders % Higher % Same % Lower Index December 2004 18 75 7 55.5 November 2004 17 73 10 53.5 October 2004 24 62 14 55.0 September 2004 25 61 14 55.5
Imports
In December, the ISM Imports Index registered 61 percent, 1 percentage point lower than the 62 percent reported in November. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in December than in November. December’s index marks the 20th consecutive month of import growth. In December, 68 percent of respondents reported that they do not use or do not track the use of imported materials.
The industries reporting increases in the use of imports in December are: Construction; Entertainment; Wholesale Trade; Retail Trade; and Other Services(b). The one industry reporting a decrease in the use of imports in December is Business Services.
Imports % Higher % Same % Lower Index December 2004 29 64 7 61.0 November 2004 29 66 5 62.0 October 2004 24 67 9 57.5 September 2004 18 76 6 56.0
Inventory Sentiment
The ISM Non-Manufacturing Inventory Sentiment Index in December registered 64 percent, a 2.5 percentage point increase from the 61.5 percent reported in November. This indicates that non-manufacturing purchasing and supply executives feel somewhat greater discomfort with current high levels of inventory in December than they did during November. In December, 36 percent of respondents felt their inventories were too high, 8 percent indicated their inventories were too low, and 56 percent said that its inventories were about right.
The industries reporting the highest rates of feeling that their inventories are too high in December are: Communication; Insurance; Legal Services; Construction; and Agriculture. No industry is reporting that its inventories are too low in December.
Inventory Sentiment % Too High % About Right % Too Low Index December 2004 36 56 8 64.0 November 2004 29 65 6 61.5 October 2004 26 69 5 60.5 September 2004 31 61 8 61.5
(b) 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
Construction Labor and Services; Electric Utility Hardware; Ethanol/Ethyl Alcohol; Lumber; Metal/Metal Products; Roofing Products and Materials – 2nd month; Steel – 11th month; Steel Products – 10th month; and Tires. Commodities Reported Up in Price
Airfares – 5th month; Aluminum – 12th month; Beef; Cheese; Chemicals/Chemical Products – 2nd month; Copper/Copper Cable and Wire – 16th month; Electrical Connectors and Fittings; Fuel(c) – 13th month; Gasoline(c) – 13th month; Hotel Prices; Lettuce; Metals/Metal Products; Natural Gas – 4th month; Office Supplies; Paper/Paper Products – 11th month; Personnel; Plastic Bags; Plastic Resin; Plastics – 12th month; Polybags – 4th month; Pork/Pork Trimmings; Resins/Resin-Based Products – 3rd month; Roofing Shingles – 2nd month; Steel – 14th month; Steel Products – 10th month; Tomatoes(c) – 3rd month; Transportation/Freight Charges – 8th month; Welding Supplies; and Wood Products. Commodities Reported Down in Price
Chemicals; Computer Hardware – 3rd month; Diesel Fuel; Fuel(c); Fuel Oil; Gasoline(c) – 2nd month; Pine, Spruce and Treated Lumber – 2nd month; Petroleum-Based Products/Petroleum Products; Produce; Soy Oil; Tomatoes(c); and Unleaded Gasoline. (c) Reported as both up and down in price. Data and Method of Presentation
The Non-Manufacturing ISM Report on Business(R) 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(R) 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 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.
The Non-Manufacturing ISM Report on Business(R) is published monthly by the Institute for Supply Management(TM), the largest supply management research and education organization in the United States. The Institute for Supply Management(TM), 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(R) 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(R) featuring the January 2005 data will be released at 10:00 a.m. (ET) on February 3, 2005.