ISM Non-Manufacturing Index falls 5.8 points to 44.4

Economic activity in the United States non-manufacturing sector contracted in October, say the nation's purchasing and supply executives in the Institute for Supply Management's latest Non-Manufacturing ISM Report On Business.

The report was issued November 5 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) registered 44.4 percent in October, 5.8 percentage points lower than the 50.2 percent registered in September, indicating contraction in the non-manufacturing sector after two consecutive months of growth," said Nieves. "The Non-Manufacturing Business Activity Index decreased 7.9 percentage points to 44.2 percent. The New Orders Index decreased 6.8 percentage points to 44 percent, and the Employment Index decreased 2.7 percentage points to 41.5 percent. The Prices Index decreased 16.6 percentage points to 53.4 percent in October, indicating a slower rate in price increases than in September. This is the lowest reading for the Prices Index since July 2003 when it registered 51.4 percent, and is also the largest one-month decline since the index was first reported in 1997. According to the NMI, three non-manufacturing industries reported growth in October. Respondents' comments indicate ongoing concern about the business environment and the economy."

INDUSTRY PERFORMANCE (Based on the NMI)

The three industries reporting growth in October based on the new NMI composite index — listed in order — are: Other Services*; Health Care & Social Assistance; and Utilities. The 13 industries reporting contraction in October are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Management of Companies & Support Services; Accommodation & Food Services; Construction; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Educational Services; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; Information; and Wholesale Trade.

WHAT RESPONDENTS ARE SAYING ...

• "Financial services industry continues to be impacted by the global economic crisis — impacting all aspects and areas of the business and supply management." (Finance & Insurance)
• "Economic slowdown starting to have an impact on customer count and check averages." (Accommodation & Food Services)
• "Uncertainty is having the usual effect on business. Our response is traditional — stop all discretionary spending." (Management of Companies & Support Services)
• "General pick-up in business in spite of all the bad economic global news." (Wholesale Trade)
• "We are experiencing a slowdown in new job orders and existing job awards are lower. Clients are not extending project support professionals." (Professional, Scientific & Technical Services)
• "Business down significantly! Discretionary spending disappearing." (Arts, Entertainment & Recreation)

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* OCTOBER 2008
	Non-Manufacturing						Manufacturing
Index	Series Index Oct.	Series Index Sept.	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index Oct.	Series Index Sept.	Percent Point Change
NMI/PMI	44.4	50.2	-5.8	Contracting	From Growing	1	38.9	43.5	-4.6
Business Activity/Production	44.2	52.1	-7.9	Contracting	From Growing	1	34.1	40.8	-6.7
New Orders	44.0	50.8	-6.8	Contracting	From Growing	1	32.2	38.8	-6.6
Employment	41.5	44.2	-2.7	Contracting	Faster	6	34.6	41.8	-7.2
Supplier Deliveries	48.0	53.5	-5.5	Faster	From Slowing	1	49.2	52.5	-3.3
Inventories	48.0	45.5	+2.5	Contracting	Slower	2	44.3	43.4	+0.9
Prices	53.4	70.0	-16.6	Increasing	Slower	65	37.0	53.5	-16.5
Backlog of Orders	44.0	46.5	-2.5	Contracting	Faster	3	29.5	35.0	-5.5
New Export Orders	50.0	50.5	-0.5	Unchanged	From Growing	1	41.0	52.0	-11.0
Imports	52.0	47.5	+4.5	Growing	From Contracting	1	41.0	44.0	-3.0
Inventory Sentiment	67.5	62.5	+5.0	Too High	Faster	137	N/A	N/A	N/A
Customers' Inventories	N/A	N/A	N/A	N/A	N/A	N/A	55.0	53.5	+1.5

* 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

Cable Wire; Copier Paper (9); #1 Diesel Fuel* (6); Electrical Supplies; Energy; Food and Beverage (6); Fuel*; Gasoline* (14); Janitorial Supplies; Medical Services; Medical and Surgical Supplies (3); Office Supplies; Paper; Plastic Bags; and Steel Products* (2).

Commodities Down in Price

Beef (2); Cardboard; Cheese; Copper Pipe (3); Copper Pipe Fittings (3); Copper Tubing (2); Diesel Fuel (2); #1 Diesel Fuel*; #2 Diesel Fuel (3); Fuel* (3); Gasoline* (4); Milk; Natural Gas; Poly Resins; and Steel Products*.

Commodities in Short Supply

No commodities are reported in short supply.

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

*Indicates reported both up and down in price.

SPECIAL QUESTIONS

A special set of questions was asked of the non-manufacturing respondents in October to determine possible effects from the recent turmoil in the financial markets. Of those who responded to this set of questions, 68.3 percent indicated that they (or their suppliers) have been affected by the recent financial market turmoil. Of those who have been affected, 43 percent indicated that they have seen a decrease in the availability of credit; 45 percent have seen an increase in the cost of credit; 22.5 percent have experienced difficulty in initiating or renewing a bank credit line; and 82.8 percent have reduced spending and/or hiring.

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OCTOBER 2008 NON-MANUFACTURING INDEX SUMMARIES

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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. In October, the NMI at 44.4 percent indicates 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 in October are: Other Services*; Health Care & Social Assistance; and Utilities. The industries reporting contraction in October are: Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Management of Companies & Support Services; Accommodation & Food Services; Construction; Retail Trade; Agriculture, Forestry, Fishing & Hunting; Educational Services; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; Information; and Wholesale Trade.

NMI HISTORY

Month	NMI	Month	NMI
Oct 2008	44.4	May 2008	51.7
Sep 2008	50.2	Apr 2008	52.0
Aug 2008	50.6	Mar 2008	49.6
Jul 2008	49.5	Feb 2008	49.3
Jun 2008	48.2	Jan 2008	44.6

Business Activity

ISM's Non-Manufacturing Business Activity Index in October registered 44.2 percent, a decrease of 7.9 percentage points when compared to the 52.1 percent registered in September. Four industries reported increased business activity, and 12 industries reported decreased activity for the month of October. Two industries reported no change from September. Comments from respondents include: "Finished existing orders without new orders to fill capacity"; "Reduced flight schedule"; and "Decline in overall business and replacement of items."

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

Business Activity	% Higher	% Same	% Lower	Index
Oct 2008	20	47	33	44.2
Sep 2008	23	53	24	52.1
Aug 2008	23	53	24	51.6
Jul 2008	24	51	25	49.6

THE LAST 12 MONTHS
Month	Business Activity Index		Month	Business Activity Index
Oct 2008	44.2		Apr 2008	50.9
Sep 2008	52.1		Mar 2008	52.2
Aug 2008	51.6		Feb 2008	50.8
Jul 2008	49.6		Jan 2008	41.9
Jun 2008	49.9		Dec 2007	54.4
May 2008	53.6		Nov 2007	54.6
Average for 12 months — 50.5 High — 54.6 Low — 41.9

New Orders

ISM's Non-Manufacturing New Orders Index contracted in October after one month of growth. The index decreased 6.8 percentage points to 44 percent from the 50.8 percent registered in September. Comments from respondents include: "Lower levels of business activity"; "Cancellations due to perceived lower business volume"; and "Reduced prospecting activity."

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

New Orders	% Higher	% Same	% Lower	Index
Oct 2008	18	50	32	44.0
Sep 2008	20	57	23	50.8
Aug 2008	24	51	25	49.7
Jul 2008	20	56	24	47.9

Employment

Employment activity in the non-manufacturing sector contracted in October for the ninth time in the last 10 months. ISM's Non-Manufacturing Employment Index for October registered 41.5 percent. This reflects a decrease of 2.7 percentage points when compared to the 44.2 percent registered in September. Three industries reported increased employment, 12 industries reported a decrease, and three industries indicated employment is unchanged from September. Comments from respondents include: "Hiring freeze continues"; "Reducing staff"; and "Potential layoffs in the near future if things don't pick up."

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

Employment	% Higher	% Same	% Lower	Index
Oct 2008	9	61	30	41.5
Sep 2008	13	60	27	44.2
Aug 2008	13	62	25	45.4
Jul 2008	19	60	21	47.1

Supplier Deliveries

Supplier deliveries were faster in October, with the index registering 48 percent. This is the third reading below 50 percent in the last 10 months. A reading above 50 percent indicates slower deliveries.

The industries reporting slowing in supplier deliveries in October are: Construction; Transportation & Warehousing; Health Care & Social Assistance; and Retail Trade. The industries reporting faster supplier deliveries in October are: Agriculture, Forestry, Fishing & Hunting; Educational Services; Wholesale Trade; Information; Finance & Insurance; and Public Administration.

Supplier Deliveries	% Slower	% Same	% Faster	Index
Oct 2008	6	84	10	48.0
Sep 2008	11	85	4	53.5
Aug 2008	16	79	5	55.5
Jul 2008	15	77	8	53.5

Inventories

ISM's Non-Manufacturing Inventories Index registered 48 percent in October, indicating that inventory levels contracted in October for the second consecutive month. Of the total respondents in October, 27 percent indicated they do not have inventories or do not measure them. Comments from members include: "Reducing overstock and slow moving inventory"; "Drawing down existing inventory — have stopped building inventory"; and "Keeping it very tight and as needed."

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

Inventories	% Higher	% Same	% Lower	Index
Oct 2008	21	54	25	48.0
Sep 2008	20	51	29	45.5
Aug 2008	20	67	13	53.5
Jul 2008	22	65	13	54.5

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in October for the 65th consecutive month. ISM's Non-Manufacturing Prices Index for October registered 53.4 percent, 16.6 percentage points lower than September's index of 70 percent. This is the lowest reading for the index since July 2003 when it registered 51.4 percent, and is also the largest one-month decline since the index was first reported in 1997. In October, the percentage of respondents reporting higher prices is 25 percent, the percentage indicating no change in prices paid is 52 percent, and 23 percent of the respondents reported lower prices.

In October, 10 industries reported an increase in prices paid in the following order: Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Management of Companies & Support Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Transportation & Warehousing; Accommodation & Food Services; Professional, Scientific & Technical Services; Utilities; and Information. The seven industries reporting prices as decreasing for the month of October are: Mining; Retail Trade; Wholesale Trade; Educational Services; Construction; Public Administration; and Finance & Insurance.

Prices	% Higher	% Same	% Lower	Index
Oct 2008	25	52	23	53.4
Sep 2008	46	46	8	70.0
Aug 2008	50	38	12	72.9
Jul 2008	66	30	4	80.8

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index contracted in October. The index registered 44 percent, 2.5 percentage points lower than the 46.5 percent reported in September. Of the total respondents in October, 43 percent indicated they do not measure backlog of orders.

The industries reporting an increase in order backlogs in October are: Other Services*; Information; and Health Care & Social Assistance. The industries reporting lower backlog of orders in October are: Mining; Management of Companies & Support Services; Retail Trade; Construction; Professional, Scientific & Technical Services; Public Administration; Finance & Insurance; and Utilities.

Backlog of Orders	% Higher	% Same	% Lower	Index
Oct 2008	12	64	24	44.0
Sep 2008	13	67	20	46.5
Aug 2008	14	70	16	49.0
Jul 2008	20	64	16	52.0

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 remain unchanged in October. The New Export Orders Index for October registered 50 percent, compared to September's index of 50.5 percent. Of the total respondents in October, 75 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 October are: Other Services*; Agriculture, Forestry, Fishing & Hunting; and Professional, Scientific & Technical Services. The industries reporting a decrease in export orders in October are: Accommodation & Food Services; Transportation & Warehousing; Retail Trade; and Wholesale Trade.

New Export Orders	% Higher	% Same	% Lower	Index
Oct 2008	21	58	21	50.0
Sep 2008	18	65	17	50.5
Aug 2008	9	71	20	44.5
Jul 2008	22	51	27	47.5

Imports

The ISM Non-Manufacturing Imports Index registered 52 percent in October. The index is 4.5 percentage points higher than September's index of 47.5 percent. In October, 62 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 October are: Agriculture, Forestry, Fishing & Hunting; Other Services*; Utilities; and Wholesale Trade. The industries reporting a decrease in imports for the month of October are: Finance & Insurance; Transportation & Warehousing; and Retail Trade.

Imports	% Higher	% Same	% Lower	Index
Oct 2008	20	64	16	52.0
Sep 2008	14	67	19	47.5
Aug 2008	5	82	13	46.0
Jul 2008	11	76	13	49.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index increased 5 percentage points to 67.5 percent in October, indicating that respondents still believe their inventories are too high at this time. In October, 42 percent of respondents said their inventories were too high, 7 percent said their inventories were too low, and 51 percent said their inventories were about right.

The industries reporting a feeling that their inventories are too high in October are: Professional, Scientific & Technical Services; Other Services*; Retail Trade; Wholesale Trade; Management of Companies & Support Services; Accommodation & Food Services; Finance & Insurance; Arts, Entertainment & Recreation; Construction; Information; Public Administration; Health Care & Social Assistance; and Utilities. The two industries reporting that their inventories are too low are: Mining; and Agriculture, Forestry, Fishing & Hunting.

Inventory Sentiment	%Too High	%About Right	%Too Low	Index
Oct 2008	42	51	7	67.5
Sep 2008	33	59	8	62.5
Aug 2008	34	64	2	66.0
Jul 2008	29	67	4	62.5

*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*; 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. ISM, established in 1915, is the largest supply management organization in the world as well as one of the most respected. Its mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

The next Non-Manufacturing ISM Report On Business, featuring the November 2008 data will be released on Wednesday, December 3.