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January 2001 Manufacturing Report On Business®

FOR RELEASE: February 1, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING CONTINUES TO SLOW IN JANUARY 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 January 2001.

Purchasing Managers' Index (PMI) at 41.2%

Production, New Orders, and Employment Contracting
Prices Continue to Increase

(Tempe, Arizona) — Economic activity in the manufacturing sector declined in January for the sixth consecutive month. The overall economy failed to grow in January for the first time in 117 months 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 January for the sixth consecutive month. January's PMI fell below the breakeven point (42.7 percent) for the overall economy for the first time in 117 months. This is the lowest the PMI has registered since March 1991 when it recorded 40.8 percent. Sales continue to be a concern as the New Orders Index has failed to grow since June and the New Export Orders Index fell below 50 percent for the fourth consecutive month. Manufacturing activity has fallen sharply as the Production Index has been markedly weaker in the last two months."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the ninth consecutive month. NAPM's Supplier Deliveries Index reflects that deliveries are modestly slower. Manufacturing employment declined in January as the index fell below the breakeven point (an index of 50 percent) for the fourth consecutive month. NAPM's Prices Index remained above 50 as manufacturers continue to experience price increases, a market condition that has existed for 21 consecutive months. New Export Orders failed to grow in January as the index once again fell below 50 percent. January's Imports Index failed to grow for the first time since March 1997. Comments from purchasing managers this month centered on the U.S. economy. Major concerns were slowing order rates, need for inventory adjustments, production cutbacks and layoffs, automotive inventories, Chapter 11 filings in the steel industry, and inability to raise prices. In contrast, positive conditions are reported by the energy-related, medical, and high tech industry members.

NAPM's Purchasing Managers' Index is 41.2 percent in January, a decrease of 3.1 percentage points from 44.3 percent in December. NAPM's Production Index fell 5.6 percentage points in January following a 6.6 percent decline in December. NAPM's New Orders Index declined 4.7 percentage points from 42.5 percent in December to 37.8 percent in January. NAPM's Backlog of Orders Index registered 32.5 percent, indicating smaller backlogs for the ninth consecutive month. NAPM's Supplier Deliveries Index is 50.3 percent in January, indicating slower deliveries during the month. The NAPM Employment Index is at 43 percent for January, a decrease of 1.1 percentage points when compared to the 44.1 percent reported in December. NAPM's Prices Index in January is 65.7 percent, an increase of 3.5 percentage points from December's 62.2 percent.

NAPM's Inventories Index is at 42.2 percent indicating a slower rate of inventory liquidation when compared to December's 40.7 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 26 percent of the purchasing executives felt they were too high (up from 19 percent in December), while 14 percent felt they were too low (down from 17 percent in December) and 60 percent thought they were about right (down from 64 percent in December). NAPM's New Export Orders Index registered 46.1 percent, down from December's 49.5 percent. Imports of materials by manufacturers declined as NAPM's Imports Index is 48.9 percent in January, down from December's 51.9 percent.

"The overall picture is one of continued decline in manufacturing activity during the month of January," added Ore. "The manufacturing sector definitely lacks momentum as we start the new-year. Volumes are falling while many industries are still experiencing upward price pressures driven primarily by energy costs. Most of the indexes are accelerating in their decline this month, falling to levels that should indicate that manufacturing is getting close to the bottom. The comparables for many of the indexes relate to the 1991 recession; however, this technology-driven, global economy is more resilient and should be able to rebound more quickly than it did in 1991."

Of the 20 industries in the manufacturing sector, only Food and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments) reported improved business in January.

"Capacitors — Tantalum, Caustic Soda, Electronic Components, Natural Gas, and Palladium are the commodities reported on the Short Supply List. Commodities with reports of price increases are: Caustic Soda; Chemicals; Corrugated Cartons; Diesel Fuel; Electricity; Fuel Oil; Gasoline; Methanol; Natural Gas; Petrochemicals; Resins; and Sodium Chlorate. Aluminum; Copper; Stainless Steel; and Steel are the commodities reported down in price," Ore stated.

JANUARY 2001 NAPM BUSINESS SURVEY AT A GLANCE
Series January
Index
Direction
Jan vs Dec
Rate of Change
Jan vs Dec
PMI 41.2 Contracting Faster
Production 37.9 Contracting Faster
New Orders 37.8 Contracting Faster
Backlog of Orders 32.5 Contracting Faster
Supplier Deliveries 50.3 Slowing Slower
Inventories 42.2 Contracting Slower
Employment 43.0 Contracting Faster
Prices 65.7 Increasing Faster
New Export Orders 46.1 Contracting Faster
Imports 48.9 Contracting From Growing

THE ECONOMY AT A GLANCE
Overall Economy Contracting From Growing
Manufacturing Contracting Faster

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of January with an index of 41.2 percent. This is the sixth consecutive month that the manufacturing sector has failed to grow and the lowest the PMI has been since March 1991 (40.8 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 42.7 percent, over a period of time, generally indicates an expansion of the overall economy; therefore, this is the first time in 117 months that the PMI has indicated a contraction of the overall economy. Ore added, "The past relationship between the PMI and the overall economy indicates that the PMI for January (41.2 percent) corresponds to a -0.6 percent annual decrease in real gross domestic product (GDP)."

Month Jan'01 Dec'00 Nov'00 Oct'00 Sep'00
PMI% 41.2 44.3 47.9 48.3 49.6
Month Aug'00 Jul'00 Jun'00 May'00 Apr'00
PMI% 49.9 51.7 52.1 53.1 54.7
Month Mar'00 Feb'00 Jan'00 Dec'99 Nov'99
PMI% 55.3 56.4 56.2 57.6 57.2

Production

NAPM's Production Index fell to 37.9 percent in January down from 43.5 percent in December. This is the second consecutive month (and fourth of the last six) that the index has fallen below 50 percent. The index for January is the lowest reported since May 1982 when the index was 37.2 percent. Of 20 industries only Food reported growth in January. An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Production %Better %Same %Worse Net Index
January 2001 15 44 41 -26 37.9
December 2000 14 53 33 -19 43.5
November 2000 21 56 23 -2 50.1
October 2000 23 52 25 -2 48.9

New Orders

NAPM's New Orders Index failed to grow in January for the fifth consecutive month. The index is at 37.8 percent representing a decrease of 4.7 percentage points when compared to December's 42.5 percent. January's New Orders Index is the lowest recorded since January 1991 (38.1 percent). A New Orders Index above 50.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Of the 20 manufacturing industries only Food reported higher rates of increase in new orders.

New Orders %Better %Same %Worse Net Index
January 2001 15 42 43 -28 37.8
December 2000 13 47 40 -27 42.5
November 2000 21 49 30 -9 48.3
October 2000 22 49 29 -7 48.2

Backlog of Orders

The Backlog of Orders Index failed to grow for the ninth consecutive month in January. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 32.5 percent, a very significant drop in manufacturers' backlogs. Of the 89 percent of respondents who measure their backlog of orders, 11 percent reported greater backlogs, 46 percent reported smaller backlogs, and 43 percent reported no change from December. Food was the only industry reporting an increase in backlog of orders during the month.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
January 2001 89 11 43 46 -35 32.5
December 2000 91 9 54 37 -28 36.0
November 2000 88 16 52 32 -16 42.0
October 2000 88 14 54 32 -18 41.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in January indicates delivery performance is slowing at a decelerating rate when compared to December. At 50.3 percent, the index is 1.8 percentage points lower than December's 52.1 percent. The industries reporting slower supplier deliveries in January were: Instruments & Photographic Equipment; Primary Metals; Furniture; Chemicals; and Food.

Supplier
Deliveries
%Slower %Same %Faster Net Index
January 2001 7 83 10 -3 50.3
December 2000 11 82 7 +4 52.1
November 2000 7 86 7 0 49.3
October 2000 9 85 6 +3 51.1

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

Inventories

Manufacturers' inventories are still being liquidated as the Inventories Index registered 42.2 percent, up from 40.7 percent in December. The Inventories Index has been under 50 percent for 12 consecutive months. An Inventories Index greater than 41.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). While five industries reported no change from the prior month, the remaining 15 reported lower inventories.

Inventories %Higher %Same %Lower Net Index
January 2001 13 56 31 -18 42.2
December 2000 9 61 30 -21 40.7
November 2000 10 61 29 -19 42.1
October 2000 13 65 22 -9 44.3

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in January for the fourth consecutive month. The index registered 43 percent in January compared to 44.1 percent in December, a decrease of 1.1 percentage points. Comparing January to prior periods, it is the lowest reading since December 1998's 42 percent. An Employment Index above 47.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Apparel and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments) were the only industries indicating growth in employment during the month.

Employment %Higher %Same %Lower Net Index
January 2001 8 64 28 -20 43.0
December 2000 6 71 23 -17 44.1
November 2000 12 68 20 -8 46.2
October 2000 12 70 18 -6 47.8

Prices

NAPM's Prices Index indicates manufacturers continued to pay higher prices in January. With the index at 65.7 percent, there is acceleration as the index is 3.5 percentage points higher than December's 62.2 percent. In January, 34 percent of purchasing executives reported paying higher prices and 12 percent reported paying lower prices, while 54 percent reported that prices were unchanged from the preceding month.

A Prices Index below 46.4 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The 14 industries paying higher prices were: Tobacco; Petroleum; Glass, Stone & Aggregate; Food; Rubber & Plastic Products; Textiles; Paper; Wood & Wood Products; Primary Metals; Electronic Components & Equipment; Chemicals; Transportation & Equipment; Instruments & Photographic Equipment; and Printing & Publishing.

Prices %Higher %Same %Lower Net Index
January 2001 34 54 12 +22 65.7
December 2000 27 61 12 +15 62.2
November 2000 23 65 12 +11 57.5
October 2000 29 60 11 +18 56.5

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 January registered 46.1 percent, 3.4 percentage points lower than December's index of 49.5 percent. This is the fourth consecutive month that the New Export Orders Index has been below 50 percent. Industries reporting growth in new export orders in January were: Apparel; Paper; Furniture; and Transportation & Equipment.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
January 2001 76 6 79 15 -9 46.1
December 2000 79 7 81 12 -5 49.5
November 2000 76 8 82 10 -2 48.8
October 2000 77 5 83 12 -7 49.1

Imports

Imports of materials by manufacturers declined in January as the Imports Index registered 48.9 percent, a 3 percentage points decrease when compared to December's report of 51.9 percent. The five industries reporting growth in import activity for January were: Apparel; Textiles; Food; Fabricated Metals; and Transportation & Equipment.

Imports %Importing %Higher %Same %Lower Net Index
January 2001 76 9 76 15 -6 48.9
December 2000 78 11 79 10 +1 51.9
November 2000 74 13 78 9 +4 53.3
October 2000 75 13 78 9 +4 51.8

Buying Policy

Average commitment leadtime for Capital Expenditures declined 2 days to 118 days. Average leadtime for Production Materials rose 10 days to 48 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies increased 1 day to 24 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
January 2001 14 11 14 23 29 9 118
December 2000 14 10 16 21 29 10 120
November 2000 17 10 15 19 32 7 113
October 2000 18 7 16 23 29 7 111
Production Materials              
January 2001 22 43 21 8 4 2 48
December 2000 24 46 19 9 2 0 38
November 2000 25 43 22 8 2 0 38
October 2000 24 44 21 7 3 1 42
MRO Supplies              
January 2001 52 36 9 2 0 1 24
December 2000 48 40 8 4 0 0 23
November 2000 52 37 8 3 0 0 21
October 2000 52 35 10 3 0 0 22

In Short Supply

Capacitors — Tantalum; Caustic Soda — 5th month; Electronic Components — 5th month; Natural Gas; and Palladium.

Up in Price

Caustic Soda — 7th month; Chemicals; Corrugated Cartons; Diesel Fuel; Electricity — 2nd month; Fuel Oil — 4th month; Gasoline; Methanol; Natural Gas — 13th month; Petrochemicals; Resins — 17th month; and Sodium Chlorate.

Down in Price

Aluminum; Copper; Stainless Steel — 2nd month; and Steel — 8th month.

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 42.7 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 42.7 percent, that it is generally declining. The distance from 50 percent or 42.7 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 180 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 February 2001 data will be released at 10:00 a.m. (ET) on March 1, 2001.



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