FOR RELEASE: July 2, 2001
|NAPM, Media Relations|
|800/888-6276, 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 June 2001.
(Tempe, Arizona) — Economic activity in the manufacturing sector declined in June for the 11th consecutive month. The overall economy grew modestly in June 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 group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The manufacturing sector continued to decline in June. While the sector continues to struggle, the rate of decline slowed somewhat during the month. It is encouraging that pricing pressures appear to be moderating and inventory liquidation continues to occur at a rapid rate."
NAPM's Backlog of Orders Index indicates that order backlogs declined for the 14th consecutive month. NAPM's Supplier Deliveries Index continues to reflect faster deliveries. Manufacturing employment declined in June as the index fell below the breakeven point (an index of 50 percent) for the ninth consecutive month. NAPM's Prices Index remained below 50 percent as manufacturers experienced lower prices for the fourth consecutive month after 22 months of paying higher prices. New Export Orders failed to grow in June as the index fell below 50 percent for the third consecutive month. June's Imports Index failed to grow for the sixth consecutive month. Comments from purchasing and supply managers this month express concerns about the rate of recovery in automotive, California energy challenges, and abnormal rates of order cancellations.
NAPM's Purchasing Managers' Index is 44.7 percent in June, an increase of 2.6 percentage points from the 42.1 percent reported in May. NAPM's Production Index rose 3.5 percentage points from 42.7 percent in May to 46.2 percent in June. NAPM's New Orders Index rose 3.1 percentage points from 45.5 percent in May to 48.6 percent in June. NAPM's Backlog of Orders Index rose from 40 percent in May to 42 percent in June, indicating smaller backlogs. NAPM's Supplier Deliveries Index rose to 48 percent in June indicating faster deliveries during the month. The NAPM Employment Index is at 36.3 percent for June, an increase of 1.3 percentage points when compared to the 35 percent reported in May. NAPM's Prices Index in June is 42.3 percent, a decrease of 2.9 percentage points from May's 45.2 percent.
NAPM's Inventories Index is at 40.8 percent indicating a slower rate of inventory liquidation when compared to May's 38.7 percent, but still showing significant liquidation. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 14 percent of the purchasing executives felt they were too high (down from 19 percent in May), while 18 percent felt they were too low (up from 17 percent in May) and 68 percent thought they were about right (up from 64 percent in May). NAPM's New Export Orders Index registered 45.5 percent, down slightly from May's 45.6 percent. Imports of materials by manufacturers continued to decline as NAPM's Imports Index is 48 percent in June, up from May's 46.6 percent.
"The overall picture is one of continued decline in manufacturing activity during the month of June," added Ore. "The manufacturing sector is in its 11th month of decline. A rebound in the New Orders Index (the rate of decline slowed significantly) is somewhat encouraging, as it tends to lead future production. Major concerns are export markets, energy, and slowing demand in the sector."
Of the 20 industries in the manufacturing sector, five reported growth: Leather; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; and Food.
"Tantalum Capacitors and Caustic Soda are the commodities reported on the Short Supply List. Commodities with reports of price increases are: Caustic Soda, Coal, Dairy Products, Diesel Fuel, Electricity, Energy, Fuels, Gasoline, Natural Gas (also reported down in price), and Plastic Resins. The commodities reported down in price are: Aluminum, Caustic Soda (also reported up in price), Copper, Corrugated Containers, Electronic Components, Ethylene, Natural Gas (also reported up in price), Paper, High Density Polyethylene, Polypropylene, Propylene, Resins, Stainless Steel, Steel, Sulfur, and Wood Pulp," Ore stated.
June vs May
|Rate of Change|
June vs May
|Backlog of Orders||42.0||Contracting||Slower|
|New Export Orders||45.5||Contracting||Faster|
|Overall Economy||Growing||From Contracting|
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of June with an index of 44.7 percent, indicating a slower rate of decline when compared to May's PMI of 42.1 percent. This is the 11th consecutive month that the manufacturing sector has failed to grow. 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. The June PMI indicates a small amount of growth in the overall economy while the manufacturing sector continues to decline. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through June (42.7 percent) corresponds to zero growth in real gross domestic product (GDP). However, if the PMI for June (44.7 percent) turned out to be the annual average for 2001, this would correspond to a 0.7 percent increase in GDP."
NAPM's Production Index rose to 46.2 percent in June up from 42.7 percent in May. This is the seventh consecutive month that the index has fallen below 50 percent. Of the 20 industries reporting, those registering growth in June are: Leather; Rubber & Plastic Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment and Food. 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 June for the 12th consecutive month. The index is at 48.6 percent representing an increase of 3.1 percentage points when compared to May's 45.5 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). For the month of June, seven industries reported higher rates of increase in new orders. They were (listed in order): Leather; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Rubber & Plastic Products; Primary Metals; and Electronic Components & Equipment.
The Backlog of Orders Index failed to grow for the 14th consecutive month in June. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 42 percent indicating a slower rate of decline in manufacturers' backlogs than reported in May. Of the 90 percent of respondents who measure their backlog of orders, 15 percent reported greater backlogs, 31 percent reported smaller backlogs, and 54 percent reported no change from May. Glass, Stone & Aggregate; Wood & Wood Products; and Paper were the industries reporting an increased backlog of orders during the month.
NAPM's Supplier Deliveries Index in June indicates delivery performance is faster (a reading below 50 percent indicates faster deliveries), but the rate is decelerating. At 48 percent, the index is 2.3 percentage points higher than May's 45.7 percent. The industries reporting slower supplier deliveries in June were: Glass, Stone & Aggregate and Transportation & Equipment.
NOTE: A list of commodities in short supply is available at the end of this report.
The rate of liquidation of manufacturers' inventories decelerated in June as the Inventories Index registered 40.8 percent, up from the 38.7 percent reported in May. The Inventories Index has been under 50 percent for 17 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). The only industry reporting higher inventory was Food.
NAPM's Manufacturing Employment Index fell below 50 percent in June for the ninth consecutive month. The index registered 36.3 percent in June compared to 35 percent in May, an increase of 1.3 percentage points.
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. Petroleum is the only industry indicating growth in employment during the month.
NAPM's Prices Index indicates manufacturers paid lower prices in June. With the index at 42.3 percent, this marks the fourth consecutive month that the index has been below 50 percent. The index is 2.9 percentage points lower than May's 45.2 percent. In June, 13 percent of purchasing executives reported paying higher prices and 26 percent reported paying lower prices, while 61 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 four industries that reported paying higher prices were: Apparel; Glass, Stone & Aggregate; Food; and Primary 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 June registered 45.5 percent, 0.1 percentage point lower than May's index of 45.6 percent. The Index has fallen below 50 percent for three consecutive months. Industries reporting growth in new export orders in June were: Glass, Stone & Aggregate; Textiles; and Food.
Imports of materials by manufacturers continued to decline in June as the Imports Index registered 48 percent, a 1.4 percentage points increase when compared to May's report of 46.6 percent. The four industries reporting growth in import activity for June were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Chemicals; Transportation & Equipment; and Fabricated Metals.
Average commitment leadtime for Capital Expenditures declined 9 days to 95 days. Average leadtime for Production Materials rose 5 days to 50 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained rose 2 days to 24 days.
Capacitors - Tantalum and Caustic Soda — 10th month.
Caustic Soda — 12th month (also reported down in price); Coal; Dairy Products — 2nd month; Diesel Fuel; Electricity — 2nd month; Energy — 2nd month; Fuel Oil — 2nd month; Gasoline — 6th month; Natural Gas — 18th month (also reported down in price); and Plastic Resins.
Aluminum — 4th month; Caustic Soda — 2nd month (also reported up in price); Copper; Corrugated Containers — 5th month; Electrical Components; Ethylene; Natural Gas — 5th month (also reported up in price); Paper — 3rd month; High Density Polyethylene; Polypropylene; Propylene — 2nd month; Resins; Stainless Steel — 7th month; Steel — 2nd month; Sulfur; and Wood Pulp — 2nd month.
The Manufacturing NAPM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing executives in over 400 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 supply management research and education organization in the United States. NAPM is comprised of 180 affiliates with more than 47,000 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 July 2001 data will be released at 10:00 a.m. (ET) on August 1, 2001.