December 1999 Manufacturing NAPM Report On Business®

FOR RELEASE: January 3, 2000

CONTACT: Zenobia Daruwalla
  NAPM Media Relations
  480/752-6276 ext. 3015
GROWTH IN MANUFACTURING CONTINUES IN DECEMBER SAY PURCHASING EXECUTIVES IN LATEST MANUFACTURING NAPM REPORT ON BUSINESS®

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 cover only their local vicinity. 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 December 1999.

Purchasing Managers' Index (PMI) at 55.5%,

Growth in Production, New Orders
Employment and Prices Increasing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the eleventh consecutive month in December. The overall economy continued to grow in December for the 104th consecutive month say the nation's purchasing executives in the latest Manufacturing NAPM Report On Business®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the National Association of Purchasing Management's Manufacturing Business Survey Committee and director of purchasing, Chesapeake Display and Packaging Company. "The manufacturing sector continued to grow in December though at a slightly slower rate than it grew in November. Both production and new orders grew during the month while NAPM's Employment Index strengthened and the Price Index continues to indicate manufacturers are paying higher prices for their purchases."

NAPM's Backlog of Orders Index registered no change from November, indicating that the rate of growth in order backlogs has slowed, and NAPM's Supplier Deliveries Index once again signals slowing deliveries. Manufacturing Employment grew during December as the index rose above the breakeven point (an index of 50) for the fifth consecutive month. NAPM's Price Index continued to strengthen as 18 of 20 industries indicated paying higher prices on average during December. New Export Orders and Imports continue to grow. Comments from purchasing managers this month include concern about soft demand for seasonal products caused by warm weather, competition from imports in steel and textiles, continuing strength in the construction market, and a sigh of relief from several that Y2K appears to be a non-event. Overall, purchasing managers note continuing demand for many products as is possibly best described by one who sees business as "solid, but not hot."

NAPM's Purchasing Managers' Index was slightly lower at 55.5 percent in December, down from 56.2 in November. NAPM's Production Index increased 1.3 percentage points from 57.4 percent in November to 58.7 percent in December. NAPM's New Orders Index declined 4.4 percentage points from 59.9 percent in November to 55.5 percent in December. NAPM's Backlog of Orders Index registered 50.0 percent, down 8.5 percentage points from the 58.5 percent recorded in November. NAPM's Supplier Deliveries Index is 56.9 percent in December up from 55.9 percent in November. The NAPM Employment Index is at 54.3 percent for December, an increase of 2.1 percentage points when compared to the 52.2 percent reported in November. NAPM's Price Index in December is 65.7 percent, an increase of 0.4 percentage point from November.

NAPM's Inventories Index declined to 47.2 percent, a change of direction indicating inventory liquidation when compared to November. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 11 percent of the purchasing executives felt they were too high (down from 14 percent in November). On the other hand, 14 percent felt they were too low (down from 17 percent in November) and 75 percent thought they were about right (up from 69 percent in November).

NAPM's New Export Orders Index continued positive for the eleventh consecutive month while decreasing 1.1 percentage points to 53.4 percent. Imports of materials by manufacturers continued to grow in December, at a slightly faster rate, as NAPM's Imports Index was up from 51.2 percent to 51.4 percent.

"The overall picture as we close 1999 is one of continuing growth in manufacturing activity during the month of December," added Ore. "While growth is still quite strong, the PMI for the last two months indicates some deceleration. Production and New Orders continue to provide momentum and coupled with the strength in New Export Orders, the manufacturing sector continues to prosper. The slowing in the growth of order backlogs and the lack of volatility in most commodity prices indicate that supply and demand forces are maintaining reasonable equilibrium."

Of the 20 industries in the manufacturing sector, fourteen reported improved business in December. Industries that reported improvement over November were (listed in order): Furniture; Electronic Components & Equipment; Apparel; Printing & Publishing; Tobacco; Petroleum; Industrial & Commercial Equipment & Computers; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Transportation & Equipment; Glass, Stone & Aggregate; Paper; Textiles; and Primary Metals.

"Capacitors and Wood Pulp are the commodities reported on the Short Supply List. Commodities with reports of price increases were Aluminum; Caustic Soda; Chemicals; Corrugated Containers; Hydrochloric Acid; Nickel; Oil; Paper; Plastic; Polypropylene; Polystyrene; Resins; Stainless Steel; Steel and Styrene. Natural Gas and Steel are the only commodities down in price," Ore stated.

December 1999 NAPM Business Survey At A Glance
Series Dec
Index
Direction
Dec. vs Nov.
Rate of Change
Dec. vs Nov.
PMI 55.5 Growing Slower
Production 58.7 Growing Faster
New Orders 55.5 Growing Slower
Backlog of Orders 50.0 Unchanged From Growing
Supplier Deliveries 56.9 Slowing Faster
Inventories 47.2 Decreasing From Unchanged
Employment 54.3 Growing Faster
Prices 65.7 Increasing Faster
New Export Orders 53.4 Growing Slower
Imports 51.4 Growing Faster

The Economy At A Glance
Overall Economy Growing Slower
Manufacturing Growing Slower

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow during the month of December, but at a slower rate, with an index of 55.5 percent. This is 0.7 percentage point lower when compared to November and the eleventh month that the index has been above 50. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 43.5 percent, over a period of time, generally indicates an expansion of the overall economy. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through December (54.6 percent), corresponds to a 3.8 percent increase in gross domestic product (GDP). The PMI for the month of December (55.5 percent) corresponds to a 4.2 percent annual increase in real GDP."

Month Dec'99 Nov'99 Oct'99 Sep'99 Aug'99
PMI% 55.5 56.2 56.6 57.8 54.2
Month Jul'99 Jun'99 May'99 Apr'99 Mar'99
PMI% 53.4 57.0 55.2 52.8 54.3
Month Feb'99 Jan'99 Dec'98 Nov'98 Oct'98
PMI% 52.4 49.5 45.3 47.0 48.4

Production

NAPM's Production Index grew in December for the twelfth consecutive month, registering 58.7 percent, an increase of 1.3 percentage points when compared to the November index of 57.4 percent.

An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Industries showing the highest rate of growth in production for December were (listed in order): Furniture; Apparel; Printing & Publishing; Electronic Components & Equipment; Tobacco; Industrial & Commercial Equipment & Computers; Textiles; Paper; Chemicals; Transportation & Equipment; and Food.

Production %Better %Same %Worse Net Index
December 1999 26 61 13 +13 58.7
November 1999 31 54 15 +16 57.4
October 1999 28 63 9 +19 58.3
September 1999 34 56 10 +24 61.7

New Orders

NAPM's New Orders Index grew, but at a decelerating rate in December with an index of 55.5 percent, a decrease of 4.4 percentage points when compared to November. A New Orders Index above 50.7 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars).

For the month of December, nine industries reported higher rates of increase in new orders. They were (listed in order): Furniture; Apparel; Electronic Components & Equipment; Tobacco; Printing & Publishing; Petroleum; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Industrial & Commercial Equipment & Computers; and Food.

New Orders %Better %Same %Worse Net Index
December 1999 21 62 17 +4 55.5
November 1999 32 53 15 +17 59.9
October 1999 29 60 11 +18 59.5
September 1999 39 52 9 +30 64.4

Backlog of Orders

The Backlog of Orders Index is unchanged in December when compared to November. After nine consecutive months of growth, NAPM's Backlog of Orders Index (not seasonally adjusted) registered 50.0 percent, indicating that order backlogs are the same as in November. Of the 90% of respondents who measure their backlog of orders, 20 percent reported greater backlogs, and 20 percent reported smaller backlogs, and 60 percent reported no change from November. Seven industries reported an increase in backlog of orders during the month: Furniture; Primary Metals; Electronic Components & Equipment; Textiles; Printing & Publishing; Chemicals; and Transportation & Equipment.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
December 1999 90 20 60 20 0 50.0
November 1999 88 31 55 14 +17 58.5
October 1999 88 22 64 14 +8 54.0
September 1999 90 27 55 18 +9 54.5

Supplier Deliveries

NAPM's Supplier Deliveries Index in December indicates delivery performance continued to slow with an index reading of 56.9 percent (a reading below 50 indicates faster delivery performance). The index is 1.0 percentage point higher than November. December marks the eighth consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in December were: Electronic Components & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Printing & Publishing; Industrial & Commercial Equipment & Computers; Food; Primary Metals; Chemicals; Paper; and Transportation & Equipment.

Supplier
Deliveries
%Slower %Same %Faster Net Index
December 1999 14 84 2 +12 56.9
November 1999 16 82 2 +14 55.9
October 1999 15 83 2 +13 56.6
September 1999 14 85 1 +13 55.9

NOTE: A list of commodities in short supply is available at the end of this report.

Inventories

Manufacturers' inventories are reported lower in December as the Inventories Index registered 47.2 percent, down from 50.0 percent in November as manufacturers' have apparently reversed direction on inventory policy. In October, NAPM's Inventories Index indicated growth for the first time in this decade, and November was reported as unchanged when compared to October. This month's Index at 47.2 indicates that the buildup in anticipation of Y2K was of short duration.

An Inventories Index over 41.5 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). The seven industries reporting higher inventories in December over November were: Glass, Stone & Aggregate; Instruments & Photographic Equipment; Electronic Components & Equipment; Printing & Publishing; Primary Metals; Food; and Transportation & Equipment.

Inventories %Higher %Same %Lower Net Index
December 1999 20 55 25 -5 47.2
November 1999 16 63 21 -5 50.0
October 1999 15 67 18 -3 51.1
September 1999 10 69 21 -11 43.2

Employment

NAPM's Manufacturing Employment Index continued above 50 in December for the fifth consecutive month. The index registered 54.3 percent in December compared to 52.2 percent in November, an increase of 2.1 percentage points. An Employment Index above 47.0 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Eight industries indicated growth in employment and they were: Furniture; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Printing & Publishing; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Food; and Fabricated Metals.

Employment %Higher %Same %Lower Net Index
December 1999 18 70 12 +6 54.3
November 1999 20 65 15 +5 52.2
October 1999 15 74 11 +4 52.8
September 1999 16 69 15 +1 51.5

Prices

NAPM's Price Index is 65.7 percent in December, 0.4 percentage point higher than the 65.3 percent recorded for November. Manufacturers continue to pay higher prices as the Index has been above 50 percent for eight consecutive months, with the last four months above 60 percent. In December, 35 percent of purchasing executives reported paying higher prices and 6 percent reported paying lower prices, while 59 percent reported that prices were unchanged from the preceding month.

A Price Index below 46.7 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The eighteen industries paying higher prices were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Primary Metals; Printing & Publishing; Leather; Apparel; Instruments & Photographic Equipment; Paper; Glass, Stone & Aggregate; Fabricated Metals; Electronic Components & Equipment; Transportation & Equipment; Furniture; Textiles; Chemicals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; and Food.

Prices %Higher %Same %Lower Net Index
December 1999 35 59 6 +29 65.7
November 1999 35 61 4 +31 65.3
October 1999 45 51 4 +41 69.4
September 1999 42 52 6 +36 67.6

NOTE: A list of commodities up in price and down in price is available at the end of this report.

New Export Orders

NAPM's New Export Orders Index for December continued positive (an index exceeding 50 percent) for the eleventh consecutive month. NAPM's New Export Orders Index declined 1.1 percentage points to 53.4 for the month of December. Industries reporting growth in new export orders in December were: Tobacco; Transportation & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; and Food.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
December 1999 77 11 83 6 +5 53.4
November 1999 76 20 72 8 +12 54.5
October 1999 77 11 82 7 +4 52.4
September 1999 77 20 76 4 +16 56.6

Imports

Imports of materials by manufacturers continued to grow in December at a slightly accelerating rate with an index of 51.4 percent. The Imports Index is 0.2 percentage point higher than November's report of 51.2 percent. The six industries reporting growth in import activity for December were: Furniture; Leather; Paper; Electronic Components & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Transportation & Equipment.

Imports %Importing %Higher %Same %Lower Net Index
December 1999 75 14 75 11 +3 51.4
November 1999 74 14 74 12 +2 51.2
October 1999 74 13 83 4 +9 54.3
September 1999 77 17 77 6 +11 55.7

Buying Policy

Average commitment leadtime for Capital Expenditures is unchanged at 116 days in December. Average leadtime for Production Materials declined 2 days to 46 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies is 24 days, down 2 days from November.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
December 1999 15 10 13 24 30 8 116
November 1999 18 8 15 23 26 10 116
October 1999 19 9 13 22 28 9 114
September 1999 19 10 14 21 27 9 112
Production Materials              
December 1999 23 36 26 11 3 1 46
November 1999 26 39 19 10 4 2 48
October 1999 28 38 21 9 3 1 43
September 1999 23 45 16 12 3 1 44
MRO Supplies              
December 1999 49 37 9 4 1 0 24
November 1999 49 38 9 2 1 1 26
October 1999 49 38 10 2 0 1 25
September 1999 47 40 9 4 0 0 23

In Short Supply

Capacitors and Wood Pulp.

Up in Price

Aluminum — 8th month; Caustic Soda — 4th month; Chemicals; Corrugated Containers — 10th month; Hydrochloric Acid; Nickel — 2nd month; Oil; Paper — 7th month; Plastic — 2nd month; Polypropylene — 8th month; Polystyrene; Resins — 4th month; Stainless Steel — 5th month; Steel — 5th month (also reported down in price); and Styrene — 3rd month.

Down in Price

Natural Gas and Steel (also reported up in price).

Data and Method of Presentation

The Manufacturing NAPM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing executives in over 350 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry's contribution to Gross Domestic Product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better, and slower for Supplier Deliveries) and the negative economic direction (lower, worse, and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number is then seasonally adjusted to allow for the effects of repetitive intrayear variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to nonmoveable holidays. 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 PMI is a composite index based on the seasonally adjusted diffusion indices for five of the indicators (New Orders, Production, Supplier Deliveries, Inventories, and Employment) with varying weights.

Diffusion indices have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent that it is generally declining. A PMI over 43.5 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 43.5 percent, that it is generally declining. The distance from 50 percent or 43.5 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, NAPM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

Responses to Buying Policy reflect the percent reporting the current month's leadtime, the approximate weighted number of days ahead for which commitments are made for Production Materials, Capital Expenditures, and Maintenance, Repair, and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing NAPM Report On Business® is published monthly by the National Association of Purchasing Management, the largest purchasing and supply management research and education organization in the United States. NAPM is comprised of 182 affiliates with more than 45,000 members in the United States and Puerto Rico. The report has been issued by the association since 1931, except for a four year interruption during World War II.

The full text version of the Manufacturing NAPM Report On Business® is posted on NAPM's Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).

The next Manufacturing NAPM Report On Business® featuring the January 2000 data will be released at 10:00 a.m. (ET) on February 1, 2000.


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