- The Washington Times - Monday, January 6, 2003

NEW YORK, Jan. 6 (UPI) — The Institute for Supply Management reported Monday business activity in the non-manufacturing sector of the economy during December grew at a slower pace than in November.

The group's much-watched non-manufacturing business activity index fell 2.7 percentage points to 54.7 from 57.4 in November.

Most economists on Wall Street were expecting the index of business other than manufacturing to decline to 55.5 during the month.

A reading of more than 50 suggests expansion.

December's index indicates a drop in the rate of growth but extends to 11 the consecutive months of growth that began in February 2002.

In December, seven sectors reported increased business activity, six sectors reported decreased activity, and four reported no change in activity compared to November.

Economists watch the report to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform.

By tracking economic data such as the ISM non-manufacturing index, experts will know what the economic backdrop is for the various markets.

The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly — and causing potential inflationary pressures.

The institute last Thursday reported that the nation's manufacturing sector grew in December for the first time since August. Financial markets surged that day, largely as a result of the upbeat report, which provided a tentative sign that the U.S.'s hard-hit industrial sector is beginning to heal.

Ralph G. Kauffman, chairman of the Institute for Supply Management's Non-Manufacturing Business Survey Committee said, "In December, non-manufacturing business activity increased for the 11th consecutive month. The reported growth indicates a slower rate of expansion than reported in November.

"Also in December, new orders grew at a slower rate than in November, and the backlog of orders index indicated the fourth consecutive month of increase in order backlogs," Kauffman said.

The report showed business activity in December was reported by 27 percent of ISM's members, compared to November's 30 percent. Reduced activity was reported by 24 percent of members compared to 17 percent in November. In December, the remaining 49 percent of members indicated no change in business activity, compared to 53 percent in November.

The smaller numbers of respondents reporting increased activity and larger numbers reporting reduced activity reflects a slower rate of growth experienced by members overall in December.

The report showed the backlog of orders index increased by 1 percentage point to 51.5 percent, indicating that growth in business activity should continue for the immediate future.

The new orders index declined but remained well within growth territory of above 50 percent at 56.3 percent. With growth in business activity and new orders increasing at a slower rate than in November, ISM's members' general comments continued to be mixed.

Their comments on general business conditions included: "The general building industry, or commercial high rise and residential mid and high rise, is off considerably when compared with year ago work."

"We have branches in 14 major cities and these local economies are still slow and businesses in general are reluctant to spend money to upgrade infrastructure. However, a number of national retail and restaurant chains are upgrading for the future," the report showed.

"The nursing home industry continues to suffer from cutbacks in Medicare/Medicaid funding and cautious optimism remains the rule. Expansion/investment in production continues in spite of some concerns about changes in healthcare funding in 2003," according to ISM.

In addition, the report showed inventories declined for the fifth month but at a slower rate of decline than in November. Prices increased for the 10th month, also at a slower rate of increase than in November.

New export orders and imports both increased, while employment shrank for the 22nd consecutive month but at a slower rate than in November.

ISM said supplier deliveries indicated slower performance for the 16th consecutive month.

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