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November 2000 Manufacturing Report On Business®

FOR RELEASE: December 1, 2000

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

Purchasing Managers' Index (PMI) at 47.7%
Production, New Orders, and Employment Contracting
Prices, Imports Continue to Increase

(Tempe, Arizona) — Economic activity in the manufacturing sector declined in November for the fourth consecutive month. The overall economy continued to grow in November for the 115th 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 November for the fourth consecutive month. The trend of contraction in manufacturing was accentuated by the fall of November's Production Index to below the 50 mark for the second consecutive month. New Orders continue to be a concern as that Index has failed to grow since June. New Export Orders fell below 50 for the second straight month, enhancing concerns about a global slowdown. If there is a bright spot in this month's report, it is that the rate of decline in Production decelerated, indicating only a small decline in production when compared to October."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the seventh consecutive month. NAPM's Supplier Deliveries Index reflects faster deliveries after recording slower deliveries in October. Manufacturing Employment declined in November as the index fell below the breakeven point (an index of 50 percent) for the second consecutive month. NAPM's Price Index remains positive in November as manufacturers continue to experience price increases, a market condition that has existed now for 19 consecutive months. New Export Orders slowed in November as the index once again fell below 50 percent. This is particularly significant when compared to historical data which indicates that there have been only 16 months, since its inception in January 1988, that the Index has been negative, and 13 of the 16 came shortly after the Asian financial crisis. Imports remain in a growth mode, accelerating slightly when compared to October. Comments from purchasing managers indicated concern about the short term as they struggle with energy costs, interest rates, and lagging retail sales. The few who expressed a positive outlook felt that it is due to seasonal activities.

NAPM's Purchasing Managers' Index was 47.7 percent in November, a decrease of 0.6 percentage point from 48.3 percent in October. NAPM's Production Index rose 1.2 percentage points from 48.4 percent in October to 49.6 percent in November. NAPM's New Orders Index rose 0.4 percentage point from 48 percent in October to 48.4 percent in November. NAPM's Backlog of Orders Index registered 42 percent, indicating smaller backlogs for the seventh consecutive month. NAPM's Supplier Deliveries Index is 49.2 percent in November, indicating faster deliveries during the month. The NAPM Employment Index is at 46 percent for November, a decrease of 1.9 percentage points when compared to the 47.9 percent reported in October. NAPM's Price Index in November is 56.6 percent, an increase of 0.1 percentage point from October's 56.5 percent.

NAPM's Inventories Index is at 42.2 percent indicating a faster rate of inventory liquidation when compared to October's 45.4 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 17 percent of the purchasing executives felt they were too high (up from 14 percent in October), while 14 percent felt they were too low (up from 13 percent in October) and 69 percent thought they were about right (down from 73 percent in October). NAPM's New Export Orders Index registered 48.7 percent, up slightly from October's 48.3 percent. Imports of materials by manufacturers gained momentum as NAPM's Imports Index is 53.2 percent in November, up from October's 51.8 percent.

"The overall picture is one of continued softening in manufacturing activity during the month of November," added Ore. "We continue to see few signs of encouragement in the near term for the manufacturing sector. The effects of higher interest rates, higher energy prices, and the strong dollar are causing the sector in general to lose momentum."

Of the 20 industries in the manufacturing sector, only seven reported improved business in November. Industries that reported improvement over October were (listed in order): Printing & Publishing; Wood & Wood Products; Food; Furniture; Industrial & Commercial Equipment & Computers; Chemicals; and Instruments & Photographic Equipment.

"Caustic Soda; Copper – Beryllium; and Electronic Components are the commodities reported on the Short Supply List. Commodities with reports of price increases: Aluminum (also reported down in price); Caustic Soda; Chemicals; Corrugated Cartons; Diesel Fuel; Fuel Oil; Natural Gas (also reported down in price); Petroleum Products; Plastic Resins; and Resins. Aluminum (also reported up in price); Natural Gas (also reported up in price); Steel – Hot Rolled; and Steel are the commodities reported down in price," Ore stated.

NOVEMBER 2000 NAPM BUSINESS SURVEY AT A GLANCE
Series November
Index
Direction
Nov vs Oct
Rate of Change
Nov vs Oct
PMI 47.7 Contracting Faster
Production 49.6 Contracting Slower
New Orders 48.4 Contracting Slower
Backlog of Orders 42.0 Contracting Slower
Supplier Deliveries 49.2 Faster From Slower
Inventories 42.2 Contracting Faster
Employment 46.0 Contracting Faster
Prices 56.6 Increasing Faster
New Export Orders 48.7 Contracting Slower
Imports 53.2 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 November with an index of 47.7 percent. This is the fourth 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 November (52.4 percent) corresponds to a 3.6 percent annual increase in real gross domestic product (GDP). However, if the PMI for November (47.7 percent) turned out to be the annual average for 2000, this would correspond to a 1.9 percent increase in GDP."

Month Nov '00 Oct '00 Sep '00 Aug '00 Jul '00
PMI% 47.7 48.3 49.9 49.5 51.8
Month Jun '00 May '00 Apr '00 Mar '00 Feb '00
PMI% 51.8 53.2 54.9 55.8 56.9
Month Jan '00 Dec '99 Nov '99 Oct '99 Sep '99
PMI% 56.3 56.8 57.1 56.9 57.3

Production

NAPM's Production Index rose to 49.6 percent in November up from 48.4 percent in October. This is the third time in four months that the Index has fallen below 50 percent. Of the 20 industries reporting, only 7 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 November were (listed in order): Petroleum; Furniture; Wood & Wood Products; Printing & Publishing; Chemicals; Industrial & Commercial Equipment & Computers; and Electronic Components & Equipment.

Production %Better %Same %Worse Net Index
November 2000 21 56 23 -2 49.6
October 2000 23 52 25 -2 48.4
September 2000 26 54 20 +6 52.1
August 2000 16 63 21 -5 48.7

New Orders

NAPM's New Orders Index failed to grow in November for the fifth consecutive month; prior to July of this year, the index grew for 18 consecutive months. The index at 48.4 percent represents an increase of 0.4 percentage point when compared to 48 percent in October. 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 November, four industries reported higher rates of increase in new orders. They were (listed in order): Furniture; Printing & Publishing; Food; and Industrial & Commercial Equipment & Computers.

New Orders %Better %Same %Worse Net Index
November 2000 21 49 30 -9 48.4
October 2000 22 49 29 -7 48.0
September 2000 27 47 26 +1 49.1
August 2000 21 57 22 -1 49.7

Backlog of Orders

The Backlog of Orders Index failed to grow for the seventh consecutive month in November. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 42 percent, a very significant drop in manufacturers' backlogs. Of the 88 percent of respondents who measure their backlog of orders, 16 percent reported greater backlogs, 32 percent reported smaller backlogs, and 52 percent reported no change from October. Only two industries reported an increase in backlog of orders during the month: Industrial & Commercial Equipment & Computers, and Chemicals.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
November 2000 88 16 52 32 -16 42.0
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

Supplier Deliveries

NAPM's Supplier Deliveries Index in November indicates delivery performance is faster when compared to October with an index of 49.2 percent (an index below 50 indicates faster delivery performance). The index is 2.2 percentage points lower than October's 51.4 percent. The industries reporting slower supplier deliveries in November were: Instruments & Photographic Equipment; Food; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Transportation & Equipment.

Supplier
Deliveries
%Slower %Same %Faster Net Index
November 2000 7 86 7 0 49.2
October 2000 9 85 6 +3 51.4
September 2000 8 84 8 0 49.3
August 2000 12 85 3 +9 53.1

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 42.2 percent, down from 45.4 percent in October. 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). There were no industries reporting higher inventories in November when compared to October.

Inventories %Higher %Same %Lower Net Index
November 2000 10 61 29 -19 42.2
October 2000 13 65 22 -9 45.4
September 2000 15 63 22 -7 45.9
August 2000 17 63 20 -3 47.8

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in November for the second consecutive month. The index registered 46 percent in November compared to 47.9 percent in October, a decrease of 1.9 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: Instruments & Photographic Equipment; Wood & Wood Products; Electronic Components & Equipment; Food; and Chemicals.

Employment %Higher %Same %Lower Net Index
November 2000 12 68 20 -8 46.0
October 2000 12 70 18 -6 47.9
September 2000 16 67 17 -1 50.9
August 2000 14 68 18 -4 48.2

Prices

NAPM's Prices Index indicates manufacturers continued to pay higher prices in November. With the index at 56.6 percent, there is a slight acceleration as the index is 0.1 percentage point higher than October's 56.5 percent. In November, 23 percent of purchasing executives reported paying higher prices and 12 percent reported paying lower prices, while 65 percent reported that prices were unchanged from the preceding month.

A Prices 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 10 industries paying higher prices were: Food; Printing & Publishing; Textiles; Paper; Rubber & Plastic Products; Wood & Wood Products; Apparel; Chemicals; Electronic Components & Equipment; and Furniture.

Prices %Higher %Same %Lower Net Index
November 2000 23 65 12 +11 56.6
October 2000 29 60 11 +18 56.5
September 2000 29 63 8 +21 58.1
August 2000 27 66 7 +20 56.2

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 November failed to grow during November for the second consecutive month after 20 months of growth. NAPM's New Export Orders Index increased 0.4 percentage point to 48.7 percent from 48.3 percent in October. Industries reporting growth in new export orders in November were: Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Instruments & Photographic Equipment; Wood & Wood Products; and Transportation & Equipment.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
November 2000 76 8 82 10 -2 48.7
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

Imports

Imports of materials by manufacturers gathered momentum in November as the Imports Index registered 53.2 percent, a 1.4 percentage points increase when compared to October's report of 51.8 percent. The eight industries reporting growth in import activity for November were: Leather; Wood & Wood Products; Printing & Publishing; Paper; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Food; and Chemicals.

Imports %Importing %Higher %Same %Lower Net Index
November 2000 74 13 78 9 +4 53.2
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

Buying Policy

Average commitment leadtime for Capital Expenditures rose 2 days to 113 days. Average leadtime for Production Materials declined 4 days to 38 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              
November 2000 17 10 15 19 32 7 113
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
Production Materials              
November 2000 25 43 22 8 2 0 38
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
MRO Supplies              
November 2000 52 37 8 3 0 0 21
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

In Short Supply

Caustic Soda — 3rd month; Copper - Beryllium — 2nd month; and Electronic Components — 3rd month.

Up in Price

Aluminum (also shown down in price); Caustic Soda — 5th month; Chemicals; Corrugated Cartons; Diesel Fuel — 2nd month; Fuel Oil — 2nd month; Natural Gas — 11th month (also shown down in price); Petroleum Products — 10th month; Plastic Resins; Resins — 15th month.

Down in Price

Aluminum — 2nd month (also shown up in price); Natural Gas (also shown up in price); Steel - Hot Rolled — 3rd month; and Steel — 6th 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 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 December 2000 data will be released at 10:00 a.m. (ET) on January 2, 2001.



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