February 1999 Manufacturing NAPM Report On Business®
FOR RELEASE: March 1, 1999
|NAPM Media Relations|
|602/752-6276 ext. 3015|
Growth in Manufacturing Reported in February 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 February 1999.
Purchasing Managers' Index (PMI) at 52.4%
Growth in Production, New Orders, New Export Orders
Employment and Prices Still Declining
(Tempe, Arizona) Economic activity in the manufacturing sector surged upward in February following eight months of decline. The overall economy continued to grow in February for the 94th 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 reversed its downward spiral in February after eight consecutive months of decline. Both production and new orders made solid gains while new export orders vaulted over the breakeven line (index of 50) for the first time since November 1997. Though it may be premature to say that manufacturing is back, particularly with the persistent softness in prices, this certainly signals a possible reversal of recent fortunes in the sector. Concern must be expressed about capital expenditures as the data indicates the lowest number of days forward since NAPM first reported on capital expenditures in January 1987. At the same time, concern about capital investment shouldn't come as a surprise given the excess capacity that exists in many industries."
NAPM's Backlog of Orders Index declined at a much slower rate, while NAPM's Supplier Deliveries Index indicated deliveries are still slowing. Manufacturing Employment declined in February for the ninth month, though at a slower rate. NAPM's Price Index continues to decline, and it too is at a slower rate. Export Orders are reported stronger and appear to be continuing the trend that first surfaced in December. Imports also grew during February after three months of decline. Purchasers are guardedly optimistic in their assessment of the present situation.
NAPM's Purchasing Managers' Index was higher at 52.4 percent in February. NAPM's Production Index increased 3.8 percentage points from 53.1 percent in January to 56.9 percent in February. NAPM's New Orders Index rose 5.9 percentage points from 51.3 percent in January to 57.2 percent in February. NAPM's Backlog of Orders Index registered 48.5 percent which is 10.5 percentage points better than the 38.0 percent recorded in January.
NAPM's Supplier Deliveries Index continued somewhat slower in February as the index moved to 50.6 percent from 50.9 percent. The NAPM Employment Index continued to decline, but at a slower rate with an index of 45.0 percent up from 44.8 percent in January. NAPM's Price Index in February is 35.9 percent continuing a trend of deceleration that started in March 1998.
NAPM's Inventories Index showed continued inventory liquidation at a slower rate than in January. NAPM's Inventories Index rose to 44.2 percent from 42.3 percent in January. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, eight percent of the purchasing executives felt they were too high (down from 10 percent in January). On the other hand, 22 percent felt they were too low (same as January) and 70 percent thought they were about right (up from 68 percent in January).
NAPM's New Export Orders Index reversed a fourteen month decline in February, signaling a possible hint of recovery in Asia, as it increased 4.2 percentage points to 54.0 percent. Imports of materials by manufacturers increased in February as NAPM's Imports Index was up 2.9 percentage points to 52.3 percent from 49.4 percent in January.
"The overall picture is one of solid growth in manufacturing activity during the month of February," added Ore. "Production and New Orders strengthened significantly and, in combination with the increase in New Export Orders, provide an indication that the manufacturing sector is heading in a positive direction as we move toward the second quarter. Deliveries of commodities slowed slightly and that is consistent with the positive signs that we see in other indexes. Commodity prices are declining at a slower rate, however, no commodities appear on our up in price list."
Of the 20 industries in the manufacturing sector, nine reported improved business in February. Industries that reported improvement over January were (listed in order): Wood & Wood Products; Tobacco; Apparel; Paper; Chemicals; Transportation & Equipment; Electronic Components & Equipment; Food; and Industrial & Commercial Equipment & Computers.
"No commodities appeared on the Short Supply List. Commodities with reports of price decreases include Aluminum, Caustic Soda, Copper, Corrugated Containers, Gasoline, Natural Gas, Paper, Polyethylene (HDPE), Polypropylene, Resins, Solvents, Soybean Oil and Steel," Ore stated.
FEBRUARY 1999 NAPM BUSINESS SURVEY AT A GLANCE
|Series||February Index||Direction Feb vs Jan||Rate of Change Feb vs Jan|
|Backlog of Orders||48.5||Contracting||Slower|
|New Export Orders||54.0||Growing||From Contracting|
THE ECONOMY AT A GLANCE
Purchasing Managers' Index (PMI)
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy reversed an eight month decline and began to grow in February with an index of 52.4 percent. This is 2.9 percentage points higher when compared to January and the highest since May 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 the months of January and February (50.9 percent), corresponds to a 2.6 percent increase in real gross domestic product (GDP). However, if the PMI for February (52.4 percent) turned out to be the annual average for 1999, this would correspond to a 3.1 percent increase in real GDP."
NAPM's Production Index grew for the second consecutive month, registering a significant gain in manufacturer's production for the month. NAPM's Production Index in February is 56.9 percent, an increase of 3.8 percentage points when compared to the January index of 53.1 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 February were (listed in order): Wood & Wood Products; Tobacco; Apparel; Paper; Chemicals; Petroleum; Transportation & Equipment; Glass, Stone & Aggregate; Electronic Equipment & Components; Food; Furniture; and Industrial & Commercial Equipment & Computers.
NAPM's New Orders Index continued its strong rebound rising to 57.2 percent in February, an increase of 5.9 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 February 11industries reported higher rates of increase in new orders. They were (listed in order): Wood & Wood Products; Tobacco; Apparel; Paper; Petroleum; Chemicals; Transportation & Equipment; Textiles; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Food.
Backlog of Orders
NAPM's Backlog of Orders Index (not seasonally adjusted) continued to decrease in February but at a much slower rate. The index recorded 48.5 percent, 10.5 percentage points higher than January, but still indicating a smaller backlog of orders for the month of February. Four industries reported an increase in backlog of orders during the month: Wood & Wood Products; Paper; Electronic Components & Equipment; and Food.
|Backlog of Orders||%Reporting||%Greater||%Same||%Less||Net||Index|
NAPM's Supplier Deliveries Index in February indicates delivery performance is slower with an index reading of 50.6 percent. This is the second consecutive month that NAPM's Supplier Deliveries Index has been above 50 and indicating slower performance. The industries reporting slower supplier deliveries in February were: Primary Metals; Rubber & Plastic Products; Paper; Printing & Publishing; 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 February indicated a slower rate of reduction than reported in January. NAPM's Inventories Index for February rose slightly to 44.2 percent from 42.3 percent in January. 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 February over January were: Instrumentation & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Textiles; Paper; and Food.
Manufacturing employment contracted at a slightly slower rate in February as the index rose to 45.0 percent from 44.8 percent in January. The February index is 0.2 percentage points higher than January. This is the ninth 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. Four industries indicated growth in employment and they were: Apparel; Tobacco; Wood & Wood Products; and Industrial & Commercial Equipment & Computers.
NAPM's Price Index continued to decline in February, but at a slower rate. NAPM's Price Index gained 3.4 percentage points to 35.9 percent, up from 32.5 percent in January. This index indicates lower prices paid by manufacturers for the fourteenth consecutive month. In February, three percent of purchasing executives reported paying higher prices, 33 percent reported paying lower prices, while 64 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 20 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.
New Export Orders
NAPM's New Export Orders Index for February reversed a 14 month trend and signaled significant growth (an index exceeding 50 percent) with an index of 54.0 percent. NAPM's New Export Orders Index gained 4.2 percentage points on top of the 49.8 percentage points registered for January 1999. Industries reporting growth in new export orders in February were: Wood & Wood Products; Tobacco; Textiles; Furniture; Paper; Chemicals; Food; and Electronic Components & Equipment.
|New Export Orders||%Exporting||%Better||%Same||%Worse||Net||Index|
Imports of materials by manufacturers grew in February and the rate of growth is 2.9 percentage points higher than the 49.4 percent reported in January. The six industries reporting growth in import activity for February were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Chemicals; Electronic Components & Equipment; Transportation & Equipment; Food; and Fabricated Metals.
Average commitment leadtime for Capital Expenditures declined to 116 days in February, down four days from January. Average leadtime for Production Materials is 43 days, down 2 days from January. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained at 22 days.
In Short Supply
No commodities reported in short supply.
Up in Price
No commodities reported up in price.
Down in Price
Aluminum — 16th month; Caustic Soda — 5th month; Copper — 20th month; Corrugated Containers — 8th month; Gasoline; Natural Gas — 3rd month; Paper — 2nd month; Polyethylene (HDPE) — 10th month; Polypropylene — 3rd month; Resins; Solvents — 2nd month; Soybean Oil; and Steel — 8th 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 43.5 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 March 1999 data will be released at 10:00 a.m. (EST) on April 1, 1999.