EconoIndicators / ISM Non-manufacturing Report on Business

Non-manufacturing Report At a Glance
Index Readings Above 50 Represent Growth

Business Activity/Production Index: 55.8
Change: Unchanged
New Orders: 57
Change: Up 2
Employment: 47.9
Change: Down 3.8
Inventories: 57
Change: 2

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August 2007 Non-Manufacturing ISM Report On Business®

[From the press release]

Business Activity at 55.8%

New Orders Index at 57%
Employment Index at 47.9%

(Tempe, Arizona) — Business activity in the non-manufacturing sector increased at the same rate in August as in July, 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 53rd consecutive month in August," Nieves said. He added, "The Business Activity Index remained the same at 55.8 percent for the month of August. New Orders increased at a faster rate and Employment contracted in August. The New Orders Index increased to 57 percent, and the Prices Index decreased to 58.6 percent in August. Ten non-manufacturing industries reported increased activity in August. Members’ comments in August are mixed about business conditions. The overall indication in August is continued economic growth in the non-manufacturing sector at the same pace as in July."

TOP PERFORMING INDUSTRIES

The 10 industries reporting growth in August — listed in order — are: Accommodation & Food Services; Real Estate, Rental & Leasing; Other Services*; Health Care & Social Assistance; Utilities; Public Administration; Professional, Scientific & Technical Services; Educational Services; Retail Trade; and Information. The five industries reporting decreased activity from July to August are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Finance & Insurance; Wholesale Trade; and Construction.

WHAT RESPONDENTS ARE SAYING …

"We continue to be cautious but optimistic. Customer sentiment, fuels and the general conditions in the markets continue to cause concern. However, we are planning for new and increased business levels and are buying to support what we anticipate to be a turn." (Retail Trade)
"With the residential construction sector struggling, commercial construction has filled the void with a robust performance." (Public Administration)
"We are getting mixed messages on the economy. Looks like tight credit is slowing business down." (Professional, Scientific & Technical Services)
"Financial market conditions turned negative." (Finance & Insurance)
"The general state of the home building sector is still very low with material costs fluctuating monthly. Sales volume is trending down with less traffic over prior month. Labor rates are declining with some companies closing their doors due to little to no new business." (Construction)

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* AUGUST 2007
	Non-Manufacturing						Manufacturing
Index	Series Index August	Series Index July	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index August	Series Index July	Percent Point Change
Business Activity/Production	55.8	55.8	0.0	Growing	Same	53	56.1	55.6	+0.5
New Orders	57.0	52.8	+4.2	Growing	Faster	53	55.3	57.5	-2.2
Employment	47.9	51.7	-3.8	Contracting	From Growing	1	51.3	50.2	+1.1
Supplier Deliveries	50.5	51.5	-1.0	Slowing	Slower	3	50.0	52.0	-2.0
Inventories	57.0	55.0	+2.0	Growing	Faster	7	45.4	48.5	-3.1
Prices	58.6	61.3	-2.7	Increasing	Slower	51	63.0	65.0	-2.0
Backlog of Orders	50.0	53.0	-3.0	Unchanged	From Growing	1	50.5	52.0	-1.5
New Export Orders	53.5	52.5	+1.0	Growing	Faster	5	57.0	56.5	+0.5
Imports	55.0	54.5	+0.5	Growing	Faster	5	52.5	54.5	-2.0
Inventory Sentiment	61.5	65.0	-3.5	"Too High"	Slower	123	N/A	N/A	N/A
Customers’ Inventories	N/A	N/A	N/A				49.0	51.0	-2.0

* 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

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

Commodities Up in Price

Airfare (2); Car Rentals (4); Cheese (3); Copper Wire; Fuel* (7); Hotel Costs (15); Milk (2); and Paper (2).

Commodities Down in Price

Fuel*; Gasoline (3); and Lumber — Pine, Plywood, Spruce & Treated.

Commodities in Short Supply

Nickel Products is the only commodity listed in short supply.

*Reported both Up and Down in price.

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

AUGUST 2007 NON-MANUFACTURING INDEX SUMMARIES

Business Activity

ISM’s Non-Manufacturing Business Activity Index in August registered 55.8 percent, indicating the same rate of growth in business activity compared to July. The implication is that non-manufacturing business activity is continuing to increase for the 53rd consecutive month. Ten industries reported increased business activity, and five industries reported decreased activity for the month of August.

The industries reporting growth of business activity in August are: Accommodation & Food Services; Real Estate, Rental & Leasing; Other Services*; Health Care & Social Assistance; Utilities; Public Administration; Professional, Scientific & Technical Services; Educational Services; Retail Trade; and Information. The five industries reporting decreased activity from July to August are: Management of Companies & Support Services; Arts, Entertainment & Recreation; Finance & Insurance; Wholesale Trade; and Construction.

Business Activity	% Higher	% Same	% Lower	Index
August 2007	27	54	19	55.8
July 2007	30	52	18	55.8
June 2007	40	49	11	60.7
May 2007	39	46	15	59.7

THE LAST 12 MONTHS

THE LAST 12 MONTHS
Month	Business Activity Index	Month	Business Activity Index
Aug 2007	55.8	Feb 2007	54.3
Jul 2007	55.8	Jan 2007	59.0
Jun 2007	60.7	Dec 2006	56.7
May 2007	59.7	Nov 2006	58.3
Apr 2007	56.0	Oct 2006	57.4
Mar 2007	52.4	Sep 2006	54.6
Average for 12 months — 56.7 High — 60.7 Low — 52.4

New Orders

ISM’s Non-Manufacturing New Orders Index increased to 57 percent in August from the 52.8 percent registered in July. This indicates continued expansion of new orders and at a faster rate than in July. Comments from members include: "Increased proposal and prospect activity" and "New store demands."

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

New Orders	% Higher	% Same	% Lower	Index
August 2007	27	57	16	57.0
July 2007	25	57	18	52.8
June 2007	34	52	14	56.9
May 2007	33	54	13	57.4

Employment

Employment activity in the non-manufacturing sector contracted in August. The last time the Employment Index contracted was in July 2004. ISM’s Non-Manufacturing Employment Index for August is 47.9 percent, a 3.8 percentage point decrease from the 51.7 percent reported in July. Three industries reported increased employment, eight reported a decrease, and seven indicated employment is unchanged from July. Comments from respondents include: "Conservative outlook for future"; "Lower sales volume"; and "Reduction in workforce."

The industries reporting growth in employment in August are: Educational Services; Other Services*; and Health Care & Social Assistance. The eight industries reporting a reduction in employment in August are: Construction; Information; Management of Companies & Support Services; Utilities; Professional, Scientific & Technical Services; Public Administration; Wholesale Trade; and Real Estate, Rental & Leasing.

Employment	% Higher	% Same	% Lower	Index
August 2007	12	70	18	47.9
July 2007	21	66	13	51.7
June 2007	24	67	9	55.0
May 2007	23	68	9	54.9

Supplier Deliveries

In August, supplier deliveries were slower than in July. The index registered 50.5 percent, 1 percentage point lower than in July. A reading above 50 percent indicates slower deliveries.

The industries reporting slowing in supplier deliveries in August are: Real Estate, Rental & Leasing; Management of Companies & Support Services; Information; Wholesale Trade; and Professional, Scientific & Technical Services. The industries reporting faster supplier deliveries in August are: Utilities; Health Care & Social Assistance; Retail Trade; and Public Administration.

Supplier Deliveries	% Slower	% Same	% Faster	Index
August 2007	7	87	6	50.5
July 2007	8	87	5	51.5
June 2007	8	85	7	50.5
May 2007	7	85	8	49.5

Inventories

ISM’s Non-Manufacturing Inventories Index registered 57 percent in August, indicating that inventories are growing at a faster rate compared to July. Inventories are expanding for the seventh consecutive month. Of the total respondents in August, 32 percent indicated they do not have inventories or do not measure them. Comments from members include: "We are increasing our inventory of steel to our max levels to help us react quicker to our customers’ needs"; "Correlates with business level"; and "Excess inventory due to decrease in sales."

The industries reporting increases in inventories in August are: Management of Companies & Support Services; Accommodation & Food Services; Other Services*; Utilities; Real Estate, Rental & Leasing; Finance & Insurance; Retail Trade; Information; Health Care & Social Assistance; and Professional, Scientific & Technical Services. The industries reporting decreases in inventories in August are: Transportation & Warehousing; Public Administration; Arts, Entertainment & Recreation; and Wholesale Trade.

Inventories	% Higher	% Same	% Lower	Index
August 2007	26	62	12	57.0
July 2007	28	54	18	55.0
June 2007	21	63	16	52.5
May 2007	29	64	7	61.0

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the 51st consecutive month. ISM’s Non-Manufacturing Prices Index for August is 58.6 percent, 2.7 percentage points lower than July’s index of 61.3 percent. In August, the percentage of respondents reporting higher prices decreased by 6 percentage points to 23 percent as compared to July. The percentage indicating no change remained the same at 68 percent. The percentage of respondents noting lower prices increased by six percent in August.

The industries reporting an increase in prices paid in August are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Mining; Transportation & Warehousing; Utilities; Retail Trade; Accommodation & Food Services; Finance & Insurance; Management of Companies & Support Services; Wholesale Trade; Educational Services; Public Administration; and Professional, Scientific & Technical Services. The four industries reporting a decrease in prices in August are: Other Services*; Construction; Health Care & Social Assistance; and Information.

Prices	% Higher	% Same	% Lower	Index
August 2007	23	68	9	58.6
July 2007	29	68	3	61.3
June 2007	35	62	3	65.5
May 2007	41	55	4	66.4

Backlog of Orders

ISM’s Non-Manufacturing Backlog of Orders Index registered 50 percent in August, 3 percentage points lower than the 53 percent reported in July. Of the total respondents in August, 41 percent indicated they do not measure backlog of orders.

The industries reporting an increase in order backlogs in August are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Information; Other Services*; and Public Administration. The industries reporting lower backlog of orders in August are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Educational Services; Management of Companies & Support Services; Health Care & Social Assistance; Wholesale Trade; and Retail Trade.

Backlog of Orders	% Higher	% Same	% Lower	Index
August 2007	13	74	13	50.0
July 2007	14	78	8	53.0
June 2007	14	65	21	46.5
May 2007	13	70	17	48.0

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 in August increased for the fifth consecutive month. The New Export Orders Index for August is 53.5 percent, compared to July’s index of 52.5 percent. Of the total respondents in August, 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 August are: Mining; Construction; Accommodation & Food Services; Other Services*; Retail Trade; and Professional, Scientific & Technical Services. The three industries reporting a decrease in export orders are: Public Administration; Agriculture, Forestry, Fishing & Hunting; and Wholesale Trade.

New Export Orders	% Higher	% Same	% Lower	Index
August 2007	19	69	12	53.5
July 2007	22	61	17	52.5
June 2007	26	66	8	59.0
May 2007	36	60	4	66.0

Imports

In August, the ISM Non-Manufacturing Imports Index registered 55 percent, 0.5 percentage point higher than July’s index of 54.5 percent, indicating that use of imports increased in August when compared to July. In August, 65 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 August are: Transportation & Warehousing; Information; Health Care & Social Assistance; Other Services*; Accommodation & Food Services; and Retail Trade. The one industry reporting a decrease in imports for the month of August is Management of Companies & Support Services.

Imports	% Higher	% Same	% Lower	Index
August 2007	16	78	6	55.0
July 2007	19	71	10	54.5
June 2007	24	67	9	57.5
May 2007	17	77	6	55.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in August registered 61.5 percent,
3.5 percentage points lower than the 65 percent reported in July. This indicates that fewer non-manufacturing purchasing and supply executives feel discomfort with current levels of inventory in August than in July. In August, 27 percent of respondents felt their inventories were too high, 4 percent indicated their inventories were too low, and 69 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in August are: Other Services*; Wholesale Trade; Utilities; Construction; Management of Companies & Support Services; Arts, Entertainment & Recreation; Finance & Insurance; Public Administration; Information; Health Care & Social Assistance; and Retail Trade. The one industry reporting that their inventories are too low is Transportation & Warehousing.