October 2000 Manufacturing Report On Business®

FOR RELEASE: November 1, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING CONTINUES TO SLOW IN OCTOBER 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 October 2000.

Purchasing Managers' Index (PMI) at 48.3%
Production, New Orders and Employment Decreasing Prices Continue to Increase

(Tempe, Arizona) — Economic activity in the manufacturing sector declined in October for the third consecutive month. Theoverall economy continued to grow in October for the 114th 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 October for the third consecutive month. The general trend of softness in manufacturing was accentuated by the fall of the Production Index to below the 50 mark in October after showing modest growth in September. New Orders continue to be a concern as that Index has failed to grow since July. New Export Orders fell below 50, a rare occurrence, indicating concerns for a global slowdown. Bright spots were October's Prices and Imports as they both moved in positive directions."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the sixth consecutive month. NAPM's Supplier Deliveries Index again reflects slowing deliveries after recording faster deliveries in September. Manufacturing Employment declined in October as the index fell below the breakeven point (an index of 50 percent) for the month after a gain in September. NAPM's Price Index remains positive, though decelerating slightly, in October as manufacturers continue to experience price increases, a market condition that has existed now for 18 consecutive months. New Export Orders slowed in October as the index fell below 50. Imports remain in a growth mode, accelerating slightly when compared to September. Comments from purchasing managers were focused on the impact of higher energy costs on their businesses and a slowdown in new order activity. Those that expressed a positive outlook felt that it is due to seasonal activities.

NAPM's Purchasing Managers' Index was 48.3 percent in October, a decrease of 1.6 percentage points from 49.9 percent in September. NAPM's Production Index decreased 3.7 percentage points from 52.1 percent in September to 48.4 percent in October. NAPM's New Orders Index declined 1.1 percentage points from 49.1 percent in September to 48 percent in October. NAPM's Backlog of Orders Index registered 41 percent, indicating smaller backlogs for the sixth consecutive month. NAPM's Supplier Deliveries Index is 51.4 percent in October, indicating slower deliveries during the month.

The NAPM Employment Index is at 47.9 percent for October, a decrease of 3 percentage points when compared to the 50.9 percent reported in September. NAPM's Price Index in October is 56.5 percent, a decrease of 1.6 percentage points from September's 58.1 percent.

NAPM's Inventories Index is at 45.4 percent indicating a faster rate of inventory liquidation when compared to September's 45.9 percent. 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 (up from 13 percent in September), while 13 percent felt they were too low (down from 16 percent in September) and 73 percent thought they were about right (up from 71 percent in September).

NAPM's New Export Orders Index failed to grow after 20 consecutive months of growth. Imports of materials by manufacturers gained momentum as NAPM's Imports Index is 51.8 percent in October, up from September's 50.5 percent.

"The overall picture is one of continued softening in manufacturing activity during the month of October," added Ore. "There are few signs of encouragement in this month's report, and the comments from survey respondents indicate significant concerns about current market conditions. Manufacturing is feeling the effect of higher interest rates, higher energy prices, and the strong dollar. Though prices still remain firm in most markets, with the exception of some metals, the manufacturing sector in general appears to be losing momentum faster than the overall economy."

Of the 20 industries in the manufacturing sector, only seven reported improved business in October. Industries that reported improvement over September were (listed in order): Wood & Wood Products; Food; Furniture; Glass, Stone & Aggregate; Chemicals; Electronic Components & Equipment; and Apparel.

"Caustic Soda; Copper — Beryllium; Electronic Components; and Integrated Circuits are the commodities reported on the Short Supply List. Commodities with reports of price increases: Caustic Soda; Copper; Diesel Fuel; Fuel Oil; Natural Gas; Nickel; Petroleum Products; Plastics; Polyester; Resins; Solvents; and Stainless Steel. Aluminum; Copper; Hot Rolled Steel; and Steel are the commodities reported down in price," Ore stated.

OCTOBER 2000 NAPM BUSINESS SURVEY AT A GLANCE
Series October
Index
Direction
Oct vs Sep
Rate of Change
Oct vs Sep
PMI 48.3 Contracting Faster
Production 48.4 Contracting From Growing
New Orders 48.0 Contracting Faster
Backlog of Orders 41.0 Contracting Faster
Supplier Deliveries 51.4 Slower From Faster
Inventories 45.4 Contracting Faster
Employment 47.9 Contracting From Growing
Prices 56.5 Increasing Slower
New Export Orders 48.3 Contracting From Growing
Imports 51.8 Growing Faster

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

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of October with an index of 48.3 percent. This is the third 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 42.4 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 October (52.8 percent) corresponds to a 3.7 percent annual increase in real gross domestic product (GDP). However, if the PMI for October (48.3 percent) turned out to be the annual average for 2000, this would correspond to a 2.1 percent increase in GDP."

Month Oct'00 Sep'00 Aug'00 Jul'00 Jun'00
PMI% 48.3 49.9 49.5 51.8 51.8
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

Production

NAPM's Production Index declined to 48.4 percent in October down from 52.1 percent in September. This is the second time in three months that the Index has fallen below 50 percent. Of the 20 industries reporting, only three indicated growth in production.

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 October were (listed in order): Food; Wood & Wood Products; and Chemicals.

Production %Better %Same %Worse Net Index
October 2000 23 52 25 -2 48.4
September 2000 26 54 20 +6 52.1
August 2000 16 63 21 -5 48.7
July 2000 19 63 18 +1 53.4

New Orders

NAPM's New Orders Index failed to grow in October for the fourth consecutive month; prior to July, the index grew for 18 consecutive months. The index at 48 percent represents a decrease of 1.1 percentage points when compared to 49.1 percent in September, 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 October, six industries reported higher rates of increase in new orders. They were (listed in order): Furniture; Glass, Stone & Aggregate; Apparel; Food; Wood & Wood Products; and Electronic Components & Equipment.

New
Orders
%Better %Same %Worse Net Index
October 2000 22 49 29 -7 48.0
September 2000 27 47 26 +1 49.1
August 2000 21 57 22 -1 49.7
July 2000 23 56 21 +2 49.9

Backlog of Orders

The Backlog of Orders Index failed to grow for the sixth consecutive month in October. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 41 percent, a very significant drop in manufacturers' backlogs. Of the 88 percent of respondents who measure their backlog of orders, 14 percent reported greater backlogs, 32 percent reported smaller backlogs, and 54 percent reported no change from September. Only two industries reported an increase in backlog of orders during the month: Tobacco and Food.

Backlog
of Orders
%
Reporting
%
Greater
%
Same
%
Less
Net Index
October 2000 88 14 54 32 -18 41.0
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

Supplier Deliveries

NAPM's Supplier Deliveries Index in October indicates delivery performance is slower when compared to September with an index of 51.4 percent (an index below 50 indicates faster delivery performance). The index is 2.1 percentage points higher than September's 49.3 percent. The industries reporting slower supplier deliveries in October were: Tobacco; Primary Metals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Paper; and Food.

Supplier
Deliveries
%Slower %Same %Faster Net Index
October 2000 9 85 6 +3 51.4
September 2000 8 84 8 0 49.3
August 2000 12 85 3 +9 53.1
July 2000 13 84 3 +10 54.2

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 45.4 percent, down from 45.9 percent in September. 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 October over September were: Wood & Wood Products; Printing & Publishing; Instruments & Photographic Equipment; and Food.

Inventories %Higher %Same %Lower Net Index
October 2000 13 65 22 -9 45.4
September 2000 15 63 22 -7 45.9
August 2000 17 63 20 -3 47.8
July 2000 13 69 18 -5 48.4

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in October after a recovery in September. The index registered 47.9 percent in October compared to 50.9 percent in September, a decrease of 3 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. Five industries indicated growth in employment: Petroleum; Furniture; Wood & Wood Products; Rubber & Plastic Products; and Chemicals.

Employment %Higher %Same %Lower Net Index
October 2000 12 70 18 -6 47.9
September 2000 16 67 17 -1 50.9
August 2000 14 68 18 -4 48.2
July 2000 19 68 13 +6 52.7

Prices

NAPM's Price Index indicates manufacturers continued to pay higher prices in October. With the index at 56.5 percent, there is a slight deceleration as the index is 1.6 percentage points lower than September's 58.1 percent. In October, 29 percent of purchasing executives reported paying higher prices and 11 percent reported paying lower prices, while 60 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 12 industries paying higher prices were: Textiles; Paper; Rubber & Plastic Products; Petroleum; Food; Instruments; Chemicals; Apparel; Printing & Publishing; Transportation & Equipment; Electronic Components & Equipment; and Industrial & Commercial Equipment & Computers.

Prices %Higher %Same %Lower Net Index
October 2000 29 60 11 +18 56.5
September 2000 29 63 8 +21 58.1
August 2000 27 66 7 +20 56.2
July 2000 33 60 7 +26 61.9

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 October failed to grow during October after 20 consecutive months of growth. This is particularly significant when compared to historical data for the Index which indicates that there have been only 15 months since its inception in January 1988 that the Index has been negative, and 14 of the 15 came shortly after the Asian financial crisis. NAPM's New Export Orders Index declined 2 percentage points to 48.3 percent from 50.3 percent in September. Industries reporting growth in new export orders in October were: Food and Fabricated Metals.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
October 2000 77 5 83 12 -7 48.3
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

Imports

Imports of materials by manufacturers grew in October as the Imports Index registered 51.8 percent, a 1.3 percentage points increase when compared to September's report of 50.5 percent. The six industries reporting growth in import activity for October were: Leather; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Fabricated Metals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; and Chemicals.

Imports %Importing %Higher %Same %Lower Net Index
October 2000 75 13 78 9 +4 51.8
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

Buying Policy

Average commitment leadtime for Capital Expenditures declined 8 days to 111 days. Average leadtime for Production Materials declined 10 days to 42 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained the same at 22 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
October 2000 18 7 16 23 29 7 111
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
Production Materials              
October 2000 24 44 21 7 3 1 42
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
MRO Supplies              
October 2000 52 35 10 3 0 0 22
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

In Short Supply

Caustic Soda — 2nd month; Copper; Beryllium; Electronic Components — 2nd month; and Integrated Circuits — 2nd month.

Up in Price

Caustic Soda — 4th month; Copper — 4th month (also shown down in price); Diesel Fuel; Fuel Oil; Natural Gas — 10th month; Nickel; Petroleum Products — 9th month; Plastics — 12th month; Polyester; Resins — 14th month; Solvents; and Stainless Steel.

Down in Price

Aluminum; Copper (also shown up in price); Hot Rolled Steel — 2nd month; and Steel — 5th 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 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 November 2000 data will be released at 10:00 a.m. (ET) on December 1, 2000.



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