FOR RELEASE: January 2, 2001
|NAPM Media Relations|
|480/752-6276 ext. 3015|
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 2000.
(Tempe, Arizona) — Economic activity in the manufacturing sector declined in December for the fifth consecutive month. The overall economy continued to grow in December for the 116th 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 vice president, purchasing and strategic alliances, Chesapeake Display and Packaging Company. "The manufacturing sector failed to grow in December for the fifth consecutive month. December's PMI fell to within 1.3 percentage points of the breakeven line for the overall economy (42.4 percent). This is the lowest the PMI has been since April 1991 when it recorded 42.9 percent. New Orders continue to be a concern as that index has failed to grow since June and New Export Orders fell below 50 for the third consecutive month. Manufacturing activity has fallen sharply in the fourth quarter as the Production Index has been below 50 for three consecutive months."
NAPM's Backlog of Orders Index indicates that order backlogs declined for the eighth consecutive month. NAPM's Supplier Deliveries Index reflects slower deliveries after recording faster deliveries in November. Manufacturing Employment declined in December as the index fell below the breakeven point (an index of 50 percent) for the third consecutive month. NAPM's Prices Index remained above 50 percent as manufacturers continue to experience price increases, a market condition that has existed for 20 consecutive months. New Export Orders failed to grow in December as the index once again fell below 50 percent. This is particularly significant when compared to historical data which indicates that there have been only 17 months, since its inception in January 1988, that the index has been negative, and 13 of the 17 came shortly after the Asian financial crisis. Imports remain in a growth mode, though decelerating slightly when compared to November. Comments from purchasing managers can be summarized as high energy prices, slowdown in new orders, and a weak Euro. They feel that the automotive slowdown has a broad reaching effect and they are closely scrutinizing inventories.
NAPM's Purchasing Managers' Index is 43.7 percent in December, a decrease of 4 percentage points from 47.7 percent in November. NAPM's Production Index fell 7.2 percentage points from 49.6 percent in November to 42.4 percent in December. NAPM's New Orders Index sharply declined 6.4 percentage points from 48.4 percent in November to 42 percent in December. NAPM's Backlog of Orders Index registered 36 percent, indicating smaller backlogs for the eighth consecutive month. NAPM's Supplier Deliveries Index is 52.7 percent in December, indicating slower deliveries during the month. The NAPM Employment Index is at 42.8 percent for December, a decrease of 3.2 percentage points when compared to the 46 percent reported in November. NAPM's Prices Index in December is 61 percent, an increase of 4.4 percentage points from November's 56.6 percent.
NAPM's Inventories Index is at 39.8 percent indicating a faster rate of inventory liquidation when compared to November's 42.2 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 19 percent of the purchasing executives felt they were too high (up from 17 percent in November), while 17 percent felt they were too low (up from 14 percent in November) and 64 percent thought they were about right (down from 69 percent in November). NAPM's New Export Orders Index registered 49.9 percent, up slightly from November's 48.7 percent. Imports of materials by manufacturers decelerated slightly as NAPM's Imports Index is 51.2 percent in December, down from November's 53.2 percent.
"The overall picture is one of continued softening in manufacturing activity during the month of December," added Ore. "The manufacturing sector is definitely struggling at this point. There are few signs of encouragement as we close out 2000. The year began very strong for manufacturing with the PMI at 56.3 percent in January and reaching its high for the year at 56.9 percent in February. However, the PMI experienced persistent deceleration in growth through July and then began contracting in August. For manufacturing, higher interest rates and higher energy prices in 2000 have contributed greatly toward a lackluster year for most of the sector."
Of the 20 industries in the manufacturing sector, only Printing & Publishing reported improved business in December.
"Caustic Soda and Electronic Components are the commodities reported on the Short Supply List. Commodities with reports of price increases are: Aluminum; Caustic Soda; Copper; Electricity; Fuel Oil; Natural Gas; Palladium; Plastic; Plastic Resins; and Resins (also reported down in price). Resins (also reported up in price); Stainless Steel; Steel Hot Rolled; and Steel are the commodities reported down in price," Ore stated.
Dec vs Nov
|Rate of Change|
Dec vs Nov
|Backlog of Orders||36.0||Contracting||Faster|
|Supplier Deliveries||52.7||Slower||From Faster|
|New Export Orders||49.9||Contracting||Slower|
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of December with an index of 43.7 percent. This is the fifth consecutive month that the manufacturing sector has failed to grow. This is the lowest the PMI has been since April 1991 (42.9 percent). 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 42.4 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 (51.7 percent) corresponds to a 3.3 percent annual increase in real gross domestic product (GDP). However, if the PMI for December (43.7 percent) turned out to be the annual average for 2000, this would correspond to a 0.5 percent increase in GDP".
NAPM's Production Index fell to 42.4 percent in December down from 49.6 percent in November. This is the third month that the index has fallen below 50 percent. The index for December is the lowest reported since March 1991 when the index was at 41.2 percent.
Only 1 of 20 industries, Printing & Publishing, reported growth in December. An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.
NAPM's New Orders Index failed to grow in December for the sixth consecutive month. Prior to July of this year, the index grew for 18 consecutive months. The index is at 42 percent representing a decrease of 6.4 percentage points when compared to November's 48.4 percent. December's New Orders Index is the lowest recorded since March 1991 (42.4 percent). A New Orders Index above 50.4 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars).
None of the 20 manufacturing industries reported higher rates of increase in new orders.
The Backlog of Orders Index failed to grow for the eighth consecutive month in December. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 36 percent, a very significant drop in manufacturers' backlogs. Of the 91 percent of respondents who measure their backlog of orders, 9 percent reported greater backlogs, 37 percent reported smaller backlogs, and 54 percent reported no change from November. Printing & Publishing was the only industry reporting an increase in backlog of orders during the month.
NAPM's Supplier Deliveries Index in December indicates delivery performance is slower when compared to November with an index of 52.7 percent (an index below 50 indicates faster delivery performance). The index is 3.5 percentage points higher than November's 49.2 percent. The industries reporting slower supplier deliveries in December were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Chemicals; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; and Printing & Publishing.
NOTE: A list of commodities in short supply is available at the end of this report.
Manufacturers' inventories are still being liquidated as the Inventories Index registered 39.8 percent, down from 42.2 percent in November, and the lowest since the 39.6 percent reported in October 1996. An Inventories Index greater than 41.1 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). The only industry reporting higher inventories in December was Printing & Publishing.
NAPM's Manufacturing Employment Index fell below 50 percent in December for the third consecutive month. The index registered 42.8 percent in December compared to 46 percent in November, a decrease of 3.2 percentage points. Comparing December to prior periods, it is the lowest reading since December 1998's 41.1 percent. An Employment Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Instruments & Photographic Equipment was the only industry indicating growth in employment during the month.
NAPM's Prices Index indicates manufacturers continued to pay higher prices in December. With the index at 61 percent, there is acceleration as the index is 4.4 percentage points higher than November's 56.6 percent. In December, 27 percent of purchasing executives reported paying higher prices and 12 percent reported paying lower prices, while 61 percent reported that prices were unchanged from the preceding month.
A Prices Index below 46.3 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The 10 industries paying higher prices were: Petroleum; Chemicals; Food; Paper; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; Electronic Components & Equipment; Primary Metals; Rubber & Plastic Products; and Fabricated Metals.
NOTE: A list of commodities up in price and down in price is available at the end of this report.
NAPM's New Export Orders Index for December registered 49.9 percent, 1.2 percentage points higher than November's index of 48.7 percent. This is the third consecutive month that the New Export Orders Index has been below 50 percent. Industries reporting growth in new export orders in December were Food and Transportation & Equipment.
Imports of materials by manufacturers decelerated slightly, but still grew in December as the Imports Index registered 51.2 percent, a 2 percentage points decrease when compared to November's report of 53.2 percent. The five industries reporting growth in import activity for December were: Textiles; Fabricated Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Chemicals.
Average commitment leadtime for Capital Expenditures rose 7 days to 120 days. Average leadtime for Production Materials was unchanged at 38 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies increased 2 days to 23 days.
Caustic Soda — 4th month; and Electronic Components — 4th month.
Aluminum — 2nd month; Caustic Soda — 6th month; Copper; Electricity; Fuel Oil — 3rd month; Natural Gas — 12th month; Palladium; Plastic; Plastic Resins — 2nd month; and Resins — 16th month (also shown down in price).
Resins (also shown up in price); Stainless Steel; Steel Hot Rolled — 4th month; and Steel — 7th month.
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 42.4 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 42.4 percent, that it is generally declining. The distance from 50 percent or 42.4 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 181 affiliates with more than 45,000 members in the United States. 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 2001 data will be released at 10:00 a.m. (ET) on February 1, 2001.