FOR RELEASE: June 1, 1999
|NAPM Media Relations|
|602/752-6276 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 May 1999.
(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the fourth consecutive month in May providing continuing signs of recovery. The overall economy continued to grow in May for the 97th 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 its recovery in May. Both production and new orders gained momentum registering significant growth when compared to April. With 16 of 20 industries above the breakeven line (an index greater than 50), the manufacturing sector is enjoying a resurgence after a very difficult period driven by the financial crisis in Asia. Capital expenditures showed improvement over April, but still remain weak by historical measures. NAPM's Backlog of Orders Index has strengthened significantly in the last four months and should help drive activity in June and July. The NAPM Price Index indicates a possible end to the downward pressure on prices paid by manufacturers as the index posted its highest level since October 1997."
NAPM's Backlog of Orders Index gained additional momentum indicating growing manufacturing order backlog, while NAPM's Supplier Deliveries Index reversed direction from April and indicates deliveries are slowing. Manufacturing Employment grew during May signaling a possible reversal of the trend that began in June of 1998. NAPM's Price Index also reversed direction, ending a decline in prices that began in January 1998. Export Orders are again growing and have reversed the downward trend that first surfaced in December 1997. Imports also grew during May. Although seemingly content with the positive direction of the manufacturing sector, particularly with the continuing recovery in demand from Asia, purchasing managers indicate their major concerns to be: Chinese reaction to the Bosnian situation and the impact of a stronger dollar.
NAPM's Purchasing Managers' Index was higher at 55.2 percent in May. NAPM's Production Index increased 1.6 percentage points from 57.6 percent in April to 59.2 percent in May. NAPM's New Orders Index rose 4.1 percentage points from 54.8 percent in April to 58.9 percent in May. NAPM's Backlog of Orders Index registered 55.5 percent, 2.5 percentage points higher than the 53.0 percent recorded in April.
NAPM's Supplier Deliveries Index moved to 51.9 percent in May up from 49.4 percent in April. The NAPM Employment Index is at 53.5 for May, significantly higher than the 49.5 percent reported in April. NAPM's Price Index in May is 52.2 percent.
NAPM's Inventories Index showed continued inventory liquidation, but at a faster rate than in April. NAPM's Inventories Index fell to 42.2 percent from 46.6 percent in April. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 8 percent of the purchasing executives felt they were too high (up from 7 percent in April). On the other hand, 17 percent felt they were too low (same as April) and 75 percent thought they were about right (down from 76 percent in April).
NAPM's New Export Orders Index continued positive for a fourth month while increasing 0.8 percentage point to 52.4 percent. Imports of materials by manufacturers continued to increase in May and at a faster rate as NAPM's Imports Index was up from 53.4 percentage points to 54.6 percent in May.
"The overall picture is one of continuing growth in manufacturing activity during the month of May," added Ore. "Production and New Orders remain positive and provide an indication that the manufacturing sector has rebounded from the problems experienced in 1998. The turnaround in manufacturing employment indicates a degree of confidence in the sector as we head toward the second half of the year. Though commodity prices are active and rising, we must keep in mind the extent of the decline that they have experienced. Many commodity producers have had a tough time over the last year and a half and some upward movement probably constitutes welcome relief."
Of the 20 industries in the manufacturing sector, sixteen reported improved business in May. Industries that reported improvement over April were (listed in order): Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Glass, Stone & Aggregate; Wood & Wood Products; Petroleum; Furniture; Primary Metals; Fabricated Metals; Chemicals; Instruments & Photographic Equipment; Food; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Paper; Transportation & Equipment; and Printing & Publishing.
"No commodities appeared on the Short Supply List. Commodities with reports of price increases were Aluminum (also reported down in price), Copper, Corrugated Containers, Ethylene, Fuel Oil, Linerboard, Natural Gas, High Density Polyethylene, Polypropylene, Resins and Zinc. Commodities with reports of price decreases include Aluminum,(also reported up in price) Caustic Soda, and Steel," Ore stated.
|Series||May Index||Direction May vs Apr||Rate of Change May vs Apr|
|Backlog of Orders||55.5||Growing||Faster|
|Supplier Deliveries||51.9||Slowing||From Faster|
|New Export Orders||52.4||Growing||Faster|
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow during the month of May with an index of 55.2 percent. This is 2.4 percentage points higher when compared to April and the fourth 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 May (52.8 percent), corresponds to a 3.2 percent increase in gross domestic product (GDP). However, if the PMI for May (55.2 percent), turned out to be the annual average for 1999, this would corresponds to a 4.0 percent increase in real GDP.
NAPM's Production Index grew in May for the fifth consecutive month, and at a faster rate than it registered for the month of April. NAPM's Production Index in May is 59.2 percent, an increase of 1.6 percentage points when compared to the April index of 57.6 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 May were (listed in order): Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Apparel; Glass, Stone & Aggregate; Wood & Wood Products; Primary Metals; Chemicals; Furniture; Instruments & Photographic Equipment; Electronic Components & Equipment; Fabricated Metals; Transportation & Equipment; Paper; Industrial & Commercial Equipment & Computers; Food; and Textiles.
NAPM's New Orders Index continued its strong performance with an index of 58.9 percent in May, an increase of 4.1 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 May, fifteen industries reported higher rates of increase in new orders. They were (listed in order): Apparel; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Petroleum; Wood & Wood Products; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Chemicals; Fabricated Metals; Food; Primary Metals; Paper; Furniture; Transportation & Equipment; and Electronic Components & Equipment.
NAPM's Backlog of Orders Index (not seasonally adjusted) increased in May for the third consecutive month after ten consecutive months of decline. The index recorded 55.5 percent, 2.5 percentage points higher than April. Eleven industries reported an increase in backlog of orders during the month: Apparel; Leather; Furniture; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Petroleum; Primary Metals; Fabricated Metals; Chemicals; Printing & Publishing; and Electronic Components & Equipment.
|Backlog of Orders||%Reporting||%Greater||%Same||%Less||Net||Index|
NAPM's Supplier Deliveries Index in May indicates delivery performance slowed with an index reading of 51.9 percent (a reading below 50 indicates faster delivery performance). The industries reporting slower supplier deliveries in May were: Apparel; Rubber & Plastic Products; Printing & Publishing; Primary Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Food.
NOTE: A list of commodities in short supply is available at the end of this report.
Manufacturers' inventory activity in May indicated a faster rate of reduction than reported in April. NAPM's Inventories Index for May declined to 42.2 percent from 46.6 percent in April. 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 May over April were: Tobacco; Furniture; and Printing & Publishing.
NAPM's Manufacturing Employment Index registered 53.5 percent in May compared to 49.5 percent in April, an increase of 4.0 percentage points. This is the first month that manufacturing employment has grown after eleven consecutive months of decline. 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. Twelve industries indicated growth in employment and they were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Apparel; Furniture; Wood & Wood Products; Printing & Publishing; Fabricated Metals; Textiles; Rubber & Plastic Products; Electronic Components & Equipment; Primary Metals; Food; and Chemicals.
NAPM's Price Index gained 2.3 percentage points to 52.2, rising above the 50 mark for the first time since December 1997. The index indicates higher prices paid by manufacturers during May as compared to April. After sixteen months of month over month declines, manufacturers are seeing a few price increases driven by petroleum products, metals, plastics and paper (see Up in Price). In May, 19 percent of purchasing executives reported paying higher prices, 14 percent reported paying lower prices, while 67 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 reporting paying higher prices were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Wood & Wood Products; Petroleum; Primary Metals; Food; Textiles; Printing & Publishing; Furniture; Electronic Components & Equipment; Fabricated Metals; and Chemicals.
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 May continued positive for the fourth consecutive month following fourteen months of decline (an index exceeding 50 percent) with an index of 52.4 percent. NAPM's New Export Orders Index rose 0.8 percentage point during the month. Industries reporting growth in new export orders in May were: Wood & Wood Products; Textiles; Electronic Components & Equipment; Instruments & Photographic Equipment; Food; Transportation & Equipment; and Paper.
|New Export Orders||%Exporting||%Better||%Same||%Worse||Net||Index|
Imports of materials by manufacturers continued to grow in May with an index of 54.6 percent. The rate of growth is 1.2 percentage points higher than the 53.4 percent reported in April. The eleven industries reporting growth in import activity for May were: Printing & Publishing; Leather; Wood & Wood Products; Glass, Stone & Aggregate; Electronic Components & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; Furniture; Rubber & Plastic Products; Fabricated Metals; and Food.
Average commitment leadtime for Capital Expenditures rose to 120 days in May, up 5 days from April. Average leadtime for Production Materials is 46 days, up 1 day from April. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined to 22 days, down 2 days from April.
No commodities reported in short supply.
Aluminum (also shown down in price); Copper; Corrugated Containers — 3rd month; Ethylene; Fuel Oil; Linerboard — 3rd month; Natural Gas — 2nd month; High Density Polyethylene — 2nd month; Polypropylene; Resins — 2nd month; and Zinc.
Aluminum — 19th month (also shown up in price); Caustic Soda — 8th month; and Steel — 11th month.
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 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. (EDT).
The next Manufacturing NAPM Report On Business® featuring the June 1999 data will be released at 10:00 a.m. (EDT) on July 1, 1999.