The non-manufacturing NAPM report is a national survey of purchasing managers which covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders, and import orders. Diffusion indices are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.
The index should be far more indicative of the broader economy given its inclusion of service-producing as well as good-producing sectors outside of manufacturing. However, the short history of the index dates to only July 1997 and doesn't provide the insight of a longer period inclusive of varied economic climates. The seasonal adjustment of the index didn't begin until January 2001 with only 3 of the 9 components seasonally adjusted as of April 2001. The lack of historical data and lack of a tight correlation to the non-manufacturing economy leaves the relatively poor "D" rating compared to the "A-" rating of the well-respected manufacturing NAPM index.In Depth
The Non-Manufacturing NAPM Report on Business is a newcomer not yet closely followed by the private sector.
Who and What It Surveys
The Non-Manufacturing NAPM index (sometimes refered to as the NAPM Service index) is the result of a monthly survey of over 370 companies. The survey queries respondents on a number of monthly indicators, including orders, employment, inventories, supplier delivery times, prices paid, order backlogs, export orders, and import orders. Respondents are asked to characterize each indicator as higher, lower, or unchanged for the month (or faster/slower in the case of delivery times). They are not asked for specific numbers - only a thumbs up or down.
Presenting the Numbers
Based on these responses, the NAPM calculates diffusion indices for each of the components. These diffusion indices are calculated by adding the half of the percentage of respondents answering "unchanged" to the full percentage answering "higher" (or "slower" for deliveries). These diffusion indices do not yield estimates of specific magnitudes of strength or weakness, but the more respondents who are indicating trends in the same direction - the better the chance that the magnitude of that move is larger.
A diffusion index of 50% is the theoretical breakeven mark - with readings above indicating strength and below indicating weakness. The total index is seasonally adjusted but only 3 of the 9 components are currently adjusted for seasonality.
The total index is the result of a separate question regarding general
business conditions (unlike the Manufacturing NAPM which is calculated from some
of the components). The business index is calculated using the same diffusion
calculation used in the components then adjusted for seasonality.