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January 1998 Manufacturing Report on Business®

FOR RELEASE: February 2, 1998

Contact: Zenobia Daruwalla
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING GROWTH SLOWER IN JANUARY 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 January 1998.

Purchasing Managers' Index (PMI) at 52.4%,

Production and New Orders Growing
Prices Declining
Imports Rising

(Tempe, Arizona) — Economic activity in the manufacturing sector grew at a slightly slower rate in January than in December. The overall economy continued to grow in January for the 81st 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 Business Survey Committee and corporate purchasing manager, Sonoco Products Company. "The manufacturing sector grew at a slower pace in January than in December. Production grew at a slower pace while New Orders grew at a faster rate than the previous two months," said Ore. "Supplier Deliveries continued to indicate slow delivery performance while the Backlog of Orders Index indicates a rapid decline. Manufacturing Employment grew slightly in January. NAPM's Price Index dropped to the lowest level since July 1996. Exports failed to grow for the first time in 24 months. Imports grew, but at a slower rate than recorded in December. Even with the slower growth indicated by the PMI, purchasing executives continue to comment positively about business conditions and the strength of their markets. A major concern was the stronger dollar and its impact on exports and imports."

The Purchasing Managers' Index declined to 52.4 percent in January from 53.1 percent in December. NAPM's Production Index decreased 2.5 percentage points from 55.8 percent to 53.3 percent. NAPM's New Orders Index increased by 1.3 percentage points from 53.9 percent in December to 55.2 percent in January. NAPM's Backlog of Orders Index registered 47 percent indicating smaller backlogs when compared to December.

NAPM's Supplier Deliveries Index in January indicates deliveries are slowing at a slightly slower rate. The index was down two percentage points to 52 percent from December's index of 54 percent. The NAPM Employment Index indicates minimal growth with an index of 50.1 percent, down from 50.9 percent in December. NAPM's Price Index decreased to 44.7 percent in January, a difference of 6.1 percentage points from the December index of 50.8 percent, indicating prices paid by manufacturers are decreasing at a rapid rate.

NAPM's Inventories Index showed continued inventory liquidation, but at a slower rate than in December. The Inventories Index moved upward to 46.7 percent from 46.5 percent in December. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, nine percent of the purchasing executives surveyed felt they were too high (same as December). On the other hand, 14 percent felt they were too low (down from 16 percent in December) and 77 percent thought they were about right (up from 75 percent in December).

NAPM's New Export Orders Index reversed its recent growth, declining 5.6 percentage points to 45 percent. This is the first time that it has been below 50 percent in the past 24 months. Imports of materials by manufacturers increased at a slower rate than in December as NAPM's Imports Index was down 1.5 percentage points to 53.9 percent from 55.4 percent in December.

"The overall picture in January as indicated by growth in production and new orders is one of continued growth in manufacturing activity," added Ore. "New orders are growing at a faster rate and as a leading indicator predicts higher production rates in the coming months. Production is still strong while supplies and deliveries of commodities do not appear to be a significant problem. Three industries reported paying higher prices while six reported prices unchanged and 10 reported lower prices. We have a somewhat rare occurrence in that no items were reported on the short supply list."

Due to recent interest in both the Year 2000 issue and the Asian situation, purchasing managers were asked to respond to three special questions this month. The first question asked if the purchasing managers company's computer systems would be Year 2000 compliant. Of the respondents, 89 percent indicated that they are either presently compliant or will be in advance of the year 2000, while 10 percent indicated they would be compliant with a few exceptions for non-critical applications and only one percent have major concerns within their company about the issue. The second question inquired if purchasing managers believe that the financial crisis in Asia will have an impact on their business. Of the 90 percent responding to the question, 45 percent indicated that imported purchases will increase, while 48 percent said it would have no effect, and seven percent did not think imported purchases would increase due to a stronger U.S. dollar. The third question queried the purchasing managers regarding the Asian financial crisis and its impact on their company's export sales orders. In this instance, 88 percent responded and 53 percent of those expect a decrease in export orders, while 40 percent saw no change, and seven percent disagreed that new export orders would decrease due to a stronger U.S. dollar.

Of the 20 industries in the manufacturing sector, 11 reported improved business in January. Industries that reported improvement over December were (listed in order): Primary Metals; Fabricated Metals; Printing & Publishing; Leather; Transportation & Equipment; Chemicals; Wood & Wood Products; Petroleum; Industrial & Commercial Equipment & Computers; Textiles; and Electronic Components & Equipment.

"Caustic Soda, Corrugated Containers, Paper, and Titanium Dioxide were the commodities reported with price increases. Commodities with reports of price decreases include Aluminum, Copper, Corn, Fuel Oil, Natural Gas, Polypropylene, Steel, Wheat, and Zinc. There were no reports of commodities in short supply," Ore stated.

JANUARY 1998 NAPM BUSINESS SURVEY AT A GLANCE
Series January
Index
Direction
Jan vs. Dec
Rate of Change
Jan vs. Dec
PMI 52.4 Growing Slower
Production 53.3 Growing Slower
New Orders 55.2 Growing Faster
Backlog of Orders 47.0 Contracting From Growing
Supplier Deliveries 52.0 Slower Slower
Inventories 46.7 Contracting Slower
Employment 50.1 Growing Slower
Prices 44.7 Decreasing From Growing
New Export Orders 45.0 Contracting From Growing
Imports 53.9 Growing Slower
THE ECONOMY AT A GLANCE
Overall Economy Growing Slower
Manufacturing Growing Slower

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicated growth in January with an index of 52.4 percent, down slightly from 53.1 percent in December. This indicates that the manufacturing economy grew at a slower pace in January than it did in December. January is the 18th consecutive month that the PMI has indicated manufacturing growth. 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 43.6 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 the month of January 1998 (52.4 percent), corresponds to a three percent increase in real gross domestic product (GDP)."

Month Jan '98 Dec '97 Nov '97 Oct '97 Sep '97
PMI (%) 52.4 53.1 54.5 55.9 54.6
Month Aug '97 Jul '97 Jun '97 May '97 Apr '97
PMI (%) 56.4 57.5 55.6 56.4 54.2
Month Mar '97 Feb '97 Jan '97 Dec '96 Nov '96
PMI (%) 55.1 53.3 52.8 54.3 52.5

Production

NAPM's Production Index grew at a slower rate in January than in December. January is the 22nd consecutive month of growth according to the index. The Production Index in January is 53.3 percent, a 2.5 percentage point decrease when compared to the December index of 55.8 percent. The production index is the lowest recorded in the last 18 months.

An index above 50.1 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; Petroleum; Chemicals; Fabricated Metals; Primary Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Printing & Publishing; Electronic Components & Equipment; and Food.

Production % Better % Same % Worse Net Index
January 1998 26 55 19 +7 53.3
December 1997 24 60 16 + 8 55.8
November 1997 28 62 10 +18 58.5
October 1997 33 53 14 +19 59.6

New Orders

NAPM's New Orders Index rose to 55.2 percent in January from 53.9 percent in December. The New Orders Index increased by 1.3 percentage points while indicating growth for the 22nd consecutive month. A New Orders Index above 50.6 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Ten industries reported higher rates of increase in new orders. They were (listed in order): Leather; Printing & Publishing; Fabricated Metals; Petroleum; Primary Metals; Textiles; Electronic Components & Equipment; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Chemicals.

New Orders % Better % Same % Worse Net Index
January 1998 30 48 22 +8 55.2
December 1997 24 54 22 +2 53.9
November 1997 28 54 18 +10 55.1
October 1997 34 51 15 +19 58.4

Backlog of Orders

NAPM's Backlog of Orders Index (not seasonally adjusted) decreased in January to 47 percent from 52 percent in December, indicating a smaller order backlog for the month of January when compared to December. This is the first time in the last 11 months that this index has failed to indicate a greater order backlog. The six industries that reported greater rates of increase in backlog of orders in January over December were: Fabricated Metals; Furniture; Printing & Publishing; Transportation & Equipment; Primary Metals; and Food.

Backlog
of Orders
% Reporting % Greater % Same % Less Net Index
January 1998 92 17 60 23 -6 47.0
December 1997 90 23 58 19 +4 52.0
November 1997 93 21 58 21 0 50.0
October 1997 90 30 53 17 +13 56.5

Supplier Deliveries

NAPM's Supplier Deliveries Index in January indicates delivery performance continued to slow with an index reading of 52 percent, a two percentage point decrease from December's 54 percent. Deliveries have been reported slower in the last 12 consecutive months. The industries reporting slower supplier deliveries in January were: Instruments & Photographic Equipment; Transportation & Equipment; Wood & Wood Products; Textiles; Primary Metals; Industrial & Commercial Equipment & Computers; Fabricated Metals; and Food.

Supplier
Deliveries
% Slower % Same % Faster Net Index
January 1998 8 87 5 +3 52.0
December 1997 11 85 4 +7 54.0
November 1997 15 82 3 +12 55.2
October 1997 15 80 5 +10 55.0

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

Inventories

Manufacturers' inventory activity in January indicated a slower rate of reduction than reported in December. The NAPM Inventories Index for January rose slightly to 46.7 percent from 46.5 percent in December. This continues a long-term trend of inventory reduction by manufacturers. An Inventories Index over 42.1 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). The industries reporting higher inventories in January over December were: Apparel; Transportation & Equipment; Petroleum; and Primary Metals.

Inventories % Higher % Same % Lower Net Index
January 1998 16 58 26 -10 46.7
December 1997 15 63 22 -7 46.5
November 1997 14 56 30 -16 44.3
October 1997 12 65 23 -11 47.0

Employment

Manufacturing employment grew in January for the 11th consecutive month. The January index was slightly lower than December, decreasing from 50.9 percent to 50.1 percent. An Employment Index above 46.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The four industries that reported growth in employment in January were: Glass, Stone & Aggregate; Chemicals; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Employment % Higher % Same % Lower Net Index
January 1998 12 72 16 -4 50.1
December 1997 16 68 16 0 50.9
November 1997 18 71 11 +7 53.3
October 1997 19 66 15 +4 52.5

Prices

NAPM's Price Index fell in January to 44.7 percent from 50.8 percent in December. This index indicates lower prices for the first time since June 1997 and the lowest index reading since July 1996 (44 percent). In January, 12 percent of purchasing executives reported paying higher prices, 22 percent reported paying lower prices, while 66 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 three industries that reported paying higher prices in January were (listed in order): Printing & Publishing; Wood & Wood Products; and Chemicals.

Prices % Higher % Same % Lower Net Index
January 1998 12 66 22 -10 44.7
December 1997 14 71 15 -1 50.8
November 1997 15 72 13 +2 53.2
October 1997 24 62 14 +10 55.5

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 January marked the first time in 24 months that the index has failed to indicate growth (an index exceeding 50 percent). The New Export Orders Index fell to 45 percent down from 50.6 percent. The industries reporting growth in new export orders in January were Textiles and Industrial & Commercial Equipment & Computers.

New Export
Orders
% Exporting % Better % Same % Worse Net Index
January 1998 77 8 75 17 -9 45.0
December 1997 78 14 70 16 -2 50.6
November 1997 82 18 72 10 +8 52.6
October 1997 79 16 72 12 +4 51.9

Imports

Imports of materials by manufacturers grew at a slower rate in January than in December with an index of 53.9 percent. NAPM's Imports Index decreased by 1.5 percentage points from 55.4 percent in December. The index has indicated growth in the purchase of imports for 18 of the last 19 months. The seven industries reporting growth in import activity for January were: Leather; Furniture; Instruments & Photographic Equipment; Electronic Components & Equipment; Transportation & Equipment; Fabricated Metals; and Primary Metals.

Imports % Importing % Higher % Same % Lower Net Index
January 1998 78 15 76 9 +6 53.9
December 1997 76 19 73 8 +11 55.4
November 1997 80 13 80 7 +6 52.6
October 1997 79 12 80 8 +4 51.7

Buying Policy

Average commitment leadtime for Capital Expenditures increased to 127 days in January. Average leadtime for Production Materials is 51 days, up three days from December. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies decreased one day to 27 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year +
Avg.
Days
Capital Expenditures              
January 1998 14 9 13 23 29 12 127
December 1997 16 7 14 22 31 10 123
November 1997 15 7 17 18 35 8 121
October 1997 15 7 14 23 32 9 122
Production Materials              
January 1998 23 39 23 9 3 3 51
December 1997 21 44 19 11 3 2 48
November 1997 23 42 20 10 3 2 47
October 1997 20 46 16 14 2 2 48
MRO Supplies              
January 1998 44 43 9 3 0 1 27
December 1997 46 41 8 3 1 1 28
November 1997 44 42 12 2 0 0 24
October 1997 41 46 10 3 0 0 25

In Short Supply

No mentions

Up in Price

Caustic Soda — 8th month (used heavily in papermaking, petroleum refining, and soap making); Corrugated Containers — 7th month; Paper; Titanium Dioxide.

Down in Price

Aluminum — 3rd month; Copper — 7th month; Corn; Fuel Oil; Natural Gas; Polypropylene; Steel — 3rd month; Wheat; 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 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 43.6 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 43.6 percent, that it is generally declining. The distance from 50 percent or 43.6 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 has more than 40,000 members in the United States and Puerto Rico. The report has been issued by the association since 1931, except 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. (EST)

The next Manufacturing NAPM Report on Business® featuring the February 1998 data will be released at 10:00 a.m. (EST) on March 2, 1998.



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