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May 2000 Manufacturing Report On Business®

FOR RELEASE: June 1, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
GROWTH IN MANUFACTURING CONTINUES IN MAY 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 May 2000.

Purchasing Managers' Index (PMI) at 53.2%
Growth in Production
New Orders, Prices and Employment Increasing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the 16th consecutive month in May. The overall economy continued to grow in May for the 109th 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 continued to grow in May, though the rate of growth continues to decelerate, a trend that began in November 1999. Both Production and New Orders continue to grow though at slower rates. The NAPM Prices Index continues to indicate manufacturers are paying higher prices for their purchases, but there are continuing signs that pricing activity peaked in March as the rate of price increase activity slowed significantly in May when compared to April. Manufacturing employment continues to grow and the rate of growth is slightly faster than in April."

NAPM's Backlog of Orders Index reversed direction in May as order backlogs are now declining for the first time in 15 months. NAPM's Supplier Deliveries Index again signals slowing deliveries, but at a slower rate. Manufacturing Employment grew during May as the index rose above the breakeven point (an index of 50) for the 13th consecutive month. NAPM's Price Index continues strong, but offers the possibility that prices manufacturers pay may have peaked in March based on its decelerating rate of growth. The rate of growth in New Export Orders picked up in May after marginal growth in April. Imports continued to grow in May with a rate of growth slightly less than April. Comments from purchasing managers this month generally expressed concerns about rising prices and interest rates. Though the volume of business is strong in many industries, margins are being squeezed by higher purchase costs and higher interest rates.

NAPM's Purchasing Managers' Index was 53.2 percent in May, down from 54.9 percent in April. NAPM's Production Index decreased 1.9 percentage points from 58.2 percent in April to 56.3 percent in May. NAPM's New Orders Index declined 5.2 percentage points from 56.3 percent in April to 51.1 percent in May. NAPM's Backlog of Orders Index registered 49 percent, ending 14 months of growth. NAPM's Supplier Deliveries Index is 55 percent in May, indicating slower deliveries during the month. The NAPM Employment Index is at 54.1 percent for May, an increase of 0.9 percentage point when compared to the 53.2 percent reported in April. NAPM's Price Index in May is 65.8 percent, a decline of 10.2 percentage points from April's 76 percent.

NAPM's Inventories Index declined to 47.1 percent indicating a slower rate of inventory liquidation when compared to April's 45.2 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 12 percent of the purchasing executives felt they were too high (up from 9 percent in April), while 11 percent felt they were too low (down from 15 percent in April) and 77 percent thought they were about right (up from 76 percent in April).

NAPM's New Export Orders Index continued positive for the 16th consecutive month as it strengthened to 56.3 percent from 50.7 percent in April. Imports of materials by manufacturers continued to grow, but at a slightly slower rate as NAPM's Imports Index is 54.7 percent in May, down from April's 55.1 percent.

"The overall picture is one of continuing growth in manufacturing activity during the month of May," added Ore. "While the rate of growth appears to be moderating, supported by the PMI trend for the last seven months, the majority of industries in the manufacturing sector remain healthy and growing. Though there is still significant pricing power in many of the basic commodities, the decline in the rate of acceleration of the Prices Index during April and May continues to be viewed as positive and ultimately should reduce the upward pressure on prices."

Of the 20 industries in the manufacturing sector, 14 reported improved business in May. Industries that reported improvement over April were (listed in order): Furniture; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Petroleum; Textiles; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; Chemicals; Instruments & Photographic Equipment; Primary Metals; Rubber & Plastic Products; Fabricated Metals; Leather; and Food.

"Capacitors; Capacitors – Tantalum; Electronics; Memory; and Wood Pulp are the commodities reported on the Short Supply List. Commodities with reports of price increases: Aluminum; Chemicals; Corn; Copper; Corrugated Containers; Fuel; Linerboard; Natural Gas; Packaging; Paper; Petroleum Products; Phenol; Plastics; Plastic Resins; Polyethylene; Polyethylene Film; Polypropylene; Resins; Solvents; Stainless Steel; Steel; Styrene; Transportation; Wastepaper; Wheat; and Wood Pulp. Caustic Soda is the only commodity reported down in price," Ore stated.

MAY 2000 NAPM BUSINESS SURVEY AT A GLANCE
Series May
Index
Direction
May vs Apr
Rate of Change
May vs Apr
PMI 53.2 Growing Slower
Production 56.3 Growing Slower
New Orders 51.1 Growing Slower
Backlog of Orders 49.0 Contracting From Growing
Supplier Deliveries 55.0 Slowing Slower
Inventories 47.1 Contracting Slower
Employment 54.1 Growing Faster
Prices 65.8 Increasing Slower
New Export Orders 56.3 Growing Faster
Imports 54.7 Growing Slower

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 May with an index of 53.2 percent. However, this is the slowest rate of growth evidenced by the Index since April 1999. When compared to April, this represents a decrease of 1.7 percentage points. May is the 16th 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 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 May (55.4 percent) corresponds to a 4.6 percent annual increase in real gross domestic product (GDP). However, if the PMI for May (53.2 percent) turned out to be the annual average for 2000, this would correspond to a 3.8 percent increase in GDP."

Month May'00 Apr'00 Mar'00 Feb'00 Jan'00
PMI% 53.2 54.9 55.8 56.9 56.3
Month Dec'99 Nov'99 Oct'99 Sep'99 Aug'99
PMI% 56.8 57.1 56.9 57.3 54.4
Month Jul'99 Jun'99 May'99 Apr'99 Mar'99
PMI% 53.6 56.3 54.4 52.7 53.3

Production

NAPM's Production Index grew in May, but at a decelerating rate. This is the 17th consecutive month of growth. The index is 56.3 percent, a decrease of 1.9 percentage points when compared to the April index of 58.2 percent.

An index above 49.4 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 May were (listed in order): Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Leather; Apparel; Furniture; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Transportation & Equipment; Chemicals; Rubber & Plastic Products; Primary Metals; Fabricated Metals; and Textiles.

Production %Better %Same %Worse Net Index
May 2000 30 58 12 +18 56.3
April 2000 34 56 10 +24 58.2
March 2000 35 57 8 +27 61.8
February 2000 31 58 11 +20 61.3

New Orders

NAPM's New Orders Index grew, but at a significantly slower rate in May with an index of 51.1 percent, a decrease of 5.2 percentage points when compared to 56.3 percent in April. 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).

For the month of May, 11 industries reported higher rates of increase in new orders. They were (listed in order): Furniture; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Petroleum; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Textiles; Chemicals; Primary Metals; Wood & Wood Products; Transportation & Equipment; and Fabricated Metals.

New Orders %Better %Same %Worse Net Index
May 2000 28 53 19 +9 51.1
April 2000 36 51 13 +23 56.3
March 2000 33 54 13 +20 56.9
February 2000 31 57 12 +19 60.5

Backlog of Orders

The Backlog of Orders Index failed to grow in April. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 49 percent. Of the 88 percent of respondents who measure their backlog of orders, 19 percent reported greater backlogs, 21 percent reported smaller backlogs, and 60 percent reported no change from April. Four industries reported an increase in backlog of orders during the month: Furniture; Leather; Electronic Components & Equipment; and Industrial & Commercial Equipment & Computers.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
May 2000 88 19 60 21 -2 49.0
April 2000 89 23 56 21 +2 51.0
March 2000 89 21 60 19 +2 51.0
February 2000 88 24 60 16 +8 54.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in May indicates delivery performance continued to slow, but at a decelerating rate, with an index reading of 55.0 percent (a reading below 50 indicates faster delivery performance). The index is 0.6 percentage point lower than April's 55.6 percent. May marks the 13th consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in May were: Textiles; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Fabricated Metals; Transportation & Equipment; Paper; Primary Metals; and Chemicals.

Supplier
Deliveries
%Slower %Same %Faster Net Index
May 2000 14 83 3 +11 55.0
April 2000 15 81 4 +11 55.6
March 2000 12 83 5 +7 54.1
February 2000 10 88 2 +8 55.0

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

Inventories

Manufacturers inventories are still being liquidated, however, the rate of change is slower as the Inventories Index registered 47.1 percent, up from 45.2 percent in April. 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 four industries reporting higher inventories in May over April were: Instruments & Photographic Equipment; Textiles; Food; and Paper.

Inventories %Higher %Same %Lower Net Index
May 2000 15 64 21 -6 47.1
April 2000 13 68 19 -6 45.2
March 2000 17 63 20 -3 48.4
February 2000 11 71 18 -7 45.2

Employment

NAPM's Manufacturing Employment Index continued above 50 in May for the 13th consecutive month. The index registered 54.1 percent in May compared to 53.2 percent in April, an increase of 0.9 percentage point. 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. Twelve industries indicated growth in employment: Furniture; Electronic Components & Equipment; Textiles; Petroleum; Instruments & Photographic Equipment; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Food; Wood & Wood Products; Fabricated Metals; and Chemicals.

Employment %Higher %Same %Lower Net Index
May 2000 23 66 11 +12 54.1
April 2000 20 70 10 +10 53.2
March 2000 18 69 13 +5 51.5
February 2000 20 66 14 +6 53.2

Prices

NAPM's Price Index indicates manufacturers continued to pay higher prices in May. With the index at 65.8 percent, there is strong deceleration in the rate from April as the index is 10.2 percentage points lower than April's mark of 76 percent. This index has been above 50 percent for 13 consecutive months, with the last nine months above 60 percent. In May, 38 percent of purchasing executives reported paying higher prices and 3 percent reported paying lower prices, while 59 percent reported that prices were unchanged from the preceding month.

A Price 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 17 industries paying higher prices were: Textiles; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Paper; Petroleum; Food; Chemicals; Wood & Wood Products; Instruments & Photographic Equipment; Electronic Components & Equipment; Printing & Publishing; Apparel; Transportation & Equipment; Primary Metals; Rubber & Plastic Products; Industrial & Commercial Equipment & Computers; and Fabricated Metals.

Prices %Higher %Same %Lower Net Index
May 2000 38 59 3 +35 65.8
April 2000 51 44 5 +46 76.0
March 2000 58 38 4 +54 79.8
February 2000 47 49 4 +43 74.1

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 May continued positive (an index exceeding 50 percent) for the 16th consecutive month. NAPM's New Export Orders Index rose 5.6 percentage points to 56.3 percent from 50.7 percent in April. Industries reporting growth in new export orders in May were: Petroleum; Wood & Wood Products; Food; Electronic Components & Equipment; Textiles; Chemicals; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Transportation & Equipment; and Instruments & Photographic Equipment.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
May 2000 77 20 73 7 +13 56.3
April 2000 76 11 83 6 +5 50.7
March 2000 80 16 78 6 +10 55.3
February 2000 77 13 80 7 +6 55.6

Imports

Imports of materials by manufacturers grew in May, but at a slightly slower rate, with an index of 54.7 percent. The Imports Index is 0.4 percentage point lower than April's report of 55.1 percent. The 11 industries reporting growth in import activity for May were: Leather; Furniture; Textiles; Rubber & Plastic Products; Fabricated Metals; Chemicals; Electronic Components & Equipment; Paper; Transportation & Equipment; Instruments & Photographic Equipment; and Industrial & Commercial Equipment & Computers.

Imports %Importing %Higher %Same %Lower Net Index
May 2000 77 20 72 8 +12 54.7
April 2000 78 13 84 3 +10 55.1
March 2000 80 15 80 5 +10 54.9
February 2000 74 9 83 8 +1 50.6

Buying Policy

Average commitment leadtime for Capital Expenditures rose 12 days to 113 days. Average leadtime for Production Materials declined 2 days to 44 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 2 days to 24 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
May 2000 21 8 16 17 29 9 113
April 2000 22 9 17 23 21 8 101
March 2000 21 10 16 19 25 9 108
February 2000 20 7 15 21 28 9 114
Production Materials              
May 2000 23 39 23 11 4 0 44
April 2000 25 41 18 12 2 2 46
March 2000 24 40 18 11 4 3 52
February 2000 26 42 16 10 4 2 47
MRO Supplies              
May 2000 50 35 11 3 1 0 24
April 2000 48 38 11 2 0 1 26
March 2000 51 39 6 4 0 0 21
February 2000 50 37 10 1 1 1 26

In Short Supply:

Capacitors — 3rd month; Capacitors – Tantalum; Electronics — 3rd month; Wood Pulp — 2nd month; and Memory.

Up in Price:

Aluminum — 13th month; Chemicals; Corn; Copper; Corrugated Containers — 15th month; Fuel; Linerboard — 3rd month; Natural Gas — 5th month; Packaging — 2nd month; Paper — 12th month; Petroleum Products — 4th month; Phenol; Plastics — 7th month; Plastic Resins; Polyethylene — 3rd month; Polyethylene Film; Polypropylene — 3rd month; Resins — 9th month; Solvents — 5th month; Stainless Steel — 10th month; Steel — 10th month; Styrene; Transportation — 2nd month; Wastepaper; Wheat; and Wood Pulp — 5th month.

Down in Price:

Caustic Soda — 2nd 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 42.4 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 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 June 2000 data will be released at 10:00 a.m. (ET) on July 3, 2000.



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