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October 2001 Manufacturing Report On Business®

FOR RELEASE: November 1, 2001

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING CONTINUES TO SLOW IN OCTOBER 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 October 2001.

PMI at 39.8%

Production, New Orders, Prices Declining

(Tempe, Arizona) — Economic activity in the manufacturing sector declined for the 15th consecutive month in October while the overall economy also failed to grow after four consecutive months of growth 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 manufacturing sector received a very significant setback driven by the events of September 11th. The trend lines were moving in a positive direction prior to this report. The declines in production and new orders are among the largest in the history of our report, which began in 1931. It is worth noting that the New Export Orders Index indicated a much sharper decline in September than in October, while the other indexes declined significantly in this reporting period — possibly signaling a greater sense of confidence in global business during October."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the 18th consecutive month. NAPM's Supplier Deliveries Index continues to reflect faster deliveries, although at a slower rate. Manufacturing employment continued to decline in October as the index fell below the breakeven point (an index of 50 percent) for the 13th consecutive month. NAPM's Prices Index remained below 50 percent as manufacturers experienced lower prices for the eighth consecutive month. New Export Orders contracted in October for the second consecutive month. October's Imports Index declined after slight growth in September. Comments from purchasing and supply executives this month reflect continuing concerns about overall business conditions. Aerospace, steel, and automotive are struggling while major construction appears to have come to a halt. A number of respondents indicated that they look for a six to 12 month recovery.

NAPM's PMI is 39.8 percent in October, a decrease of 7.2 percentage points from the 47 percent reported in September. NAPM's Production Index declined a significant 10.4 percentage points from 51.3 percent in September to 40.9 percent in October. NAPM's New Orders Index declined 12 percentage points from 50.3 percent in September to 38.3 percent in October. NAPM's Backlog of Orders Index fell from 43 percent in September to 36 percent in October. NAPM's Supplier Deliveries Index rose from 46.5 percent to 49.2 in October, indicating faster deliveries during the month, but at a slower rate. The NAPM Employment Index is at 35.1 percent for October, a decrease of 6.1 percentage points when compared to the 41.2 percent reported in September. NAPM's Prices Index in October is 32.5 percent, a decrease of 3.8 percentage points from September's 36.3 percent.

NAPM's Inventories Index is at 36.8 percent indicating a faster rate of inventory liquidation when compared to September's 38.9 percent. The special monthly question concerning customers' inventories of products purchased from their organizations, 11 percent of the purchasing and supply executives felt they were too high, while 22 percent felt they were too low and 67 percent thought they were about right. NAPM's New Export Orders Index registered 45 percent, down from September's 45.9 percent. Imports of materials by manufacturers slowed as NAPM's Imports Index is 46.3 percent for the month, down from September's 50.3 percent.

"The overall picture is one of continued decline in manufacturing activity during the month of October," added Ore. "The manufacturing sector is in its 15th month of decline. The sector appeared to be well on its way to recovery, but will have to begin anew to build its way into a growth scenario."

None of the 20 industries in the manufacturing sector reported growth in October.

"No commodities were reported on the Short Supply List. Sugar was the only commodity with reports of price increases. The commodities reported down in price are: Aluminum, Caustic Soda, Chemicals, Copper, Corrugated Containers, Diesel, Energy, Ethylene, Gasoline, Natural Gas, Plastic, High Density Polyethylene, Resins, Polypropylene, Stainless Steel, Steel and Zinc," Ore stated.

OCTOBER 2001 NAPM BUSINESS SURVEY AT A GLANCE
Series October
Index
Direction
Oct vs Sep
Rate of Change
Oct vs Sep
PMI 39.8 Contracting Faster
Production 40.9 Contracting From Growing
New Orders 38.3 Contracting From Growing
Backlog of Orders 36.0 Contracting Faster
Supplier Deliveries 49.2 Faster Slower
Inventories 36.8 Contracting Faster
Employment 35.1 Contracting Faster
Prices 32.5 Contracting Faster
New Export Orders 45.0 Contracting Faster
Imports 46.3 Contracting From Growing

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

PMI

The PMI indicates that the manufacturing economy failed to grow during the month of October with an index of 39.8 percent. This is a significantly faster rate of decline when compared to September's PMI of 47 percent and the 15th 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 October PMI indicates that the overall economy and the manufacturing sector are contracting. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through October (43.4 percent) corresponds to 0.3 percent growth in real gross domestic product (GDP). However, if the PMI for October (39.8 percent) turned out to be the annual average for 2001, this would correspond to a 1.1 percent decline in GDP."

Month Oct'01 Sep'01 Aug'01 Jul'01 Jun'01
PMI% 39.8 47.0 47.9 43.6 44.7
Month May'01 Apr'01 Mar'01 Feb'01 Jan'01
PMI% 42.1 43.2 43.1 41.9 41.2
Month Dec'00 Nov'00 Oct'00 Sep'00 Aug'00
PMI% 44.3 47.9 48.3 49.6 49.9

Production

NAPM's Production Index is 40.9 percent in October, down from 51.3 percent in September. 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 October were: Glass, Stone & Aggregate and Apparel.


Production
%
Better
%
Same
%
Worse

Net

Index
October 2001 17 48 35 -18 40.9
September 2001 25 56 19 +6 51.3
August 2001 22 55 23 -1 52.2
July 2001 19 50 31 -12 46.4

New Orders

NAPM's New Orders Index fell below 50 percent after two consecutive months of growth. The index is at 38.3 percent representing a decrease of 12 percentage points when compared to September's 50.3 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 October, Textiles was the only industry reporting increases in new orders.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
October 2001 18 38 44 -26 38.3
September 2001 28 48 24 +4 50.3
August 2001 27 51 22 +5 53.1
July 2001 23 49 28 -5 46.3

Backlog of Orders

The Backlog of Orders Index failed to grow for the 18th consecutive month in October. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 36 percent indicating a faster rate of decline in manufacturers' backlogs than reported in September. Of the 87 percent of respondents who measure their backlog of orders, 12 percent reported greater backlogs, 40 percent reported smaller backlogs, and 48 percent reported no change from September. No industries reported an increase in order backlogs during the month. Tobacco; Printing & Publishing; Apparel; Textiles; Glass, Stone & Aggregate; Leather; and Petroleum reported no change when compared to September.

Backlog
of Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
October 2001 87 12 48 40 -28 36.0
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

Supplier Deliveries

NAPM's Supplier Deliveries Index in October indicates delivery performance is faster, but at a slower rate, when compared to September (a reading below 50 percent indicates faster deliveries). At 49.2 percent, the index is 2.7 percentage points higher than September's 46.5 percent. The industries reporting slower supplier deliveries in October were: Furniture; Transportation & Equipment; Rubber & Plastic Products; and Printing & Publishing.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
October 2001 8 83 9 -1 49.2
September 2001 4 87 9 -5 46.5
August 2001 6 83 11 -5 46.5
July 2001 5 86 9 -4 47.4

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

Inventories

The rate of liquidation of manufacturers' inventories accelerated in October as the Inventories Index registered 36.8 percent, down from the 38.9 percent reported in September. The Inventories Index has been under 50 percent for 21 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: Wood & Wood Products; Furniture; and Paper.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
October 2001 13 50 37 -24 36.8
September 2001 10 58 32 -22 38.9
August 2001 12 54 34 -22 37.7
July 2001 9 53 38 -29 35.8

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in October for the 13th consecutive month. The index registered 35.1 percent in October compared to 41.2 percent in September, a decrease of 6.1 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
October 2001 8 53 39 -31 35.1
September 2001 8 65 27 -19 41.2
August 2001 8 65 27 -19 40.8
July 2001 8 59 33 -25 37.2

Prices

NAPM's Prices Index indicates manufacturers continued to pay lower prices in October. With the index at 32.5 percent, this marks the eighth consecutive month the index has been below 50 percent. The index is 3.8 percentage points lower than September's 36.3 percent. In October, 6 percent of purchasing and supply executives reported paying higher prices and 38 percent reported paying lower prices, while 56 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. There were no reports of higher prices in any of the sectors during the month.


Prices
%
Higher
%
Same
%
Lower

Net

Index
October 2001 6 56 38 -32 32.5
September 2001 6 64 30 -24 36.3
August 2001 6 60 34 -28 33.9
July 2001 7 65 28 -21 38.7

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 registered 45 percent, a 0.9 percentage point lower than September's index of 45.9 percent. Paper was the only industry reporting growth in new export orders in October.

New Export
Orders
%
Exporting
%
Better
%
Same
%
Worse

Net

Index
October 2001 76 7 71 22 -15 45.0
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

Imports

Imports of materials by manufacturers declined in October as the Imports Index registered 46.3 percent, a 4 percentage points decrease when compared to September's report of 50.3 percent. The five industries reporting growth in import activity for October were: Apparel; Printing & Publishing; Furniture; Fabricated Metals; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, and musical instruments).


Imports
%
Importing
%
Higher
%
Same
%
Lower

Net

Index
October 2001 73 10 73 17 -7 46.3
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

Buying Policy

Average commitment leadtime for Capital Expenditures declined 10 days to 88 days. Average leadtime for Production Materials rose 5 days to 44 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 1 day to 20 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
October 2001 25 11 18 21 20 5 88
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
Production Materials              
October 2001 24 40 24 8 3 1 44
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
MRO Supplies              
October 2001 54 35 10 1 0 0 20
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

In Short Supply

None.

Up in Price

Sugar.

Down in Price

Aluminum — 8th month; Caustic Soda — 6th month; Chemicals; Copper — 5th month; Corrugated Containers — 9th month; Diesel; Energy — 2nd month; Ethylene; Gasoline; Natural Gas — 9th month; Plastic; High Density Polyethylene — 5th month; Resins; Stainless Steel; Steel — 6th month; and Zinc — 4th 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 November 2001 data will be released at 10:00 a.m. (ET) on December 3, 2001.



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