FOR RELEASE: August 2, 1999
|NAPM, Media Relations|
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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 July 1999.
(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the sixth consecutive month in July providing signs of a strengthening recovery. The overall economy continued to grow in July for the 99th 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 director, corporate purchasing, Chesapeake Corporation. "The manufacturing sector continued to grow in July, but not as robustly as it grew in June. Both production and new orders continued to grow when compared to June, though the rate of growth is slower. NAPM's Price Index indicates that manufacturers continue to pay higher prices for their purchases."
NAPM's Backlog of Orders Index continues to grow, while NAPM's Supplier Deliveries Index once again signals slowing deliveries. Manufacturing Employment failed to grow during July as the index dipped below the breakeven point (an index of 50). NAPM's Price Index continued to strengthen as 10 of 20 industries indicated paying higher prices on average during July. Export Orders continue to grow, though losing some momentum when compared to June. Imports also grew during July, but at a slower rate of growth. Looking forward, purchasing managers are cautiously optimistic. Major concerns are higher interest rates (expressed by companies that manufacture for the construction markets), stability in Asian markets, continued recovery in Europe, Y2K inventory issues, and the consolidation of the northeast railroads.
NAPM's Purchasing Managers' Index was lower at 53.4 percent in July, down from 57.0 in June. NAPM's Production Index decreased 4.8 percentage points from 63.0 percent in June to 58.2 percent in July. NAPM's New Orders Index fell 7.3 percentage points from 61.7 percent in June to 54.4 percent in July. NAPM's Backlog of Orders Index registered 50.5 percent, 4.0 percentage points lower than the 54.5 percent recorded in June. NAPM's Supplier Deliveries Index moved to 54.2 percent in July up from 53.1 percent in June. NAPM Employment Index is at 49.6 for July, 2.3 percentage points lower than the 51.9 percent reported in June. NAPM's Price Index in July is 54.7 percent.
NAPM's Inventories Index showed continued inventory liquidation, but at a slower rate than in June, rising to 44.4 percent from 44.1 percent in June. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 10 percent of the purchasing executives felt they were too high (up from 6 percent in June). On the other hand, 20 percent felt they were too low (up from 19 percent in June) and 70 percent thought they were about right (down from 75 percent in June).
NAPM's New Export Orders Index continued positive for a sixth month while decreasing 2.9 percentage points to 50.4 percent. Imports of materials by manufacturers continued to increase in July, though at a slower rate, as NAPM's Imports Index was down from 52.9 percent to 51.6 percent in July.
"The overall picture is one of continuing growth in manufacturing activity during the month of July," added Ore. "Production and New Orders remain positive and provide encouragement that the manufacturing sector will continue on a path of growth into the second half of the year. Commodity prices are strengthening as pricing pressures continue to be driven by basic commodities as they play catch-up from having lagged the recovery in the sector. The list of commodities up in price is still relatively modest in number."
Of the 20 industries in the manufacturing sector, fourteen reported improved business in July. Industries that reported improvement over June were (listed in order): Furniture; Petroleum; Glass, Stone & Aggregate; Food; Rubber & Plastic Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; Printing & Publishing; Paper; Fabricated Metals; Transportation & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; and Tobacco.
"There were no commodities on the Short Supply List. Commodities with reports of price increases were Aluminum, Copper, Corrugated Containers, Linerboard, Natural Gas (also reported down in price), Paper, Plastic (also shown down in price), High Density Polyethylene, Polyethylene Film, Polyethylene Resin, Polypropylene, and Wastepaper. Commodities with reports of price decreases include Caustic Soda, Natural Gas (also reported up in price) and Plastic (also shown up in price)," Ore stated.
July vs June
|Rate of Change|
July vs June
|Backlog of Orders||50.5||Growing||Slower|
|New Export Orders||50.4||Growing||Slower|
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow, but at a decelerating rate, during the month of July with an index of 53.4 percent. This is 3.6 percentage points lower when compared to June and the sixth month that the index has been above 50. 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 43.5 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 July (53.5 percent), corresponds to a 3.5 percent increase in gross domestic product (GDP). However, if the PMI for July (53.4 percent), turned out to be the annual average for 1999, this corresponds to a 3.4 percent increase in real GDP."
NAPM's Production Index grew in July for the seventh consecutive month, but at a slower rate of growth than it registered for the month of June. NAPM's Production Index in July is 58.2 percent, a decrease of 4.8 percentage points when compared to the June index of 63.0 percent.
An index above 49.8 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 July were (listed in order): Furniture; Petroleum; Glass, Stone & Aggregate; Tobacco; Rubber & Plastic Products; Fabricated Metals; Food; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Printing & Publishing; Transportation & Equipment; Paper; and Chemicals.
NAPM's New Orders Index decelerated significantly from its strong performance in June with an index of 54.4 percent in July, a decrease of 7.3 percentage points. A New Orders Index above 50.7 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 July, eleven industries reported higher rates of increase in new orders. They were (listed in order): Furniture; Petroleum; Glass, Stone & Aggregate; Food; Electronic Components & Equipment; Paper; Rubber & Plastic Products; Printing & Publishing; Chemicals; Industrial & Commercial Equipment & Computers; and, Fabricated Metals.
The Backlog of Orders Index again indicated growth in manufacturers' leadtimes, though at a slower rate when compared to June. This is the fifth consecutive month that NAPM's Backlog of Orders Index (not seasonally adjusted) has been above 50 percent. The index recorded 50.5 percent, 4.0 percentage points lower than June. Seven industries reported an increase in backlog of orders during the month: Furniture; Leather; Glass, Stone & Aggregate; Rubber & Plastic Products; Paper; Food; and Chemicals.
NAPM's Supplier Deliveries Index in July indicates delivery performance continued to slow at an accelerating rate with an index reading of 54.2 percent (a reading below 50 indicates faster delivery performance). The index is 1.1 percentage points higher than June and the highest the index has recorded since December 1997. July marks the third consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in July were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Transportation & Equipment; Paper; Rubber & Plastic Products; Food; Electronic Components & Equipment; Printing & Publishing; Primary Metals; Chemicals; Industrial & Commercial Equipment & Computers; and Fabricated Metals.
NOTE: A list of commodities in short supply is available at the end of this report.
Manufacturers' inventory activity in July indicated a slower rate of reduction than reported in June. NAPM's Inventories Index for July rose to 44.4 percent from 44.1 percent in June. This continues a long-term trend of inventory reduction by manufacturers. An Inventories Index over 41.5 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 in July over June were: Glass, Stone & Aggregate; Wood & Wood Products; Food; and Primary Metals.
NAPM's Manufacturing Employment Index declined after two months above 50. The index registered 49.6 percent in July compared to 51.9 percent in June, a decrease of 2.3 percentage points. An Employment Index above 47.0 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Seven industries indicated growth in employment and they were: Furniture; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Wood & Wood Products; Food; Transportation & Equipment; Rubber & Plastic Products; and Printing & Publishing.
NAPM's Price Index gained 1.2 percentage points to 54.7, rising above the 50 mark for the third consecutive month. The index indicates higher prices paid by manufacturers during July, as compared to June. In July, 23 percent of purchasing executives reported paying higher prices, 12 percent reported paying lower prices, while 65 percent reported that prices were unchanged from the preceding month.
A Price Index below 46.7 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The industries paying higher prices were: Petroleum; Glass, Stone & Aggregate; Fabricated Metals; Printing & Publishing; Transportation & Equipment; Furniture; Textiles; Instruments & Photographic Equipment; Wood & Wood Products; and Paper.
NOTE: A list of commodities up in price and down in price is available at the end of this report.
NAPM's New Export Orders Index for July continued positive (an index exceeding 50 percent) for the sixth consecutive month. The rate of growth; however, is slowing. NAPM's New Export Orders Index declined 2.9 percentage points to 50.4 for the month of July. Industries reporting growth in new export orders in July were: Textiles; Electronic Components & Equipment; Chemicals; and Transportation & Equipment.
Imports of materials by manufacturers continued to grow in July with an index of 51.6 percent. The rate of growth is 1.3 percentage points lower than the 52.9 percent reported in June. The seven industries reporting growth in import activity for July were: Glass, Stone & Aggregate; Electronic Components & Equipment; Fabricated Metals; Furniture; Rubber & Plastic Products; Food; and Chemicals.
Average commitment leadtime for Capital Expenditures remained at 118 days in July. Average leadtime for Production Materials is 49 days, up 5 days from June. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose to 22 days, down 5 days from June.
No commodities reported in short supply.
Aluminum — 3rd month; Copper; Corrugated Containers — 5th month; Linerboard — 5th month; Natural Gas — 4th month (also shown down in price); Paper — 2nd month; Plastic (also shown down in price); High Density Polyethylene — 4th month; Polyethylene Film — 2nd month; Polyethylene Resin; Polypropylene — 3rd month; and Wastepaper.
Caustic Soda — 10th month; Natural Gas (also shown up in price); and Plastic (also shown up in price).
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 43.5 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 43.5 percent, that it is generally declining. The distance from 50 percent or 43.5 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 and Puerto Rico. 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. (EDT).
The next Manufacturing NAPM Report On Business® featuring the August 1999 data will be released at 10:00 a.m. (EDT) on September 1, 1999.