NMI July 2008 Report

Economic activity in the non-manufacturing sector contracted in July, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

“Keeping it very tight and as needed.”Tweet this

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. “The NMI (Non-Manufacturing Index) increased 1.3 percentage points in July to 49.5 percent, indicating contraction for the second consecutive month in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 0.3 percentage point to 49.6 percent. The New Orders Index decreased 0.7 percentage point to 47.9 percent, and the Employment Index increased 3.3 percentage points to 47.1 percent. The Prices Index decreased 3.7 percentage points to 80.8 percent in July, indicating a slower rate in price increases than in June. According to the NMI, nine non-manufacturing industries reported growth in July. Members’ comments in July indicate concern about inflationary pressures and the effect on the economy. Respondents’ comments are mixed about business conditions and vary by industry and company.”

INDUSTRY PERFORMANCE (Based on the NMI)

The nine industries reporting growth in July based on the new NMI composite index — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Other Services(d); Professional, Scientific & Technical Services; Educational Services; Utilities; Construction; Accommodation & Food Services; and Health Care & Social Assistance. The six industries reporting contraction in July are: Finance & Insurance; Public Administration; Wholesale Trade; Information; Transportation & Warehousing; and Retail Trade.

WHAT RESPONDENTS ARE SAYING …

  • “Our business remains at about the same level as the previous month, with continued focus on cost reduction.” (Finance & Insurance)
  • “The general state of the home-building industry has not changed since last month; however, with the commodity and code changes going into 2009, we face much higher construction costs and reduced margins across the entire supply chain.” (Construction)
  • “Continue to see slowdown in local economy.” (Health Care & Social Assistance)
  • “While still positive, the overall outlook for 2008 for our company is not as high as earlier in the year.” (Wholesale Trade)
  • “Governmental spending for services is up this period.” (Professional, Scientific & Technical Services)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCECOMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS(a)JULY 2008
  
IndexNon-ManufacturingManufacturing
Series
Index
July
 Series
Index
June
 Percent
Point
Change
 Direction Rate of
Change
 Trend(b)
(Months)
Series
Index
July
 Series
Index
June
 Percent
Point
Change
 
NMI/PMI49.548.2+1.3ContractingSlower250.050.2-0.2
Business Activity/Production49.649.9-0.3ContractingFaster252.951.5+1.4
New Orders47.948.6-0.7ContractingFaster245.049.6-4.6
Employment47.143.8+3.3ContractingSlower351.943.7+8.2
Supplier Deliveries53.550.5+3.0SlowingFaster455.155.10.0
Inventories54.553.0+1.5GrowingFaster345.051.2-6.2
Prices80.884.5-3.7IncreasingSlower6288.591.5-3.0
Backlog of Orders52.049.0+3.0GrowingFrom
Contracting
143.047.5-4.5
New Export Orders47.552.0-4.5ContractingFrom Growing154.058.5-4.5
Imports49.050.5-1.5ContractingFrom Growing146.546.0+0.5
Inventory Sentiment62.560.0+2.5“Too High”Faster134N/AN/AN/A
Customers’ InventoriesN/AN/AN/AN/AN/AN/A47.055.0-8.0

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(a) 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.

(b) Number of months moving in current direction

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

Commodities Up in Price

A/C Parts; Airfares (5); Air Freight; Auto Fuel (2); Bacon (2); Bath Tissue (2); Batteries; Beef (5); Bond Paper; Bread (3); Building Materials; Butter; Carbon Pipe (2); Cereal (2); Computer Peripherals; Computer Products and Supplies; Copier Paper (6); Copper (3); Crab Legs; Dairy (2); Deliveries (2); Diesel Fuel (10); # 1 Diesel Fuel (3); # 2 Diesel Fuel (3); Flour; Food and Beverage (3); Food Products (3); Freight Charges (2); Freight Fuel Surcharges (2); Fresh Food Items; Fuel (18); Fuel Products (2); Fuel Surcharges (3); Gasoline(c) (11); Gasoline Related (3); Gloves; Green Beans; # 2 Heating Fuel; Laptop Computers; Lubricants; MRO Supplies; Natural Gas (2); Office Equipment; Paper (9); Paper Products (5); Petroleum Based Products; Plastic Can Liners (2); Plastic Films (2); Plastic Products; Plumbing Supplies; Poly Bags (2); Red Peppers; Shipping Costs (5); Soy; Stainless Steel Products (3); Steel (5); Steel Pipe and Fittings (2); Steel Products (3); Transportation Costs (3); Transportation Services (2); Travel Costs; and Valves.

Commodities Down in Price

Cable (2); Cheese; and Gasoline(c).

Commodities in Short Supply

Carbon Pipe and Sulfuric Acid are the only commodities reported in short supply.

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

(c) Indicates reported both up and down in price.

JULY 2008 NON-MANUFACTURING INDEX SUMMARIES

NMI (Non-Manufacturing Index)

Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is now calculated as an indicator of the overall economic condition for the non-manufacturing sector. The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. July’s NMI at 49.5 percent indicates contraction in the non-manufacturing sector for the second consecutive month. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

The industries reporting growth in July are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Other Services(d); Professional, Scientific & Technical Services; Educational Services; Utilities; Construction; Accommodation & Food Services; and Health Care & Social Assistance. The industries reporting contraction in July are: Finance & Insurance; Public Administration; Wholesale Trade; Information; Transportation & Warehousing; and Retail Trade.

NMI HISTORY

     Month     NMI
 
July 200849.5
June 200848.2
May 200851.7
April 200852.0
March 200849.6
February 200849.3
January 200844.6

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Business Activity

ISM’s Non-Manufacturing Business Activity Index in July registered 49.6 percent, a decrease of 0.3 percentage point when compared to the 49.9 percent registered in June. Eight industries reported increased business activity, and six industries reported decreased activity for the month of July. Four industries reported no change from June. Comments from respondents include: “Less group business than forecast”; “Inflationary pressures — general business slowdown”; and “Careful spending.”

The industries reporting growth of business activity in July are: Real Estate, Rental & Leasing; Transportation & Warehousing; Arts, Entertainment & Recreation; Other Services(d); Professional, Scientific & Technical Services; Educational Services; Health Care & Social Assistance; and Utilities. The industries reporting decreased business activity in July are: Public Administration; Finance & Insurance; Wholesale Trade; Retail Trade; Management of Companies & Support Services; and Information.

Business Activity     %Higher    %Same    %Lower    Index
 
July 200824512549.6
June 200828522049.9
May 200832501853.6
April 200829531850.9

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THE LAST 12 MONTHS

     Month     Business
Activity Index
          Month     Business
Activity Index
 
July 200849.6Jan 200841.9
June 200849.9Dec 200754.4
May 200853.6Nov 200754.6
Apr 200850.9Oct 200755.5
Mar 200852.2Sep 200755.7
Feb 200850.8Aug 200756.3
Average for 12 months – 52.1High – 56.3Low – 41.9

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New Orders

ISM’s Non-Manufacturing New Orders Index contracted in July for the second consecutive month. The index decreased 0.7 percentage point to 47.9 percent from the 48.6 percent registered in June. Comments from respondents include: “Mid-market business is very slow”; “Advertisers cutting spending”; and “Business is slowing.”

Industries reporting growth of new orders in July are: Real Estate, Rental & Leasing; Other Services(d); Management of Companies & Support Services; Arts, Entertainment & Recreation; Utilities; Educational Services; and Professional, Scientific & Technical Services. The industries reporting contraction of new orders in July are: Public Administration; Finance & Insurance; Wholesale Trade; Information; and Retail Trade.

New Orders     %Higher    %Same    %Lower    Index
 
July 200820562447.9
June 200824552148.6
May 200829561553.6
April 200826571750.1

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Employment

Employment activity in the non-manufacturing sector contracted in July for the sixth time in the last seven months. ISM’s Non-Manufacturing Employment Index for July registered 47.1 percent. This reflects an increase of 3.3 percentage points when compared to the 43.8 percent registered in June. Seven industries reported increased employment, seven industries reported a decrease, and four industries indicated employment is unchanged from June. Comments from respondents include: “Continued cost reductions”; “Positions left vacant not being filled”; and “Hiring freeze in place.”

The industries reporting growth in employment in July are: Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; Other Services(d); Construction; Utilities; and Public Administration. The industries reporting a reduction in employment in July are: Finance & Insurance; Transportation & Warehousing; Wholesale Trade; Retail Trade; Educational Services; Health Care & Social Assistance; and Information.

Employment     %Higher    %Same    %Lower    Index
 
July 200819602147.1
June 200813681943.8
May 200818681448.7
April 200822611750.8

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Supplier Deliveries

Supplier deliveries were slower in July, with the index registering 53.5 percent. A reading above 50 percent indicates slower deliveries.

The industries reporting slowing in supplier deliveries in July are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Retail Trade; Other Services(d); Educational Services; Utilities; Accommodation & Food Services; Health Care & Social Assistance; Wholesale Trade; and Public Administration. The industries reporting faster supplier deliveries in July are: Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Management of Companies & Support Services; and Information.

Supplier Deliveries     %Slower    %Same    %Faster    Index
 
July 20081577853.5
June 2008885750.5
May 20081082851.0
April 20081778556.0

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Inventories

ISM’s Non-Manufacturing Inventories Index registered 54.5 percent in July, indicating that inventory levels grew for the third consecutive month in July after contracting in April. Of the total respondents in July, 35 percent indicated they do not have inventories or do not measure them. Comments from members include: “Excess inventory due to lower sales levels three months in a row”; “Backorders increasing so need additional safety stock”; and “Keeping it very tight and as needed.”

The industries reporting increases in inventories in July are: Mining; Real Estate, Rental & Leasing; Other Services(d); Health Care & Social Assistance; Retail Trade; Wholesale Trade; Utilities; and Finance & Insurance. The industries reporting decreases in inventories in July are: Information; Transportation & Warehousing; Public Administration; and Arts, Entertainment & Recreation.

Inventories     %Higher    %Same    %Lower    Index
 
July 200822651354.5
June 200824581853.0
May 200828522054.0
April 200817602347.0

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Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in July for the 62nd consecutive month. ISM’s Non-Manufacturing Prices Index for July registered 80.8 percent, 3.7 percentage points lower than June’s index of 84.5 percent. In July, the percentage of respondents reporting higher prices is 66 percent, the percentage indicating no change in prices paid is 30 percent, and 4 percent of the respondents reported lower prices.

In July, all 18 industries reported an increase in prices paid in the following order: Mining; Real Estate, Rental & Leasing; Accommodation & Food Services; Utilities; Construction; Transportation & Warehousing; Wholesale Trade; Retail Trade; Public Administration; Management of Companies & Support Services; Educational Services; Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Other Services(d); Health Care & Social Assistance; and Information.

Prices     %Higher    %Same    %Lower    Index
 
July 20086630480.8
June 20087226284.5
May 20086534177.0
April 20086038272.1

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Backlog of Orders

ISM’s Non-Manufacturing Backlog of Orders Index grew in July after two months of contraction. The index registered 52 percent, 3 percentage points higher than the 49 percent reported in June. Of the total respondents in July, 44 percent indicated they do not measure backlog of orders.

The industries reporting an increase in order backlogs in July are: Mining; Other Services(d); Educational Services; Accommodation & Food Services; Retail Trade; and Health Care & Social Assistance. The industries reporting lower backlog of orders in July are: Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Finance & Insurance; and Public Administration.

Backlog of Orders     %Higher    %Same    %Lower    Index
 
July 200820641652.0
June 200814701649.0
May 200816661849.0
April 200815701550.0

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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 indicated contraction for the month of July. The New Export Orders Index for July registered 47.5 percent, compared to June’s index of 52 percent. Of the total respondents in July, 70 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 July are: Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; and Retail Trade. The industries reporting a decrease in export orders in July are: Educational Services; Management of Companies & Support Services; Transportation & Warehousing; Wholesale Trade; Finance & Insurance; and Accommodation & Food Services.

New Export Orders     %Higher    %Same    %Lower    Index
 
July 200822512747.5
June 200824562052.0
May 200823621554.0
April 200818612148.5

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Imports

The ISM Non-Manufacturing Imports Index registered 49 percent in July. The index is 1.5 percentage points lower than June’s index of 50.5 percent. In July, 64 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 July are: Arts, Entertainment & Recreation; Other Services(d); and Finance & Insurance. The industries reporting a decrease in imports for the month of July are: Educational Services; Agriculture, Forestry, Fishing & Hunting; and Wholesale Trade.

Imports     %Higher    %Same    %Lower    Index
 
July 200811761349.0
June 200812771150.5
May 200815661948.0
April 200816681650.0

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Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index increased 2.5 percentage points to 62.5 percent in July, indicating that respondents still believe their inventories are too high at this time. In July, 29 percent of respondents said their inventories were too high, 4 percent said their inventories were too low, and 67 percent said their inventories were about right.

The industries reporting a feeling that their inventories are too high in July are: Other Services(d); Wholesale Trade; Information; Health Care & Social Assistance; Construction; Professional, Scientific & Technical Services; Public Administration; and Retail Trade. The two industries reporting that their inventories are too low are: Agriculture, Forestry, Fishing & Hunting; and Transportation & Warehousing.

Inventory Sentiment     %Too
High
    %About
Right
    %Too
Low
    Index
 
July 20082967462.5
June 20082864860.0
May 20083563266.5
April 20082870263.0

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(d) 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(d); 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, and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. 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 August 2008 data will be released at 10:00 a.m. (ET) on Thursday, September 4, 2008.

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