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September 2001 Manufacturing NAPM Report On Business®

FOR RELEASE: October 1, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING CONTINUES TO SLOW IN SEPTEMBER SAY PURCHASING AND SUPPLY 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 September 2001.

PMI at 47%
Production, New Orders Growing
Prices, Inventories, Employment Declining

(Tempe, Arizona) — Economic activity in the manufacturing sector declined for the 14th consecutive month in September while the overall economy grew for the fourth consecutive month say the nation's purchasing and supply 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 Report measures monthly change and depicts the state of U.S. manufacturing in September. Some survey respondents, based on their comments, indicated that it was too early to fully determine the effects of the September 11th terrorist attacks. Overall the Report indicates both continuing decline in manufacturing as has been the trend since August 2000, and the recent improvements in Production and New Orders which appeared to provide a basis for recovery in the sector."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the 17th consecutive month. NAPM's Supplier Deliveries Index continues to reflect faster deliveries. Manufacturing employment continued to decline in September as the index fell below the breakeven point (an index of 50 percent) for the 12th consecutive month. NAPM's Prices Index remained below 50 percent as manufacturers experienced lower prices for the seventh consecutive month. New Export Orders contracted in September after modest growth in August. September's Imports Index showed slight growth after eight consecutive months of decline.

NAPM's PMI is 47 percent in September, a decrease of 0.9 percentage point from the 47.9 percent reported in August. NAPM's Production Index declined 1.1 percentage points from 52.2 percent in August to 51.3 percent in September. NAPM's New Orders Index declined 2.8 percentage points from 53.1 percent in August to 50.3 percent in September. NAPM's Backlog of Orders Index slipped from 44.5 percent in August to 43 percent in September. NAPM's Supplier Deliveries Index was unchanged at 46.5 percent for September, still indicating faster deliveries during the month. The NAPM Employment Index is at 41.2 percent for September, an increase of 0.4 percentage point when compared to the 40.8 percent reported in August. NAPM's Prices Index in September is 36.3 percent, an increase of 2.4 percentage points from August's 33.9 percent.

NAPM's Inventories Index is at 38.9 percent indicating a slightly slower rate of inventory liquidation when compared to August's 37.7 percent. The special monthly question concerning customers' inventories of products purchased from their organizations was unchanged from August as 13 percent of the purchasing and supply executives felt they were too high, while 16 percent felt they were too low and 71 percent thought they were about right, and the diffusion index was again at 48.5 percent. NAPM's New Export Orders Index registered 45.9 percent, down from August's 51.9 percent. Imports of materials by manufacturers picked up as NAPM's Imports Index rose to 50.3 percent for the month, up from August's 49.7 percent.

"The overall picture is one of continued decline in manufacturing activity during the month of September," added Ore. "The manufacturing sector is in its 14th month of decline. A major sign of encouragement is that inventory liquidation appears to be slowing as both manufacturers and their customers are bringing inventory levels under control."

Of the 20 industries in the manufacturing sector, eight reported growth: Leather; Petroleum; Paper; Food; Tobacco; Fabricated Metals; Glass, Stone, and Aggregate; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, and musical instruments).

"No commodities were reported on the Short Supply List. Coal, Diesel Fuel, and Propylene are the commodities with reports of price increases. The commodities reported down in price are: Aluminum, Caustic Soda, Copper, Corrugated Containers, Energy, Methanol, Natural Gas, Paper, Plastic Resins, High Density Polyethylene, Polyethylene, Polyethylene Resin, Polypropylene, Steel and Zinc," Ore stated.

SEPTEMBER 2001 NAPM BUSINESS SURVEY AT A GLANCE
Series September
Index
Direction
Sep vs Aug
Rate of Change
Sep vs Aug
PMI 47.0 Contracting Faster
Production 51.3 Growing Slower
New Orders 50.3 Growing Slower
Backlog of Orders 43.0 Contracting Faster
Supplier Deliveries 46.5 Faster Same
Inventories 38.9 Contracting Slower
Employment 41.2 Contracting Slower
Prices 36.3 Contracting Slower
New Export Orders 45.9 Contracting From Growing
Imports 50.3 Growing From Contracting

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

PMI

The PMI indicates that the manufacturing economy failed to grow during the month of September with an index of 47 percent. This is a slightly faster rate of decline when compared to August's PMI of 47.9 percent and the 14th 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 September PMI indicates marginal 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 September (43.9 percent) corresponds to 0.4 percent growth in real gross domestic product (GDP). However, if the PMI for September (47 percent) turned out to be the annual average for 2001, this would correspond to a 1.6 percent increase in GDP."

Month Sep'01 Aug'01 Jul'01 Jun'01 May'01
PMI% 47.0 47.9 43.6 44.7 42.1
Month Apr'01 Mar'01 Feb'01 Jan'01 Dec'00
PMI% 43.2 43.1 41.9 41.2 44.3
Month Nov'00 Oct'00 Sep'00 Aug'00 Jul'00
PMI% 47.9 48.3 49.6 49.9 51.7

Production

NAPM's Production Index declined slightly to 51.3 percent in September down from 52.2 percent in August. This is the second month that the index has risen above 50 percent after eight months of decline. An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the 20 industries reporting, those registering growth in September were: Leather; Tobacco; Petroleum; Paper; Food; Glass, Stone & Aggregate; Fabricated Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, and musical instruments); and Chemicals.

Production %Better %Same %Worse Net Index
September 2001 25 56 19 +6 51.3
August 2001 22 55 23 -1 52.2
July 2001 19 50 31 -12 46.4
June 2001 18 56 26 -8 46.2

New Orders

NAPM's New Orders Index rose above 50 percent for the second month following 13 consecutive months of no growth. The index is at 50.3 percent representing a decrease of 2.8 percentage points when compared to August's 53.1 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). For the month of September, nine industries reported higher rates of increase in new orders. They were (listed in order): Leather; Fabricated Metals; Petroleum; Paper; Food; Miscellaneous (a preponderance of jewelry, toys, sporting goods, and musical instruments); Glass, Stone, and Aggregate; Printing & Publishing; and Rubber & Plastic Products.

New
Orders
%Better %Same %Worse Net Index
September 2001 28 48 24 +4 50.3
August 2001 27 51 22 +5 53.1
July 2001 23 49 28 -5 46.3
June 2001 25 49 26 -1 48.6

Backlog of Orders

The Backlog of Orders Index failed to grow for the 17th consecutive month in September. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 43 percent indicating a faster rate of decline in manufacturers' backlogs than reported in August. Of the 87 percent of respondents who measure their backlog of orders, 15 percent reported greater backlogs, 29 percent reported smaller backlogs, and 56 percent reported no change from August. Fabricated Metals; Printing & Publishing; and Paper were the industries reporting an increased backlog of orders during the month.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
September 2001 87 15 56 29 -14 43.0
August 2001 90 16 57 27 -11 44.5
July 2001 89 15 55 30 -15 42.5
June 2001 90 15 54 31 -16 42.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in September indicates delivery performance is faster. At 46.5 percent, the index and the rate of change are the same as reported in August. Wood & Wood Products was the only industry reporting slower supplier deliveries in September.

Supplier
Deliveries
%Slower %Same %Faster Net Index
September 2001 4 87 9 -5 46.5
August 2001 6 83 11 -5 46.5
July 2001 5 86 9 -4 47.4
June 2001 5 85 10 -5 48.0

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

Inventories

The rate of liquidation of manufacturers' inventories was still quite strong in September as the Inventories Index registered 38.9 percent, up from the 37.7 percent reported in August. The Inventories Index has been under 50 percent for 20 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 industries reporting higher inventories were: Instruments & Photographic Equipment, Wood & Wood Products; and Food.

Inventories %Higher %Same %Lower Net Index
September 2001 10 58 32 -22 38.9
August 2001 12 54 34 -22 37.7
July 2001 9 53 38 -29 35.8
June 2001 14 52 34 -20 40.8

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in September for the 12th consecutive month. The index registered 41.2 percent in September compared to 40.8 percent in August, a increase of 0.4 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. There were no reports of higher employment in any of the sectors during the month.

Employment %Higher %Same %Lower Net Index
September 2001 8 65 27 -19 41.2
August 2001 8 65 27 -19 40.8
July 2001 8 59 33 -25 37.2
June 2001 10 56 34 -24 36.3

Prices

NAPM's Prices Index indicates manufacturers continued to pay lower prices in September. With the index at 36.3 percent, this marks the seventh consecutive month the index has been below 50 percent. The index is 2.4 percentage points higher than August's 33.9 percent. In September, 6 percent of purchasing and supply executives reported paying higher prices and 30 percent reported paying lower prices, while 64 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. Glass, Stone & Aggregate and Food were the only industries reporting paying higher prices.

Prices %Higher %Same %Lower Net Index
September 2001 6 64 30 -24 36.3
August 2001 6 60 34 -28 33.9
July 2001 7 65 28 -21 38.7
June 2001 13 61 26 -13 42.3

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 September registered 45.9 percent, 6 percentage points lower than August's index of 51.9 percent. This is a reversal in the direction of the Index following August's move above 50 percent. Industries reporting growth in new export orders in September were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, and musical instruments); Food; and Paper.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
September 2001 75 9 78 13 -4 45.9
August 2001 76 14 77 9 +5 51.9
July 2001 77 12 73 15 -3 48.2
June 2001 81 8 78 14 -6 45.5

Imports

Imports of materials by manufacturers grew slightly in September after eight consecutive months of decline. The Imports Index registered 50.3 percent, a 0.6 percentage point increase when compared to August's report of 49.7 percent. The nine industries reporting growth in import activity for September were: Petroleum; Apparel; Instruments & Photographic Equipment; Printing & Publishing; Miscellaneous (a preponderance of jewelry, toys, sporting goods, and musical instruments); Food; Fabricated Metal Products; Furniture; and Transportation & Equipment.

Imports %Importing %Higher %Same %Lower Net Index
September 2001 75 12 78 10 +2 50.3
August 2001 76 10 81 9 +1 49.7
July 2001 74 9 76 15 -6 47.3
June 2001 77 9 79 12 -3 48.0

Buying Policy

Average commitment leadtime for Capital Expenditures was unchanged at 98 days. Average leadtime for Production Materials declined 8 days to 39 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 1 day to 21 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
September 2001 26 8 14 21 25 6 98
August 2001 28 8 14 19 24 7 98
July 2001 26 8 16 24 22 4 89
June 2001 25 7 19 21 22 6 95
Production Materials              
September 2001 24 45 21 7 3 0 39
August 2001 23 41 22 9 3 2 47
July 2001 24 40 24 7 4 1 45
June 2001 22 43 19 9 5 2 50
MRO Supplies              
September 2001 55 34 8 2 1 0 21
August 2001 53 34 10 3 0 0 22
July 2001 53 37 8 2 0 0 20
June 2001 49 38 8 4 1 0 24

In Short Supply

None.

Up in Price

Coal; Diesel Fuel; and Propylene.

Down in Price

Aluminum — 7th month; Caustic Soda — 5th month; Copper — 4th month; Corrugated Containers — 8th month; Energy; Methanol — 3rd month; Natural Gas — 8th month; Paper — 6th month; Plastic Resins — 3rd month; High Density Polyethylene — 4th month; Polyethylene — 3rd month; Polyethylene Resin; Polypropylene — 4th month; Steel — 5th month; and Zinc — 3rd 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 and supply 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, 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. In May 2001 the membership of the National Association of Purchasing Management voted to change the association's name to the Institute for Supply Management™. The association, established in 1915, is the world's leading educator of supply

management professionals and is a valuable resource for decision makers in major markets, organizations, and government. This change reflects recognition of the increasing strategic and global significance of supply management, and becomes effective January 1, 2002. For further information, see NAPM's Web site at www.ism.ws.

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 2001 data will be released at 10:00 a.m. (ET) on November 1, 2001.



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