Nonmanufacturing Report on Business – January 2008

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

NMI/PMI: 44.6
Business Activity/Production Index: 41.9
Change: Down 12.5
New Orders: 43.5
Change: Down 10.4
Employment: 43.9
Change: Down 7.9
Inventories: 44.5
Change: Down 6

Technorati Tags: service, non-manufacturing, economy

January 2008 Non-Manufacturing ISM Report On Business
NMI (Non-Manufacturing Index) at 44.6%
Business Activity Index at 41.9%
New Orders Index at 43.5%
Employment Index at 43.9%

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

(Tempe, Arizona) — Business activity in the non-manufacturing sector contracted in January for the first time in 58 months, 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. “The new NMI (Non-Manufacturing Index) at 44.6 percent indicates contraction within the non-manufacturing sector for January 2008. Non-manufacturing business activity contracted for the first time since March 2003,” Nieves said. He added, “The New Orders Index contracted to 43.5 percent, the lowest since October 2001. The Employment Index contracted to 43.9 percent, the lowest since February 2002. The Prices Index decreased to 70.7 percent in January, indicating a slight slowing in price increases for January. According to the new NMI, only three non-manufacturing industries reported growth in January. Members’ comments in January indicate that weakness in the economy coupled with increased costs have negatively affected their business. Members have also indicated that they are experiencing inflationary pressures. The overall indication in January is that non-manufacturing has come to the end of a long-term period of growth and has contracted for the month of January.”
TOP PERFORMING INDUSTRIES (Based on the NMI)

The three industries reporting growth in January based on the new NMI composite index — listed in order — are: Utilities; Professional, Scientific & Technical Services; and Educational Services. The 14 industries reporting contraction in January — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Construction; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; Health Care & Social Assistance; Finance & Insurance; Information; Wholesale Trade; Retail Trade; Public Administration; Other Services*; and Real Estate, Rental & Leasing.
WHAT RESPONDENTS ARE SAYING …

* “Recession fears taking hold as cost containment strategies have been dusted off from 2002.” (Finance & Insurance)
* “Business [is] slow as normal after holiday rush.” (Management of Companies & Support Services)
* “Oil increases affecting delivery costs and the costs of goods.” (Retail Trade)
* “Business is tough coming into Q1 after a very tough, unprofitable Q4. Competitive pricing is driving rates to unreasonable levels as competition is over fleeted.” (Real Estate, Rental & Leasing)
* “… business activity is currently lower than normal at this time.” (Wholesale Trade)

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* JANUARY 2008
	Non-Manufacturing						Manufacturing
Index	Series Index Jan.	Series Index Dec.	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index Jan.	Series Index Dec.	Percent Point Change
NMI/PMI	44.6	N/A	N/A	Contracting	N/A	1	50.7	48.4	+ 2.3
Business Activity/Production	41.9	54.4	- 12.5	Contracting	From Growing	1	55.2	48.6	+ 6.6
New Orders	43.5	53.9	- 10.4	Contracting	From Growing	1	49.5	46.9	+ 2.6
Employment	43.9	51.8	- 7.9	Contracting	From Growing	1	47.1	48.7	- 1.6
Supplier Deliveries	49.0	52.5	- 3.5	Faster	From Slowing	1	52.8	52.6	+ 0.2
Inventories	44.5	50.5	- 6.0	Contracting	From Growing	1	49.1	45.4	+ 3.7
Prices	70.7	71.5	- 0.8	Increasing	Slower	56	76.0	68.0	+ 8.0
Backlog of Orders	46.0	49.0	- 3.0	Contracting	Faster	5	44.0	43.0	+ 1.0
New Export Orders	52.0	50.0	+ 2.0	Growing	From Unchanged	1	58.5	52.5	+ 6.0
Imports	41.5	50.5	- 9.0	Contracting	From Growing	1	52.5	48.0	+ 4.5
Inventory Sentiment	57.0	64.5	- 7.5	"Too High"	Slower	128	N/A	N/A	N/A
Customers’ Inventories	N/A	N/A	N/A	N/A	N/A	N/A	49.5	51.5	- 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.

Indexes reflect newly released seasonal adjustment factors.

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

Commodities Up in Price

Copper Wire; Corn (2); Cotton Products; Diesel Fuel (4); #2 Diesel Fuel (4); Fuel (12); Fuel Surcharges; Gasoline (5); Oil; Paper (3); Plastic Bags (2); Poly Products; Rental Vehicles (2); Scientific Equipment/Supplies; Soy Products; Steel Products; and #10 Window Envelopes.

Commodities Down in Price

Cheese; Electronics; and Wallboard/Sheetrock.

Commodities in Short Supply

Titanium is the only commodity reported in short supply.

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

SPECIAL QUESTIONS

Two additional questions were asked in a special poll of the non-manufacturing panel in January.

Question 1 — Is the turmoil in financial markets having any effect on your firm’s ability to obtain regular or additional financing?

Yes — 14.6%

No — 85.4%

Question 2 — Indicate how you and your management feel about the next 12 months compared to 2007.

Better 16%

Same 42%

Worse 42%

Diffusion Index 37%

JANUARY 2008 NON-MANUFACTURING INDEX SUMMARIES

NMI (Non-Manufacturing Index)

Beginning with the January 2008 Non-Manufacturing Report On Business®, a composite index is 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. January’s NMI at 44.6 percent indicates a contraction in the non-manufacturing sector. 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 of business activity in January are: Utilities; Professional, Scientific & Technical Services; and Educational Services. The industries reporting decreased business activity in January are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Construction; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; Health Care & Social Assistance; Finance & Insurance; Information; Wholesale Trade; Retail Trade; Public Administration; Other Services*; and Real Estate, Rental & Leasing.

Business Activity

ISM’s Non-Manufacturing Business Activity Index in January registered 41.9 percent, indicating a significant contraction in business activity in January from the seasonally adjusted 54.4 percent registered in December. This is the first contraction in the non-manufacturing sector since March 2003, when the index registered 46.3 percent, and the lowest Business Activity Index since registering 40 percent in October 2001. Two industries reported increased business activity, and 14 industries reported decreased activity for the month of January. Two industries reported no change from December. Comments from respondents include: "Pervasive economic weakness"; "Less customer demand, stiffer competition"; and "Fewer job orders, fewer inquiries about our capabilities."

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

Business Activity	% Higher	% Same	% Lower	Index
January 2008	18	40	42	41.9
December 2007	24	54	22	54.4
November 2007	29	51	20	54.6
October 2007	29	51	20	55.5

THE LAST 12 MONTHS
Month	Business Activity Index	Month	Business Activity Index
Jan 2008	41.9	Jul 2007	55.9
Dec 2007	54.4	Jun 2007	59.7
Nov 2007	54.6	May 2007	58.4
Oct 2007	55.5	Apr 2007	56.0
Sep 2007	55.7	Mar 2007	53.0
Aug 2007	56.3	Feb 2007	54.9
Average for 12 months — 54.7 High — 59.7 Low — 41.9

New Orders

ISM’s Non-Manufacturing New Orders Index contracted to 43.5 percent in January, a significant reduction of 10.4 percentage points from the seasonally adjusted 53.9 percent registered in December. This is the first contraction of non-manufacturing new orders since March 2003 when the index registered 49.9 percent, and the lowest new orders index since it registered 40 percent in October 2001. Comments from respondents include: "Sluggish sales"; "Not as many opportunities"; and "Economic uncertainty."

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

New Orders	% Higher	% Same	% Lower	Index
January 2008	18	46	36	43.5
December 2007	25	50	25	53.9
November 2007	20	63	17	52.0
October 2007	27	54	19	55.4

Employment

Employment activity in the non-manufacturing sector decreased in January for the first time in five months. ISM’s Non-Manufacturing Employment Index for January registered 43.9 percent, a 7.9 percentage point decrease from the seasonally adjusted 51.8 percent reported in December. One industry reported increased employment, 12 industries reported a decrease, and 5 industries indicated employment is unchanged from December. Comments from respondents include: "Did not replace some positions"; "Reduced headcounts with hiring freezes in place"; and "Layoffs."

The only industry reporting growth in employment in January is Transportation & Warehousing. The industries reporting a reduction in employment in January are: Arts, Entertainment & Recreation; Other Services*; Accommodation & Food Services; Health Care & Social Assistance; Real Estate, Rental & Leasing; Construction; Public Administration; Retail Trade; Finance & Insurance; Information; Professional, Scientific & Technical Services; and Wholesale Trade.

Employment	% Higher	% Same	% Lower	Index
January 2008	6	70	24	43.9
December 2007	16	71	13	51.8
November 2007	17	68	15	51.4
October 2007	17	66	17	52.4

Supplier Deliveries

Supplier deliveries were faster in January with the index registering 49 percent. A reading above 50 percent indicates slower deliveries.

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

Supplier Deliveries	% Slower	% Same	% Faster	Index
January 2008	8	82	10	49.0
December 2007	13	79	8	52.5
November 2007	10	83	7	51.5
October 2007	9	82	9	50.0

Inventories

ISM’s Non-Manufacturing Inventories Index registered 44.5 percent in January, indicating that inventory levels contracted in January. Of the total respondents in January, 34 percent indicated they do not have inventories or do not measure them. Comments from members include: "Lowering inventories to improve cash position"; "Slower sales than forecasted"; and "Anticipated reduction for end of year."

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

Inventories	% Higher	% Same	% Lower	Index
January 2008	14	61	25	44.5
December 2007	26	49	25	50.5
November 2007	22	57	21	50.5
October 2007	18	63	19	49.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in January for the 56th consecutive month. ISM’s Non-Manufacturing Prices Index for January registered 70.7 percent, 0.8 percentage point lower than December’s seasonally adjusted index of 71.5 percent. In January, the percentage of respondents reporting higher prices increased 4 percentage points to 41 percent. The percentage indicating no change in prices paid decreased 7 percentage points to 54 percent. The percentage of respondents noting lower prices increased 3 percentage points to 5 percent.

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

Prices	% Higher	% Same	% Lower	Index
January 2008	41	54	5	70.7
December 2007	37	61	2	71.5
November 2007	46	51	3	73.7
October 2007	30	67	3	66.1

Backlog of Orders

ISM’s Non-Manufacturing Backlog of Orders Index contracted in January for the fifth consecutive month, registering 46 percent, 3 percentage points lower than the 49 percent reported in December. Of the total respondents in January, 44 percent indicated they do not measure backlog of orders.

The industries reporting an increase in order backlogs in January are: Utilities; Information; and Educational Services. The industries reporting lower backlog of orders in January are: Management of Companies & Support Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; Public Administration; Construction; and Wholesale Trade.

Backlog of Orders	% Higher	% Same	% Lower	Index
January 2008	13	66	21	46.0
December 2007	20	58	22	49.0
November 2007	17	63	20	48.5
October 2007	4	79	17	43.5

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 month of January. The New Export Orders Index for January registered 52 percent, compared to December’s index of 50 percent. Of the total respondents in January, 69 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: Finance & Insurance; Management of Companies & Support Services; Retail Trade; and Professional, Scientific & Technical Services. The industries reporting a decrease in export orders in January are: Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; and Wholesale Trade.

New Export Orders	% Higher	% Same	% Lower	Index
January 2008	21	62	17	52.0
December 2007	22	56	22	50.0
November 2007	26	59	15	55.5
October 2007	26	60	14	56.0

Imports

The ISM Non-Manufacturing Imports Index contracted significantly in January. The index registered 41.5 percent, 9 percentage points lower than December’s index of 50.5 percent. In January, 68 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: Other Services* and Wholesale Trade. The industries reporting a decrease in imports for the month of January are: Public Administration; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Transportation & Warehousing; Management of Companies & Support Services; and Retail Trade.

Imports	% Higher	% Same	% Lower	Index
January 2008	10	63	27	41.5
December 2007	14	73	13	50.5
November 2007	17	65	18	49.5
October 2007	23	65	12	55.5

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in January registered 57 percent, 7.5 percentage points lower than the 64.5 percent reported in December. This indicates that fewer non-manufacturing purchasing and supply executives feel discomfort with current levels of inventory in January than in December. In January, 23 percent of respondents felt their inventories were too high, nine percent indicated their inventories were too low, and 68 percent said that their inventories were about right.

The industries reporting a feeling that their inventories are too high in January are: Wholesale Trade; Management of Companies & Support Services; Health Care & Social Assistance; Accommodation & Food Services; Information; Professional, Scientific & Technical Services; and Retail Trade. The industries reporting that their inventories are too low are: Real Estate, Rental & Leasing; Public Administration; and Construction.