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September 2000 Manufacturing Report On Business®

FOR RELEASE: October 2, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING SLOWS IN SEPTEMBER SAY PURCHASING EXECUTIVES IN LATEST 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 September 2000.

Purchasing Managers' Index (PMI) at 49.9%
Production, Employment, Prices Increasing
New Orders Continue to Decrease

(Tempe, Arizona) — Economic activity in the manufacturing sector declined in September for the second consecutive month. The overall economy continued to grow in September for the 113th 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 September with additional signs of softness appearing as Supplier Deliveries have accelerated and New Orders continue to slide downward. Bright spots were September's Production and Employment Indexes as they recovered above the 50 mark, reversing the downward trends. The NAPM Prices Index continues to indicate manufacturers are paying higher prices for their purchases and suffer the instability of energy prices which translate into higher costs."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the fifth consecutive month. NAPM's Supplier Deliveries Index reversed a 16 month trend as the Index fell below 50 which means faster deliveries. Manufacturing Employment bounced back in September as the index rose above the breakeven point (an index of 50 percent) for the month after a decline in August. NAPM's Price Index remains positive, and gained momentum in September as manufacturers are experiencing more price increases, a market condition that has existed now for 17 consecutive months. The rate of growth in New Export Orders slowed in September. Imports remain in a slight growth mode, though decelerating. Comments from purchasing managers this month generally expressed concerns about the impact of higher interest rates and energy prices. The impact of imports on domestic steel and textile industries was also an issue.

NAPM's Purchasing Managers' Index was 49.9 percent in September, an increase of 0.4 percentage point from 49.5 percent in August. NAPM's Production Index increased 3.4 percentage points from 48.7 percent in August to 52.1 percent in September. NAPM's New Orders Index declined 0.6 percentage point from 49.7 percent in August to 49.1 percent in September. NAPM's Backlog of Orders Index registered 47 percent, indicating smaller backlogs for the fifth consecutive month. NAPM's Supplier Deliveries Index is 49.3 percent in September, indicating faster deliveries during the month. The NAPM Employment Index is at 50.9 percent for September, an increase of 2.7 percentage points when compared to the 48.2 percent reported in August. NAPM's Price Index in September is 58.1 percent, an increase of 1.9 percentage points from August's 56.2 percent.

NAPM's Inventories Index is at 45.9 percent indicating a faster rate of inventory liquidation when compared to August's 47.8 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 13 percent of the purchasing executives felt they were too high (down from 15 percent in August), while 16 percent felt they were too low (up from 14 percent in August) and 71 percent thought they were about right (the same as August).

NAPM's New Export Orders Index continued positive for the 20th consecutive month though the index declined slightly to 50.3 percent from 50.7 percent in August. Imports of materials by manufacturers lost momentum as NAPM's Imports Index is 50.5 percent in September, down from August's 51.9 percent.

"The overall picture is one of continued softening in manufacturing activity during the month of September," added Ore. "Though we see a couple of signs of encouragement — Production and Employment — most of the other indexes signal little change since May when comparing the month over month numbers. Manufacturing is feeling the effect of higher interest rates, higher energy prices, and the strong dollar. Prices paid are higher than we would typically expect at this point in the economic cycle due to energy costs."

Of the 20 industries in the manufacturing sector, nine reported improved business in September. Industries that reported improvement over August were (listed in order): Printing & Publishing; Furniture; Petroleum; Rubber & Plastic Products; Electronic Components & Equipment; Glass, Stone & Aggregate; Chemicals; Fabricated Metals; and Wood and Wood Products.

"Capacitors — Ceramic; Caustic Soda; Electronic Components; Integrated Circuit Boards; and Printed Circuit Boards are the commodities reported on the Short Supply List. Commodities with reports of price increases: Aluminum; Capacitors — Ceramic; Caustic Soda; Copper; Electronics; Natural Gas; Paper; Petroleum Products; Plastics; Resins; and Transportation. Ethylene; High Density Polyethylene; Steel; and Hot Rolled Steel are the commodities reported down in price," Ore stated.

SEPTEMBER 2000 NAPM BUSINESS SURVEY AT A GLANCE
Series September
Index
Direction
Sep vs Aug
Rate of Change
Sep vs Aug
PMI 49.9 Contracting Slower
Production 52.1 Growing From Contracting
New Orders 49.1 Contracting Faster
Backlog of Orders 47.0 Contracting Faster
Supplier Deliveries 49.3 Faster From Slowing
Inventories 45.9 Contracting Faster
Employment 50.9 Growing From Contracting
Prices 58.1 Increasing Faster
New Export Orders 50.3 Growing Slower
Imports 50.5 Growing Slower


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

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of September with an index of 49.9 percent. This is the second consecutive month that the manufacturing sector has contracted. Though the decline in activity is only 0.1 percentage point under 50 (the breakeven point), it is a strong indication that the manufacturing sector continues to slow. 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 September (53.3 percent) corresponds to a 3.9 percent annual increase in real gross domestic product (GDP). However, if the PMI for September (49.9 percent) turned out to be the annual average for 2000, this would correspond to a 2.7 percent increase in GDP."

Month Sep'00 Aug'00 Jul'00 Jun'00 May'00
PMI% 49.9 49.5 51.8 51.8 53.2
Month Apr'00 Mar'00 Feb'00 Jan'00 Dec'99
PMI% 54.9 55.8 56.9 56.3 56.8
Month Nov'99 Oct'99 Sep'99 Aug'99 Jul'99
PMI% 57.1 56.9 57.3 54.4 53.6

Production

NAPM's Production Index rebounded to 52.1 percent in September after falling to 48.7 percent in August. September's index registered an encouraging 3.4 percentage point increase when compared to August.

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 September were (listed in order): Printing & Publishing; Furniture; Rubber & Plastic Products; Petroleum; Wood & Wood Products; Glass, Stone & Aggregate; Chemicals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Fabricated Metals; and Transportation & Equipment.

Production %Better %Same %Worse Net Index
September 2000 26 54 20 +6 52.1
August 2000 16 63 21 -5 48.7
July 2000 19 63 18 +1 53.4
June 2000 25 58 17 +8 53.6

New Orders

NAPM's New Orders Index failed to grow in September for the third consecutive month; prior to July, the index grew for 18 consecutive months. The index at 49.1 percent represents a slight decrease of 0.6 percentage point when compared to 49.7 percent in August and provides insight as to the weakness of manufacturing orders. 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 September, seven industries reported higher rates of increase in new orders. They were (listed in order): Printing & Publishing; Petroleum; Rubber & Plastic Products; Furniture; Electronic Components & Equipment; Glass, Stone & Aggregate; and Chemicals.

New Orders %Better %Same %Worse Net Index
September 2000 27 47 26 +1 49.1
August 2000 21 57 22 -1 49.7
July 2000 23 56 21 +2 49.9
June 2000 27 50 23 +4 50.6

Backlog of Orders

The Backlog of Orders Index failed to grow for the fifth consecutive month in September. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 47 percent. Of the 90 percent of respondents who measure their backlog of orders, 22 percent reported greater backlogs, 28 percent reported smaller backlogs, and 50 percent reported no change from August. Four industries reported an increase in backlog of orders during the month: Electronic Components & Equipment; Rubber & Plastic Products; Printing & Publishing; and Fabricated Metals.

Backlog of Orders %Reporting %Greater %Same %Less Net Index
September 2000 90 22 50 28 -6 47.0
August 2000 88 23 52 25 -2 49.0
July 2000 90 17 56 27 -10 45.0
June 2000 90 23 51 26 -3 48.5

Supplier Deliveries

NAPM's Supplier Deliveries Index in September indicates delivery performance is now faster when compared to August with an index reading of 49.3 percent (an index below 50 indicates faster delivery performance). The index is 3.8 percentage points lower than August's 53.1 percent. August is the first month that the index has registered below 50 after 16 months of faster deliveries. The only industries reporting slower supplier deliveries in September were: Instruments & Photographic Equipment; Transportation & Equipment; Primary Metals; and Electronic Components & Equipment.

Supplier Deliveries %Slower %Same %Faster Net Index
September 2000 8 84 8 0 49.3
August 2000 12 85 3 +9 53.1
July 2000 13 84 3 +10 54.2
June 2000 13 83 4 +9 55.1

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 faster as the Inventories Index registered 45.9 percent, down from 47.8 percent in August. 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 six industries reporting higher inventories in September over August were: Petroleum; Printing & Publishing; Furniture; Electronic Components & Equipment; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Inventories %Higher %Same %Lower Net Index
September 2000 15 63 22 -7 45.9
August 2000 17 63 20 -3 47.8
July 2000 13 69 18 -5 48.4
June 2000 13 68 19 -6 47.4

Employment

NAPM's Manufacturing Employment Index rose above 50 percent in September, recovering from a decline in August. The index registered 50.9 percent in September compared to 48.2 percent in August, an increase of 2.7 percentage points. 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. Six industries indicated growth in employment: Instruments & Photographic Equipment; Printing & Publishing; Fabricated Metals; Rubber & Plastic Products; Electronic Components & Equipment; and Transportation & Equipment.

Employment %Higher %Same %Lower Net Index
September 2000 16 67 17 -1 50.9
August 2000 14 68 18 -4 48.2
July 2000 19 68 13 +6 52.7
June 2000 20 67 13 +7 50.8

Prices

NAPM's Price Index indicates manufacturers continued to pay higher prices in September. With the index at 58.1 percent, there is slight acceleration as the index is 1.9 percentage points higher than August's 56.2 percent. In September, 29 percent of purchasing executives reported paying higher prices and 8 percent reported paying lower prices, while 63 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 13 industries paying higher prices were: Leather; Petroleum; Textiles; Printing & Publishing; Electronic Components & Equipment; Paper; Rubber & Plastic Products; Primary Metals; Chemicals; Instruments & Photographic Equipment; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Wood & Wood Products.

Prices %Higher %Same %Lower Net Index
September 2000 29 63 8 +21 58.1
August 2000 27 66 7 +20 56.2
July 2000 33 60 7 +26 61.9
June 2000 34 60 6 +28 61.2

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

New Export Orders

Though the manufacturing sector is declining, NAPM's New Export Orders Index for September continued positive (an index exceeding 50 percent) for the 20th consecutive month. NAPM's New Export Orders Index declined 0.4 percentage point to 50.3 percent from 50.7 percent in August. Industries reporting growth in new export orders in September were: Textiles; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Furniture; Instruments & Photographic Equipment; Chemicals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Transportation & Equipment.

New Export Orders %Exporting %Better %Same %Worse Net Index
September 2000 77 14 77 9 +5 50.3
August 2000 78 12 79 9 +3 50.7
July 2000 79 13 78 9 +4 51.5
June 2000 78 17 75 8 +9 53.2

Imports

Imports of materials by manufacturers grew slightly in September as the Imports Index registered 50.5 percent, a 1.4 percentage points decrease when compared to August's report of 51.9 percent. The seven industries reporting growth in import activity for September were: Furniture; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Chemicals; Rubber & Plastic Products; Fabricated Metals; and Electronic Components & Equipment.

Imports %Importing %Higher %Same %Lower Net Index
September 2000 76 10 82 8 +2 50.5
August 2000 80 13 79 8 +5 51.9
July 2000 77 11 78 11 0 49.8
June 2000 79 17 79 4 +13 56.0

Buying Policy

Average commitment leadtime for Capital Expenditures rose 2 days to 119 days. Average leadtime for Production Materials rose 11 days to 52 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 2 days to 22 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
September
2000
17 10 13 19 32 9 119
August 2000 21 9 12 20 27 11 117
July 2000 18 10 15 22 24 11 116
June 2000 18 8 14 20 30 10 120
Production Materials              
September 2000 25 39 20 10 2 4 52
August 2000 24 40 25 8 3 0 41
July 2000 22 38 27 7 5 1 48
June 2000 22 41 23 10 2 2 47
MRO Supplies              
September 2000 51 35 12 2 0 0 22
August 2000 52 33 10 4 1 0 24
July 2000 48 36 14 2 0 0 23
June 2000 51 36 9 3 0 1 25

In Short Supply

Capacitors — Ceramic — 3rd month; Caustic Soda; Electronic Components; Integrated Circuits; and Printed Circuit Boards.

Up in Price

Aluminum — 3rd month; Capacitors — Ceramic; Caustic Soda — 3rd month; Copper — 3rd month; Electronics; Natural Gas — 9th month; Paper — 16th month; Petroleum Products — 8th month; Plastics — 11th month; Resins — 13th month; and Transportation.

Down in Price

Ethylene; High Density Polyethylene; Hot Rolled Steel; and Steel — 4th month.

Special Question — Benefits to Supply Management From the Application of Technology

A special question was asked this month with regard to supply chain management and technology. The following question was submitted to our survey members: "Based on your operations and the efficiency of your supply chain, with 100 being perfection and 0 being the lower limit, what number value represents your achievement of potential benefits from the application of technology to supply management?"

  • 13% indicated 0-20%
  • 23% indicated 21-40%
  • 25% indicated 41-60%
  • 30% indicated 61-80%
  • 9% indicated 81-90%
  • no respondents reported over 90% complete

The data suggests that a majority of respondents still feel that they can gain significantly from the application of technology to supply chain management.

In September 2000, the average is 52.3 percent, the low is 5 percent, and the high is 90 percent. The same question was asked in March 2000, and the answers were that the average was 45.3 percent, the low was 5 percent, and the high was 80 percent.

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 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 October 2000 data will be released at 10:00 a.m. (ET) on November 1, 2000.



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