ISM Non Manufacturing

November 2008 Non-Manufacturing ISM Report On Business®
NMI (Non-Manufacturing Index) at 37.3%


DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of November 2008.



Business Activity Index at 33%
New Orders Index at 35.4%
Employment Index at 31.3%
(Tempe, Arizona) — Economic activity in the non-manufacturing sector contracted in November, 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 NMI (Non-Manufacturing Index) registered 37.3 percent in November, 7.1 percentage points lower than the 44.4 percent registered in October, indicating contraction in the non-manufacturing sector for the second consecutive month. The Non-Manufacturing Business Activity Index decreased 11.2 percentage points to 33 percent. The New Orders Index decreased 8.6 percentage points to 35.4 percent, and the Employment Index decreased 10.2 percentage points to 31.3 percent. These are the lowest levels for each of these indexes since they were first reported in 1997. The Prices Index decreased 16.8 percentage points to 36.6 percent in November, indicating a decrease in prices from October. This is the largest-ever one-month decline in the index and its lowest level since it was first reported in 1997. According to the NMI, one non-manufacturing industry reported growth in November. Respondents' comments reflect concern about the time line for the economy to stabilize and the impact it is having on discretionary spending and employment."

INDUSTRY PERFORMANCE (Based on the NMI)
The one industry reporting growth in November based on the new NMI composite index is Health Care & Social Assistance. The 17 industries reporting contraction in November — listed in order — are: Transportation & Warehousing; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Public Administration; Educational Services; Management of Companies & Support Services; Mining; Wholesale Trade; Utilities; Other Services; Retail Trade; Construction; and Information.

WHAT RESPONDENTS ARE SAYING ...
"General slowdown and cost-cutting actions." (Other Services)
"Business remains strong despite the general economy." (Health Care & Social Assistance)
"Although funding for our core goals has not changed, new programs will be curtailed." (Educational Services)
"Store closures with associated employee layoffs, the continued downturn in the construction sector and the curtailment of local government spending have combined to hammer the local economy." (Public Administration)
"One unusual aspect of the current environment is that suppliers are getting very selective about who they conduct business with. We are spending more and more time ensuring that our key [suppliers] continue to see us as a key customer." (Retail Trade)
"General concerns about the economy continue to impact consumer confidence and our sales." (Accommodation & Food Services)
ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS*
NOVEMBER 2008
Non-Manufacturing Manufacturing
Index Series
Index
Nov. Series
Index
Oct. Percent
Point
Change Direction Rate
of
Change Trend**
(Months) Series
Index
Nov. Series
Index
Oct. Percent
Point
Change
NMI/PMI 37.3 44.4 -7.1 Contracting Faster 2 36.2 38.9 -2.7
Business Activity/Production 33.0 44.2 -11.2 Contracting Faster 2 31.5 34.1 -2.6
New Orders 35.4 44.0 -8.6 Contracting Faster 2 27.9 32.2 -4.3
Employment 31.3 41.5 -10.2 Contracting Faster 7 34.2 34.6 -0.4
Supplier Deliveries 49.5 48.0 +1.5 Faster Slower 2 48.4 49.2 -0.8
Inventories 46.0 48.0 -2.0 Contracting Faster 3 39.1 44.3 -5.2
Prices 36.6 53.4 -16.8 Decreasing From Increasing 1 25.5 37.0 -11.5
Backlog of Orders 39.5 44.0 -4.5 Contracting Faster 4 27.0 29.5 -2.5
New Export Orders 34.5 50.0 -15.5 Contracting From Unchanged 1 41.0 41.0 0.0
Imports 40.0 52.0 -12.0 Contracting From Growing 1 37.5 41.0 -3.5
Inventory Sentiment 65.0 67.5 -2.5 Too High Slower 138 N/A N/A N/A
Customers' Inventories N/A N/A N/A N/A N/A N/A 55.0 55.0 0.0

* 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
Alloys; Airfares; Aluminum Products; Copier Paper (10); Food and Beverage (7); Food Products; Fuel* (2); Gasoline* (15); Iron; Medical and Surgical Supplies (4); Stainless Steel; and Steel Products* (3).

Commodities Down in Price
Aluminum; Beef (3); Copper; Copper Pipe (4); Copper Products; Diesel Fuel (3); #1 Diesel Fuel (2); #2 Diesel Fuel (4); Flour; Fuel* (4); Fuel Surcharges; Gasoline* (5); #2 Heating Fuel; Natural Gas (2); Plastic Bags; Plastic Products; Soy Oil; Steel; and Steel Products* (2).

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.



--------------------------------------------------------------------------------

NOVEMBER 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. In November, the NMI registered 37.3 percent, its lowest level since the index began in January 2008, indicating 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 one industry reporting growth in November based on the new NMI composite index is Health Care & Social Assistance. The 17 industries reporting contraction in November listed in order are: Transportation & Warehousing; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Public Administration; Educational Services; Management of Companies & Support Services; Mining; Wholesale Trade; Utilities; Other Services; Retail Trade; Construction; and Information.

NMI HISTORY
Month NMI Month NMI
Nov 2008 37.3 May 2008 51.7
Oct 2008 44.4 Apr 2008 52.0
Sep 2008 50.2 Mar 2008 49.6
Aug 2008 50.6 Feb 2008 49.3
Jul 2008 49.5 Jan 2008 44.6
Jun 2008 48.2


Business Activity
ISM's Non-Manufacturing Business Activity Index in November registered 33 percent, a decrease of 11.2 percentage points when compared to the 44.2 percent registered in October. This is the lowest reading for this index since it was first reported in 1997. Two industries reported increased business activity, and 15 industries reported decreased activity for the month of November. One industry reported no change from October. Comments from respondents include: "Market contraction. Planned production cutbacks"; "Slowdown in U.S. economy — governments and businesses are reducing employment levels"; and "Credit markets have significant impact on new business development and budgets. Significant cost-cutting measures implemented."

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


Business Activity %
Higher %
Same %
Lower
Index
Nov 2008 9 48 43 33.0
Oct 2008 20 47 33 44.2
Sep 2008 23 53 24 52.1
Aug 2008 23 53 24 51.6


THE LAST 12 MONTHS
Month Business
Activity Index Month Business
Activity Index
Nov 2008 33.0 May 2008 53.6
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
Average for 12 months — 48.7
High — 54.4
Low — 33.0


New Orders
ISM's Non-Manufacturing New Orders Index contracted in November for the second consecutive month. The index registered 35.4 percent, its lowest level since the index was first reported in 1997. This is a decline of 8.6 percentage points from the 44 percent registered in October. Comments from respondents include: "Budget tightening and overall economy"; "Temporary targeted budget freezes"; and "Reduced funding."

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


New Orders %
Higher %
Same %
Lower
Index
Nov 2008 9 52 39 35.4
Oct 2008 18 50 32 44.0
Sep 2008 20 57 23 50.8
Aug 2008 24 51 25 49.7


Employment
Employment activity in the non-manufacturing sector contracted in November for the 10th time in the last 11 months, and reached its lowest level since the index was first reported in 1997. ISM's Non-Manufacturing Employment Index for November registered 31.3 percent. This reflects a decrease of 10.2 percentage points when compared to the 41.5 percent registered in October. One industry reported increased employment, 16 industries reported a decrease, and one industry indicated employment is unchanged from October. Comments from respondents include: "Staff adjustments due to fall off in sales"; "Hiring freeze in place. Almost impossible to fill open positions"; and "Restricting new hires unless service/productivity/demand warrants."

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


Employment %
Higher %
Same %
Lower
Index
Nov 2008 5 52 43 31.3
Oct 2008 9 61 30 41.5
Sep 2008 13 60 27 44.2
Aug 2008 13 62 25 45.4


Supplier Deliveries
Supplier deliveries were faster in November, with the index registering 49.5 percent. This is the fourth reading below 50 percent in the last 11 months. A reading above 50 percent indicates slower deliveries.

The industries reporting slowing in supplier deliveries in November are: Health Care & Social Assistance; Other Services; Information; and Educational Services. The industries reporting faster supplier deliveries in November are: Wholesale Trade; Transportation & Warehousing; Construction; Utilities; and Finance & Insurance.


Supplier Deliveries %
Slower %
Same %
Faster
Index
Nov 2008 6 87 7 49.5
Oct 2008 6 84 10 48.0
Sep 2008 11 85 4 53.5
Aug 2008 16 79 5 55.5


Inventories
ISM's Non-Manufacturing Inventories Index registered 46 percent in November, indicating that inventory levels contracted in November for the third consecutive month. Of the total respondents in November, 23 percent indicated they do not have inventories or do not measure them. Comments from members include: "Cutting back to conserve cash"; "Adjusted to business level"; and "Working down inventory for year end."

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


Inventories %
Higher %
Same %
Lower
Index
Nov 2008 19 54 27 46.0
Oct 2008 21 54 25 48.0
Sep 2008 20 51 29 45.5
Aug 2008 20 67 13 53.5


Prices
Prices paid by non-manufacturing organizations for purchased materials and services decreased in November for the first time after 65 consecutive months of increases. ISM's Non-Manufacturing Prices Index for November registered 36.6 percent, 16.8 percentage points lower than October's index of 53.4 percent. This is the lowest reading for the index since it was first reported in 1997, and is also the largest ever one-month decline. In November, the percentage of respondents reporting higher prices is 11 percent, the percentage indicating no change in prices paid is 49 percent, and 40 percent of the respondents reported lower prices.

In November, two industries reported an increase in prices paid in the following order: Other Services; and Health Care & Social Assistance. The 13 industries reporting prices as decreasing for the month of November are: Mining; Construction; Management of Companies & Support Services; Retail Trade; Wholesale Trade; Public Administration; Accommodation & Food Services; Real Estate, Rental & Leasing; Finance & Insurance; Utilities; Educational Services; Information; and Arts, Entertainment & Recreation.


Prices %
Higher %
Same %
Lower
Index
Nov 2008 11 49 40 36.6
Oct 2008 25 52 23 53.4
Sep 2008 46 46 8 70.0
Aug 2008 50 38 12 72.9


Backlog of Orders
ISM's Non-Manufacturing Backlog of Orders Index contracted in November for the fourth consecutive month. The index registered 39.5 percent, 4.5 percentage points lower than the 44 percent reported in October. This is the lowest level for this index since it was first reported in 1997. Of the total respondents in November, 41 percent indicated they do not measure backlog of orders.

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


Backlog of Orders %
Higher %
Same %
Lower
Index
Nov 2008 10 59 31 39.5
Oct 2008 12 64 24 44.0
Sep 2008 13 67 20 46.5
Aug 2008 14 70 16 49.0


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 contracted in November. The New Export Orders Index for November registered 34.5 percent, its lowest level since this report began in 1997. This is a decline of 15.5 percentage points from October's index of 50 percent. Of the total respondents in November, 72 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The one industry reporting an increase in new export orders in November is Agriculture, Forestry, Fishing & Hunting. The industries reporting a decrease in export orders in November are: Finance & Insurance; Information; Accommodation & Food Services; Professional, Scientific & Technical Services; Transportation & Warehousing; Construction; Wholesale Trade; Utilities; Other Services; and Retail Trade.

New
Export Orders %
Higher %
Same %
Lower
Index
Nov 2008 5 59 36 34.5
Oct 2008 21 58 21 50.0
Sep 2008 18 65 17 50.5
Aug 2008 9 71 20 44.5


Imports
The ISM Non-Manufacturing Imports Index registered 40 percent in November. The index is 12 percentage points lower than October's index of 52 percent. This is the lowest level for the Imports Index since this report began in 1997. In November, 65 percent of respondents reported that they do not use, or do not track, the use of imported materials.

No industry reported an increase in the use of imports in November. The industries reporting a decrease in imports for the month of November are: Transportation & Warehousing; Accommodation & Food Services; Other Services; Management of Companies & Support Services; Utilities; Wholesale Trade; and Retail Trade.


Imports %
Higher %
Same %
Lower
Index
Nov 2008 4 72 24 40.0
Oct 2008 20 64 16 52.0
Sep 2008 14 67 19 47.5
Aug 2008 5 82 13 46.0


Inventory Sentiment
The ISM Non-Manufacturing Inventory Sentiment Index decreased 2.5 percentage points to 65 percent in November, indicating that respondents still believe their inventories are too high at this time. In November, 34 percent of respondents said their inventories were too high, 4 percent said their inventories were too low, and 62 percent said their inventories were about right.

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


Inventory Sentiment %Too
High %About
Right %Too
Low
Index
Nov 2008 34 62 4 65.0
Oct 2008 42 51 7 67.5
Sep 2008 33 59 8 62.5
Aug 2008 34 64 2 66.0


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; and Public Administration; and Other Services (services such as 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).

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.