NMI September 2005 Report
Business activity in the non-manufacturing sector increased in September 2005, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business(R).
The report was issued today by Ralph G. Kauffman, Ph.D., C.P.M., chair of the Institute for Supply Management(TM) Non-Manufacturing Business Survey Committee and coordinator of the Supply Chain Management Program, University of Houston-Downtown. “Non-manufacturing business activity increased for the 30th consecutive month in September,” Kauffman said. He added, “Business Activity increased at a slower rate in September than in August. New Orders, Employment, New Export Orders and Imports also increased at slower rates. Many members’ comments expressed concern about the continuing increase in oil and gas prices as well as Hurricane Katrina, and their impact on prices and economic activity. Only eight of 17 non-manufacturing industry sectors report increased activity in September compared to 13 that reported increased activity in August. There were reports of increased activity regarding construction and construction-related items. The overall indication is continued economic growth in the non-manufacturing sector in September, but at a slower rate of increase than in August.” TOP PERFORMING INDUSTRIES
The eight industries reporting growth in September — listed in order — are: Construction; Communication; Mining; Insurance; Retail Trade; Utilities; Health Services; and Wholesale Trade. The three industries reporting activity the same as last month are: Transportation; Other Services(c); and Legal Services. The six industries reporting decreased activity from August to September are: Agriculture; Entertainment; Real Estate; Business Services; Finance & Banking; and Public Administration. WHAT RESPONDENTS ARE SAYING …
— “Jobs being rushed to beat higher prices.” (Retail Trade)
— “Concerned with possible shortages in utility products in the near future; for example, wood poles, electric wire, transformers, etc. as they may be diverted to the states affected by the hurricane.” (Utilities)
— “Obvious concerns about the availability and prices of raw materials affected by Hurricane Katrina.” (Business Services)
— “Aggressive energy pre-purchase strategy leaves our operations prepared for winter business, but will customers be ready for travel costs?” (Entertainment)
— “Lower inventories — working toward fiscal year-end. Overall patient activity continues high at all of our units.” (Health Services)
— “Energy concerns are top of mind with everyone from our manufacturing suppliers to transportation. Costs are on the rise in almost all sectors due to energy that seems out of control.” (Retail Trade)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS(a) SEPTEMBER 2005 Non-Manufacturing Index Series Series Percent Direction Rate of Trend(b) Index Index Point Change (Months) Sept. August Change Business Activity/ 53.3 65.0 -11.7 Increasing Slower 30 Production New Orders 56.6 65.8 -9.2 Increasing Slower 30 Employment 54.9 59.6 -4.7 Increasing Slower 24 Supplier 55.0 +1.0 Slowing Faster 49 Deliveries 56.0 Inventories 50.0 53.5 -3.5 Unchanged From 1 Growing Prices 81.4 67.1 +14.3 Increasing Faster 28 Backlog of Orders 52.0 52.0 0.0 Increasing Same 8 Rate New Export Orders 55.0 63.5 -8.5 Increasing Slower 3 Imports 58.5 61.5 -3.0 Increasing Slower 29 Inventory 64.0 67.0 -3.0 "Too High" Lesser 100 Sentiment Customers' N/A N/A Inventories ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS(a) SEPTEMBER 2005 Manufacturing Index Series Series Percent Index Index Point Sept. August Change Business Activity/Production 63.1 55.9 +7.2 New Orders 63.8 56.4 +7.4 Employment 53.1 52.6 +0.5 Supplier Deliveries 59.3 50.5 +8.8 Inventories 49.6 45.7 +3.9 Prices 78.0 62.5 +15.5 Backlog of Orders 55.0 50.5 +4.5 New Export Orders 56.9 53.3 +3.6 Imports 53.4 53.4 0.0 Inventory Sentiment N/A N/A Customers' Inventories 44.5 46.5 -2.0
(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.
(b) Number of months moving in current direction COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY Commodities Up in Price
Aircraft Fuel; Airfares (6); Asphalt Products/Materials (7); Beef; Building Materials; Capital Equipment; Car Rentals; Cement; Construction/Construction Services (5); Copper (25); #1 Diesel Fuel (7); #2 Diesel Fuel (9); Electrical Products — Cable, Components, Supplies and Assemblies (4); Energy (3); Freight Charges/Shipping Costs (3); Fuel (22); Fuel-Related Surcharges (3); Gasoline (22); Gypsum Board; #2 Heating Oil; Hotel Rates/Costs (10); Lubricants; Lumber; Natural Gas (4); Oil-Based Products (2); Packaging Supplies/Products; Paper/Paper Products (20); Petrochemical Products (2); Petroleum/Petroleum-Based Products (3); Pharmacy Products/Supplies; Plastic Bags; Plastics/Plastic Products (3); Polyethylene Films; PVC; Roof Shingles; Roofing Felt; Steel; Stretch Film/Wrap; Telecom Products/Services; Transportation (2); Unleaded Gasoline (3); and Wood/Wood Products. Commodities Down in Price
Corrugated (2). Commodities in Short Supply
#2 Diesel Fuel; Gasoline; PVC; and Stretch Film.
Note: The number of consecutive months the commodity is listed is indicated after each item. SEPTEMBER 2005 NON-MANUFACTURING INDEX SUMMARIES Business Activity
ISM’s Non-Manufacturing Business Activity Index in September dropped to 53.3 percent from August’s 65 percent, indicating a slower rate of growth of activity in September. The last time the index was this low was when it registered 52.6 percent in April 2003. This month, eight sectors report increased business activity, six are reporting decreased activity, and three indicate unchanged activity compared to August.
The industries reporting the highest rates of growth of business activity in September are: Construction; Communication; Mining; Insurance; and Retail Trade. The industries reporting the highest rates of contraction of business activity in September are: Agriculture; Entertainment; Real Estate; Business Services; and Finance & Banking.
Business Activity %Higher %Same %Lower Index September 2005 27 54 19 53.3 August 2005 37 51 12 65.0 July 2005 35 53 12 60.5 June 2005 38 54 8 62.2
THE LAST 12 MONTHS
Month Business Activity Month Business Activity Index Index Sep'05 53.3 Mar'05 63.1 Aug'05 65.0 Feb'05 59.8 July'05 60.5 Jan'05 59.2 June'05 62.2 Dec'04 63.9 May'05 58.5 Nov'04 61.9 Apr'05 61.7 Oct'04 61.5 Average for 12 months - 60.9 High - 65.0 Low - 53.3
New Orders
ISM’s Non-Manufacturing New Orders Index declined to 56.6 percent in September from 65.8 percent in August. This indicates continued expansion of new orders but at a slower rate of growth than in August. Comments from members include: “Stable but at new highs”; “Purchases tied to Hurricane Katrina relief effort”; “Increased infrastructure investment”; and “Sales promotions by our customers.”
Industries reporting the highest rates of growth of new orders in September are: Construction; Communication; Retail Trade; Mining; and Utilities. Industries reporting contraction of new orders in September are: Entertainment; Real Estate; Transportation; Public Administration; and Business Services.
New Orders %Higher %Same %Lower Index September 2005 26 59 15 56.6 August 2005 37 54 9 65.8 July 2005 34 58 8 61.9 June 2005 35 55 10 59.5
Employment
Employment activity in the non-manufacturing sector increased but at a slower rate in September compared to August. This was the 24th consecutive monthly increase in non-manufacturing employment. ISM’s Non-Manufacturing Employment Index for September is 54.9 percent, a drop of 4.7 percentage points from August’s 59.6 percent. Nine industries are reporting increased employment, five report decreases, and three indicate employment is unchanged from August. Comments from respondents include: “Expansion in certain business functions”; “Increased business”; “Increase in job openings”; “Continuing to expand”; and “Using more temp resources.”
The industries reporting the highest rates of growth in employment in September are: Mining; Construction; Insurance; Agriculture; and Wholesale Trade. Industries reporting a reduction in employment in September are: Legal Services; Utilities; Transportation; Communication; and Retail Trade.
Employment %Higher %Same %Lower Index September 2005 20 68 12 54.9 August 2005 26 66 8 59.6 July 2005 26 64 10 56.2 June 2005 29 61 10 57.4
Supplier Deliveries
The delivery performance of suppliers to non-manufacturing organizations was slower for the 49th consecutive month in September. The index registered 56 percent, 1 percentage point higher than in August. A reading above 50 percent indicates slower deliveries. Comments from purchasing and supply executives concerning supplier deliveries in September include: “Parts and material shortages, increased backlog at supplier facilities”; “Distribution channel delays”; “A few slower as suppliers find alternate, less expensive delivery avenues”; “The hurricane (Katrina) disrupted deliveries on both rail and trucks”; and “Truck shortages.”
The industries reporting the highest rates of slowing in supplier deliveries in September are: Retail Trade; Wholesale Trade; Construction; Utilities; and Public Administration. Industries reporting faster supplier deliveries in September are: Entertainment; Transportation; and Communication.
Supplier Deliveries %Slower %Same %Faster Index September 2005 17 78 5 56.0 August 2005 12 86 2 55.0 July 2005 17 80 3 57.0 June 2005 14 85 1 56.5
Inventories
ISM’s Non-Manufacturing Inventories Index registered 50 percent in September, 3.5 percentage points lower than the 53.5 percent reported in August. This month’s report that inventories did not change from August follows seven consecutive months of higher inventories. Of the total respondents in September, 29 percent indicate they do not have inventories or do not measure them. Comments from members include: “Drop in business activity”; “Trying to eliminate inventory”; “Higher emphasis on inventory turns”; and “Buying in before price increases.”
The industries reporting the highest rates of inventory increase in September are: Communication; Finance & Banking; Business Services; Health Services; and Retail Trade. The industries reporting the highest rates of inventory decrease in September are: Agriculture; Real Estate; Utilities; Transportation; and Other Services(c).
Inventories %Higher %Same %Lower Index September 2005 22 56 22 50.0 August 2005 22 63 15 53.5 July 2005 24 57 19 52.5 June 2005 18 68 14 52.0
Prices
Prices paid by non-manufacturing organizations for purchased materials and services increased in September for the 28th consecutive month and at a faster rate of increase than in August. ISM’s Non-Manufacturing Prices Index for September is 81.4 percent, 14.3 percentage points above the 67.1 percent registered for August. This is the highest Prices Index recorded since the inception of ISM’s non-manufacturing business survey in July 1997. In September, the percentage of members reporting higher prices rose from 36 percent to 58 percent, the proportion indicating no change dropped from 58 percent to 40 percent, and the number noting lower prices decreased from 6 percent to 2 percent.
The industries reporting the highest rates of increase in prices paid in September are: Agriculture; Legal Services; Utilities; Construction; and Public Administration. No industry is reporting price decreases in September.
Prices %Higher %Same %Lower Index September 2005 58 40 2 81.4 August 2005 36 58 6 67.1 July 2005 39 58 3 70.3 June 2005 27 68 5 59.8
Backlog of Orders
ISM’s Non-Manufacturing Backlog of Orders Index registered 52 percent in September, the same value as in August. September’s report of increasing order backlogs marks 28 out of the last 29 months that an increase has been reported in order backlogs. Of the total respondents in September, 45 percent indicated they do not measure backlog of orders. Purchasing and supply executives’ comments on backlogs of orders include: “Products that were shipping from New Orleans are being shipped from other locations, but it has made for some slow deliveries”; “Additional business”; and “Contracts are larger in scope and complexity, requiring additional time.”
The industries reporting the highest rates of increase in order backlogs in September are: Construction; Mining; Utilities; Communication; and Finance & Banking. Industries reporting the highest rates of decrease in backlog of orders in September are: Agriculture; Entertainment; Other Services(c); Public Administration; and Wholesale Trade.
Backlog of Orders %Higher %Same %Lower Index September 2005 19 66 15 52.0 August 2005 12 80 8 52.0 July 2005 19 69 12 53.5 June 2005 11 83 6 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 third consecutive month in September after being reported unchanged in June. The September index marks 25 out of the past 26 months that the index has exhibited growth. The New Export Orders Index for September is 55 percent, compared to August’s 63.5 percent. Of the total respondents in September, 76 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.
The industries reporting the highest rates of increase in new export orders in September are: Construction; Finance & Banking; Insurance; Other Services(c); and Wholesale Trade. Industries reporting decreases in new export orders in September are: Entertainment; Business Services; Communication; and Public Administration.
New Export Orders %Higher %Same %Lower Index September 2005 27 56 17 55.0 August 2005 32 63 5 63.5 July 2005 18 71 11 53.5 June 2005 18 64 18 50.0
Imports
In September, the ISM Imports Index registered 58.5 percent, 3 percentage points lower than the 61.5 percent reported in August. This indicates that use of imported materials by non-manufacturing industries increased at a slower rate in September than in August. September’s index marks the 29th consecutive month of import growth. In September, 66 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 September are: Communication; Wholesale Trade; Transportation; and Retail Trade. The only industry reporting a decrease in the use of imports in September is Business Services.
Imports %Higher %Same %Lower Index September 2005 24 69 7 58.5 August 2005 25 73 2 61.5 July 2005 26 72 2 62.0 June 2005 25 67 8 58.5
Inventory Sentiment
The ISM Non-Manufacturing Inventory Sentiment Index in September registered 64 percent, 3 percentage points lower than the 67 percent reported in August. This indicates that non-manufacturing purchasing and supply executives feel a lesser degree of discomfort with current levels of inventory in September than they did during August. In September, 33 percent of respondents felt their inventories were too high, 5 percent indicated their inventories were too low, and 62 percent said that their inventories were about right.
The industries reporting the highest rates of feeling that their inventories are too high in September are: Communication; Wholesale Trade; Construction; Health Services; Finance & Banking; and Other Services(c). Industries reporting that their inventories are too low in September are: Transportation and Utilities.
Inventory Sentiment %Too High %About %Too Low Index Right September 2005 33 62 5 64.0 August 2005 37 60 3 67.0 July 2005 35 58 7 64.0 June 2005 33 63 4 64.5
(c) 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. 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(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 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(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 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(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 October 2005 data will be released at 10:00 a.m. (ET) on November 3, 2005.