June 1999 Manufacturing NAPM Report On Business®

FOR RELEASE: July 1, 1999

CONTACT: Zenobia Daruwalla
  NAPM Media Relations
  Tempe, AZ
  602/752-6276 ext. 3015
Growth in Manufacturing Continues in June 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 June 1999.

Purchasing Managers' Index (PMI) at 57.0%
Growth in Production, New Orders, New Export Orders

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the fifth consecutive month in June providing signs of a strengthening recovery. The overall economy continued to grow in June for the 98th 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 June. Both production and new orders exhibited significant growth when compared to May. For the second consecutive month, 16 of 20 manufacturing industries are above the breakeven line (an index greater than 50), indicating a broad base to the recovery. NAPM's Price Index indicates some pricing power developing in the sector as it hit the highest level since October 1997."

NAPM's Backlog of Orders Index continues its momentum indicating greater manufacturing order backlog, while NAPM's Supplier Deliveries Index continues to signal slowing deliveries. Manufacturing Employment grew during June, but at a slower rate than in May. NAPM's Price Index continued to strengthen as 10 of 20 industries indicated paying higher prices on average during June. Export Orders continue to grow and have reversed the decline that began in December 1997. Imports also grew during June, but the rate of growth slowed. Purchasing Managers are generally pleased with the recovery in manufacturing. The basic commodity industries — metals, paper, and textiles are strengthening. Reports from members selling to the construction and automotive sectors are particularly strong. Comments include some indications of inventory buildup in advance of Y2K.

NAPM's Purchasing Managers' Index was higher at 57.0 percent in June. NAPM's Production Index increased 3.8 percentage points from 59.2 percent in May to 63.0 percent in June. NAPM's New Orders Index rose 2.8 percentage points from 58.9 percent in May to 61.7 percent in June. NAPM's Backlog of Orders Index registered 54.5 percent, 1.0 percentage point lower than the 55.5 percent recorded in May. NAPM's Supplier Deliveries Index moved to 53.1 percent in June up from 51.9 percent in May. NAPM's Employment Index is at 51.9 for June, 1.6 percentage points lower than the 53.5 percent reported in May. NAPM's Price Index in June is 53.5 percent.

NAPM's Inventories Index showed continued inventory liquidation, but at a slower rate than in May. NAPM's Inventories Index rose to 44.1 percent from 42.2 percent in May. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 6 percent of the purchasing executives felt they were too high (down from 8 percent in May). On the other hand, 19 percent felt they were too low (up from 17 percent in May) and 75 percent thought they were about right (same as May).

NAPM's New Export Orders Index continued positive for a fifth month while increasing 0.9 percentage point to 53.3 percent. Imports of materials by manufacturers continued to increase in June, though at slower rate, as NAPM's Imports Index was down from 54.6 percentage points to 52.9 percent in June.

"The overall picture is one of continuing growth in manufacturing activity during the month of June," added Ore. "Production and New Orders remain positive and provide an indication that the manufacturing sector has recovered from the problems experienced in 1998. The continuing growth in manufacturing employment indicates confidence in the recovery within the sector as we begin the second half of the year. Though commodity prices are strengthening, pricing pressures in most industries are not, as yet, very strong. The list of commodities up in price, particularly energy related products which appear to be lagging the advance in oil prices that surfaced several months ago, is still relatively small compared to recent recoveries."

Of the 20 industries in the manufacturing sector, sixteen reported improved business in June. Industries that reported improvement over May were (listed in order): Furniture; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Primary Metals; Paper; Electronic Components & Equipment; Rubber & Plastic Products; Printing & Publishing; Fabricated Metals; Textiles; Apparel; Chemicals; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; and Transportation & Equipment.

"High Density Polyethylene was the only commodity on the Short Supply List. Commodities with reports of price increases were Aluminum (also reported down in price), Corrugated Containers, Ethylene, Linerboard, Natural Gas, Paper, Plastic, Polybags, Polycarbonate, High Density Polyethylene, Polyethylene, Polyethylene Film, Polypropylene, Resins and Wood Pulp. Commodities with reports of price decreases include Aluminum, (also reported up in price) Caustic Soda, Copper, and Steel," Ore stated.

JUNE 1999 NAPM BUSINESS SURVEY AT A GLANCE
Series June Index Direction
June vs May
Rate of Change
June vs May
PMI 57.0 Growing Faster
Production 63.0 Growing Faster
New Orders 61.7 Growing Faster
Backlog of Orders 54.5 Growing Slower
Supplier Deliveries 53.1 Slowing Faster
Inventories 44.1 Contracting Slower
Employment 51.9 Growing Slower
Prices 53.5 Increasing Faster
New Export Orders 53.3 Growing Faster
Imports 52.9 Growing Slower

THE ECONOMY AT A GLANCE
Overall Economy Growing Faster
Manufacturing Growing Faster

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow during the month of June with an index of 57.0 percent. This is 1.8 percentage points higher when compared to May and the fifth 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 June (53.5 percent), corresponds to a 3.5 percent increase in gross domestic product (GDP). However, if the PMI for June (57.0 percent), turned out to be the annual average for 1999, this corresponds to a 4.7 percent increase in real GDP.

Month Jun'99 May'99 Apr'99 Mar'99 Feb'99
PMI% 57.0 55.2 52.8 54.3 52.4
Month Jan'99 Dec'98 Nov'98 Oct'98 Sep'98
PMI% 49.5 45.3 47.0 48.4 49.1
Month Aug'98 Jul'98 Jun'98 May'98 Apr'98
PMI% 48.9 49.2 49.7 51.4 52.5

Production

NAPM's Production Index grew in June for the sixth consecutive month, and at a faster rate than it registered for the month of May. NAPM's Production Index in June is 63.0 percent, an increase of 3.8 percentage points when compared to the May index of 59.2 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 June were (listed in order): Furniture; Apparel; Paper; Electronic Components & Equipment; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Rubber & Plastic Products; Fabricated Metals; Transportation & Equipment; Printing & Publishing; Industrial & Commercial Equipment & Computers; Primary Metals; Textiles; and Chemicals.

Production %Better %Same %Worse Net Index
June 1999 36 54 10 +26 63.0
May 1999 33 57 10 +23 59.2
April 1999 35 53 12 +23 57.6
March 1999 33 53 14 +19 59.6

New Orders

NAPM's New Orders Index continued its strong performance with an index of 61.7 percent in June, an increase of 2.8 percentage points and reaching its highest level since July 1997. 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 June, sixteen industries reported higher rates of increase in new orders. They were (listed in order): Furniture; Petroleum; Primary Metals; Textiles; Food; Electronic Components & Equipment; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Paper; Rubber & Plastic Products; Fabricated Metals; Printing & Publishing; Glass, Stone & Aggregate; Transportation & Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.

New Orders %Better %Same %Worse Net Index
June 1999 36 51 13 +23 61.7
May 1999 36 50 14 +22 58.9
April 1999 36 48 16 +20 54.8
March 1999 34 51 15 +19 58.2

Backlog of Orders

This is the fourth consecutive month, after ten months of decline, that NAPM's Backlog of Orders Index (not seasonally adjusted) has been above 50 percent. The index recorded 54.5 percent, 1.0 percentage points lower than May. Ten industries reported an increase in backlog of orders during the month: Leather; Furniture; Primary Metals; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Rubber & Plastic Products; Paper; Electronic Components & Equipment; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Backlog of Orders %Reporting %Greater %Same %Less Net Index
June 1999 90 25 59 16 +9 54.5
May 1999 89 27 57 16 +11 55.5
April 1999 88 24 58 18 +6 53.0
March 1999 89 23 58 19 +4 52.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in June indicates delivery performance slowed with an index reading of 53.1 percent (a reading below 50 indicates faster delivery performance). This is the second consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in June were: Primary Metals; Electronic Components & Equipment; Transportation & Equipment; Paper; Food; Printing & Publishing; Industrial & Commercial Equipment & Computers; and Chemicals.

Supplier Deliveries %Slower %Same %Faster Net Index
June 1999 9 87 4 +5 53.1
May 1999 9 87 4 +5 51.9
April 1999 3 93 4 -1 49.4
March 1999 7 89 4 +3 52.5

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

Inventories

Manufacturers' inventory activity in June indicated a slower rate of reduction than reported in May. NAPM's Inventories Index for June rose to 44.1 percent from 42.2 percent in May. 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 June over May were: Printing & Publishing; Paper; Fabricated Metals; and Food.

Inventories %Higher %Same %Lower Net Index
June 1999 13 63 24 -11 44.1
May 1999 10 66 24 -14 42.2
April 1999 13 69 18 -5 46.6
March 1999 11 67 22 -11 44.6

Employment

NAPM's Manufacturing Employment Index registered 51.9 percent in June compared to 53.5 percent in May, a decrease of 1.6 percentage points. This is the second 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. Eleven industries indicated growth in employment and they were: Furniture; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Rubber & Plastic Products; Food; Primary Metals; Electronic Components & Equipment; Fabricated Metals; Chemicals; Printing & Publishing; and Industrial & Commercial Equipment & Computers.

Employment %Higher %Same %Lower Net Index
June 1999 21 66 13 +8 51.9
May 1999 23 62 15 +8 53.5
April 1999 18 65 17 +1 49.5
March 1999 19 59 22 -3 48.0

Prices

NAPM's Price Index gained 1.3 percentage points to 53.5, rising above the 50 mark for the second consecutive month. The index indicates higher prices paid by manufacturers during June, as compared to May. In June, 22 percent of purchasing executives reported paying higher prices, 11 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 paying higher prices were: Textiles; Food; Chemicals; Paper; Instruments & Photographic Equipment; Furniture; Electronic Components & Equipment; Fabricated Metals; Primary Metals; and Transportation & Equipment.

Prices %Higher %Same %Lower Net Index
June 1999 22 67 11 +11 53.5
May 1999 19 67 14 +5 52.2
April 1999 15 66 19 -4 49.9
March 1999 9 65 26 -17 43.2

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 June continued positive (an index exceeding 50 percent) for the fifth consecutive month following fourteen months of decline with an index of 53.3 percent. NAPM's New Export Orders Index rose 0.9 percentage point during the month. Industries reporting growth in new export orders in June were: Electronic Components & Equipment; Textiles; Furniture; Primary Metals; Chemicals; Fabricated Metals; and Transportation & Equipment.

New Export Orders %Exporting %Better %Same %Worse Net Index
June 1999 79 15 78 7 +8 53.3
May 1999 76 13 78 9 +4 52.4
April 1999 77 15 75 10 +5 51.6
March 1999 80 11 79 10 +1 51.7

Imports

Imports of materials by manufacturers continued to grow in June with an index of 52.9 percent. The rate of growth is 1.7 percentage points lower than the 54.6 percent reported in May. The nine industries reporting growth in import activity for June were: Leather; Furniture; Rubber & Plastic Products; Primary Metals; Printing & Publishing; Fabricated Metals; Food; Transportation & Equipment; and Industrial & Commercial Equipment & Computers.

Imports %Importing %Higher %Same %Lower Net Index
June 1999 78 13 80 7 +6 52.9
May 1999 76 17 76 7 +10 54.6
April 1999 75 14 77 9 +5 53.4
March 1999 77 14 80 6 +8 55.3

Buying Policy

Average commitment leadtime for Capital Expenditures declined to 118 days in June, down 2 days from May. Average leadtime for Production Materials is 44 days, down 2 days from May. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose to 27 days, up 5 days from May.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures
June 1999 17 9 13 21 31 9 118
May 1999 15 11 13 22 29 10 120
April 1999 15 10 13 25 29 8 115
March 1999 16 11 12 24 31 6 110
Production Materials
June 1999 25 43 17 10 4 1 44
May 1999 26 38 21 11 2 2 46
April 1999 24 43 19 10 2 2 45
March 1999 26 39 21 9 3 2 46
MRO Supplies
June 1999 46 40 10 3 0 1 27
May 1999 49 40 8 3 0 0 22
April 1999 45 42 10 3 0 0 24
March 1999 46 38 13 1 1 1 28

In Short Supply

High Density Polyethylene

Up in Price

Aluminum — 2nd month (also shown down in price); Corrugated Containers — 4th month; Ethylene — 2nd month; Linerboard — 4th month; Natural Gas — 3rd month; Paper; Plastic; Polybags; Polycarbonate; High Density Polyethylene — 3rd month; Polyethylene; Polyethylene Film; Polypropylene — 2nd month Resins — 3rd month; and Wood Pulp.

Down in Price

Aluminum — 20th month (also shown up in price); Caustic Soda — 9th month; Copper; and Steel — 12th 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 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, 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 July 1999 data will be released at 10:00 a.m. (EDT) on August 2, 1999.



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