FOR RELEASE: February 1, 1999
|NAPM Media Relations|
|480/752-6276 ext. 3015|
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 January 1999.
The information in this report reflects the U.S. Department of Commerce annual adjustments to seasonal factors for the Purchasing Managers' Index, as well as the Diffusion Indices. The seasonal adjusted figures are available on NAPM's Web site.
(Tempe, Arizona) — Economic activity in the manufacturing sector gained some momentum in January, while continuing to decline at a slower rate than recorded in December. The overall economy continued to grow in January for the 93rd 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 contract in January, however, there are signs of encouragement as we finish up the eighth consecutive month of decline. Both production and new orders rose markedly possibly signaling that the manufacturing sector has bottomed out."
The Backlog of Orders Index declined at a slower rate, while NAPM's Supplier Deliveries Index indicated a change of direction as deliveries are now slower. Manufacturing Employment declined in January for the eighth month. NAPM's Price Index continues to decline, but at a slightly slower rate. Though Exports failed to grow, the index reached its highest level since December 1997. Imports failed to grow during January marking the third month in a row that it has been negative. Purchasers seem to view the new year in a more optimistic mood than they were in during the fourth quarter of 1998. Several industries that stalled significantly in 1998 are among those leading production and new orders.
NAPM's Purchasing Managers' Index was higher at 49.5 percent in January. NAPM's Production Index increased 6.3 percentage points from 46.8 percent in December to 53.1 percent in January. NAPM's New Orders Index rose 4.9 percentage points from 46.4 percent in December to 51.3 percent in January. NAPM's Backlog of Orders Index registered 38.0 percent which is slightly better than the 37.0 percent registered in December.
NAPM's Supplier Deliveries Index reversed direction and indicated slower deliveries in January as the index rose to 50.9 percent, from 48.7. The NAPM Employment Index firmed with an index of 44.8 percent up from 40.9 percent in December. NAPM's Price Index in January is 32.5 percent continuing a trend of deceleration that started in February 1998.
NAPM's Inventories Index showed continued inventory liquidation at a slower rate than in December. NAPM's Inventories Index rose to 42.3 percent from 41.9 percent in December. 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 (down from 14 percent in December). On the other hand, 22 percent felt they were too low (up from 20 percent in December) and 68 percent thought they were about right (up from 66 percent in December).
NAPM's New Export Orders Index continued to contract in January, however, at a slower rate, increasing 5.1 percentage points to 49.8 percent. Imports of materials by manufacturers decreased in January, at a slightly faster rate, as NAPM's Imports Index was down 0.5 percentage points to 49.4 percent from 49.9 percent in December.
"The overall picture as we begin 1999 is one of slower decline in manufacturing activity," added Ore. "Production and New Orders strengthened significantly and provide an indication that the manufacturing sector is starting to turn upward as we move into the first quarter. Deliveries of commodities slowed slightly and that is consistent with the positive signs that we see in other indexes. Commodities appear to be in ample supply as none appear on the short supply list."
Of the 20 industries in the manufacturing sector, six reported improved business in January. Industries that reported improvement over December were (listed in order): Wood & Wood Products; Chemicals; Electronic Components & Equipment; Transportation; Primary Metals; and Food.
"No commodities appeared on the Short Supply List. Natural Gas and Titanium Dioxide were the only commodities reported up in price. Commodities with reports of price decreases include Aluminum, Aluminum Extrusions, Caustic Soda, Copper, Corrugated Containers, Methanol, Natural Gas, Paper, Plastic, Plastic Resins, Polyethylene (HDPE), Polyethylene, Polypropylene, Solvents, Steel and Zinc", Ore stated.
Jan vs Dec
|Rate of Change|
Jan vs Dec
|New Orders||51.3||Growing||From Contracting|
|Backlog of Orders||38.0||Contracting||Slower|
|Supplier Deliveries||50.9||Slower||From Faster|
|New Export Orders||49.8||Contracting||Slower|
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy contracted at a slower rate in January with the index of 49.5 percent. This is 4.2 percentage points higher when compared to December. This the eighth consecutive month that the manufacturing sector has failed to grow, which is the highest reading for the PMI since June 1998. 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 PMI for January (49.5 percent), corresponds to a 2.1 percent increase in real gross domestic product (GDP)."
NAPM's Production Index grew after two months of contraction, indicating a significant gain in manufacturer's production for the month. NAPM's Production Index in January is 53.1 percent, an increase of 6.3 percentage points when compared to the December index of 46.8 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 January were (listed in order): Wood & Wood Products; Apparel; Electronic Equipment & Components; Petroleum; Transportation & Equipment; Chemicals; Primary Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; and Industrial & Commercial Equipment & Computers.
NAPM's New Orders Index made a strong comeback rising to 51.3 percent in January, an increase of 4.9 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 January, five industries reported higher rates of increase in new orders. They were (listed in order): Wood & Wood Products; Chemicals; Electronic Components & Equipment; Transportation & Equipment; and Food.
NAPM's Backlog of Orders Index (not seasonally adjusted) continued to decrease in January. The index recorded 38.0 percent, 1.0 percentage point higher than December, but still indicating a smaller backlog of orders for the month of January. Four industries reported a greater rate of increase in backlog of orders during the month: Wood & Wood Products; Primary Metals; Paper; and Electronic Components & Equipment.
NAPM's Supplier Deliveries Index in January indicates delivery performance is slower when compared to December with an index reading of 50.9 percent. The industries reporting slower supplier deliveries in January were: Rubber & Plastic Products; Primary Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; and Food.
NOTE: A list of commodities in short supply is available at the end of this report.
Manufacturers' inventory activity in January indicated a slower rate of reduction than reported in December. NAPM's Inventories Index for January rose slightly to 42.3 percent from 41.9 percent in December. 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 January over December were: Primary Metals; Food; and Chemicals.
Manufacturing employment contracted at a slower rate in January, as the index rose to 44.8 percent from 40.9 percent in December. The January index is 3.9 percentage points higher than December. This is the eighth consecutive month that the index has indicated a decline in manufacturing employment. 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. Wood & Wood Products was the only industry reporting growth in employment for the month.
NAPM's Price Index continued to decline in January, but at a slower rate. The Price Index rose to 32.5 percent from 31.1 percent in December. This index indicates lower prices paid by manufacturers for the thirteenth consecutive month. In January, four percent of purchasing executives reported paying higher prices, 40 percent reported paying lower prices, while 56 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. None of the twenty manufacturing SIC codes reported growth in prices.
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 January failed to indicate growth (an index exceeding 50 percent) marking the fourteenth consecutive month that the index has contracted. The New Export Orders Index at 49.8 percentage points indicates that exports are still declining, but at a slower rate than experienced in the previous thirteen months. Industries reporting growth in new export orders in January were: Wood & Wood Products; Paper; Printing & Publishing; Food; and Fabricated Metals.
Imports of materials by manufacturers failed to grow in January and the rate of decline was slightly faster than in December. NAPM's Imports Index decreased 0.5 percentage point to 49.4 percent in January, from 49.9 percent in December. The four industries reporting growth in import activity for January were: Leather; Food; Textiles; and Fabricated Metals.
Average commitment leadtime for Capital Expenditures declined to 120 days in January. Average leadtime for Production Materials is 45 days, down 4 days from December. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies lost 2 days and averaged 22 days.
No commodities reported in short supply.
Natural Gas — 2nd month (also shown down in price) and Titanium Dioxide (used as a whitener in coatings, paints, paper, etc.).
Aluminum — 15th month; Aluminum Extrusions; Caustic Soda — 4th month; Copper — 19th month; Corrugated Containers — 7th month; Methanol — 2nd month; Natural Gas — 2nd month (also shown up in price); Paper; Plastic; Plastic Resins; Polyethylene (HDPE) — 9th month; Polyethylene (2nd month); Polypropylene — 2nd month; Solvents; Steel — 7th month; and Zinc.
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 180 affiliates with more than 44,000 members in the United States and Puerto Rico. The report has been issued by the association since 1931.
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. (EST).
The next Manufacturing NAPM Report On Business® featuring the February 1999 data will be released at 10:00 a.m. (EST) on March 1, 1999.