August 1999 Manufacturing Report On Business®
FOR RELEASE: September 1, 1999
|NAPM, Media Relations|
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Growth in Manufacturing Continues in August 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 August 1999.
Purchasing Managers' Index (PMI) at 54.2%
Growth in Production, New Orders, New Export Orders
(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the seventh consecutive month in August providing signs of a strengthening recovery. The overall economy continued to grow in August for the 100th 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 grow in August and at a faster rate than it grew in July. Both production and new orders continued on a positive track in August. NAPM's Price Index jumped to its highest level since June 1995 indicating that manufacturers are paying higher prices for their purchases. Our members saw significant price movement in August as the Price Index rose and the list of commodities up in price grew."
NAPM's Backlog of Orders Index continues to grow, while NAPM's Supplier Deliveries Index once again signals slowing deliveries, however, at a decelerating rate. Manufacturing Employment grew during August as the index rose above the breakeven point (an index of 50). NAPM's Price Index continued to strengthen as 12 of 20 industries indicated paying higher prices on average during August. Export Orders continue to grow and gained some momentum when compared to July. Imports also grew during August and at a faster rate of growth. Purchasing Managers overall indicate that business activity is at a very high level. Major concerns this month are rising interest rates, prices and leadtimes — all signs of significant growth. While growth indicators are strong, there are still comments regarding excess capacity in many industries and this could be a major constraint on inflationary pressures at least in the short term.
NAPM's Purchasing Managers' Index was higher at 54.2 percent in August, up from 53.4 in July. NAPM's Production Index decreased 1.5 percentage points from 58.2 percent in July to 56.7 percent in August. NAPM's New Orders Index rose 2.2 percentage points from 54.4 percent in July to 56.6 percent in August. NAPM's Backlog of Orders Index registered 52.5 percent, 2.0 percentage points higher than the 50.5 percent recorded in July. NAPM's Supplier Deliveries Index declined to 51.1 percent in August down from 54.2 percent in July. NAPM Employment Index is at 53.4 for August, a reversal in direction and 3.8 percentage points higher than the 49.6 percent reported in July. NAPM's Price Index in August is 59.8 percent, an increase of 5.1 percentage points from July.
NAPM's Inventories Index showed continued inventory liquidation, but at a slower rate than in July, rising to 46.6 percent from 44.4 percent in July. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 11 percent of the purchasing executives felt they were too high (up from 10 percent in July). On the other hand, 20 percent felt they were too low (same as July) and 69 percent thought they were about right (down from 70 percent in July).
NAPM's New Export Orders Index continued positive for a seventh month while increasing 3.8 percentage points to 54.2 percent. Imports of materials by manufacturers continued to increase in August, as NAPM's Imports Index was up from 51.6 percent to 53.9 percent.
"The overall picture is one of continuing growth in manufacturing activity during the month of August," added Ore. "Production and New Orders remain positive and provide encouragement that the manufacturing sector will continue on a path of growth into the second half of the year. We see continued strengthening in commodity prices with pricing power apparently equal to mid 1995. The list of commodities up in price expanded significantly this month when compared to last."
Of the 20 industries in the manufacturing sector, twelve reported improved business in August. Industries that reported improvement over July were (listed in order): Glass, Stone & Aggregate; Electronic Components & Equipment; Furniture; Food; Apparel; Printing & Publishing; Industrial & Commercial Equipment & Computers; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; Primary Metals; Paper; and Fabricated Metals.
"Electronics was the only commodity on the Short Supply List. Commodities with reports of price increases were: Aluminum, Copper, Corn, Corrugated Containers, Linerboard, Natural Gas, Paper, Paperboard, Plastic, Plastic Resins, High Density Polyethylene, Low Density Polyethylene, Polyethylene Resins, Polypropylene, Polystyrene, Stainless Steel, Steel, and Wood Pulp. The only commodity with reports of price decreases was Caustic Soda," Ore stated.
AUGUST 1999 NAPM BUSINESS SURVEY AT A GLANCE
August vs July
|Rate of Change
August vs July
|Backlog of Orders||52.5||Growing||Faster|
|New Export Orders||54.2||Growing||Faster|
THE ECONOMY AT A GLANCE
Purchasing Managers' Index (PMI)
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow and at an accelerating rate, during the month of August with an index of 54.2 percent. This is 0.8 percentage point higher when compared to July and the seventh 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 August (53.6 percent), corresponds to a 3.5 percent increase in gross domestic product (GDP). However, if the PMI for August (54.2 percent), turned out to be the annual average for 1999, this would correspond to a 3.7 percent increase in real GDP.
NAPM's Production Index grew in August for the eighth consecutive month, but at a slower rate of growth than it registered for the month of July. NAPM's Production Index in August is 56.7 percent, a decrease of 1.5 percentage points when compared to the July index of 58.2 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 August were (listed in order): Furniture; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; Food; Printing & Publishing; Fabricated Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Primary Metals; and Paper.
NAPM's New Orders Index accelerated in August with an index of 56.6 percent, an increase of 2.2 percentage points when compared to July. 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 August, eleven industries reported higher rates of increase in new orders. They were (listed in order): Glass, Stone & Aggregate; Food; Electronic Components & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Industrial & Commercial Equipment & Computers; Furniture; Primary Metals; Paper; Fabricated Metals; Printing & Publishing; and Transportation & Equipment.
Backlog of Orders
The Backlog of Orders Index indicated accelerated growth in manufacturer's leadtimes when compared to July. This is the sixth consecutive month that NAPM's Backlog of Orders Index (not seasonally adjusted) has been above 50 percent. The index recorded 52.5 percent, 2.0 percentage points higher than July. Eleven industries reported an increase in backlog of orders during the month: Apparel; Glass, Stone & Aggregate; Electronic Components & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Furniture; Primary Metals; Printing & Publishing; Food; Paper; Industrial & Commercial Equipment & Computers; and Transportation & Equipment.
NAPM's Supplier Deliveries Index in August indicates delivery performance continued to slow, but at a slower rate with an index reading of 51.1 percent (a reading below 50 indicates faster delivery performance). The index is 3.1 percentage points lower than July. August marks the fourth consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in August were: Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; Primary Metals; Instruments & Photographic Equipment; Paper; Chemicals; and Printing & Publishing.
NOTE: A list of commodities in short supply is available at the end of this report.
Manufacturers' inventory activity in August indicated a slower rate of reduction than reported in July. NAPM's Inventories Index for August rose to 46.6 percent from 44.4 percent in July. 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 August over July were: Glass, Stone & Aggregate; Printing & Publishing; Electronic Components & Equipment; and Food.
NAPM's Manufacturing Employment Index rose above 50 in August after a month of decline. The index registered 53.4 percent in August compared to 49.6 percent in July, an increase of 3.8 percentage points. 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. Six industries indicated growth in employment and they were: Apparel; Electronic Components & Equipment; Food; Furniture; Chemicals; and Transportation & Equipment.
NAPM's Price Index gained 5.1 percentage points to 59.8, rising above the 50 mark for the fourth consecutive month. The index indicates higher prices paid by manufacturers during August, as compared to July. In August, 32 percent of purchasing executives reported paying higher prices, 6 percent reported paying lower prices, while 62 percent reported that prices were unchanged from the preceding month. This is the highest the Price Index has been since June 1995.
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: Wood & Wood Products; Food; Primary Metals; Printing & Publishing; Textiles; Electronic Components & Equipment; Instruments & Photographic Equipment; Paper; Fabricated Metals; Transportation & Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.
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 August continued positive (an index exceeding 50 percent) for the seventh consecutive month. NAPM's New Export Orders Index rose 3.8 percentage points to 54.2 for the month of August. Industries reporting growth in new export orders in August were: Electronic Components & Equipment; Wood & Wood Products; Furniture; Food; Transportation & Equipment; Chemicals; Fabricated Metals; and Industrial & Commercial Equipment & Computers.
Imports of materials by manufacturers continued to grow in August with an index of 53.9 percent. The rate of growth is 2.3 percentage points higher than July's report of 51.6 percent. The nine industries reporting growth in import activity for August were: Leather; Glass, Stone & Aggregate; Furniture; Electronic Components & Equipment; Transportation & Equipment; Fabricated Metals; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; and Food.
Average commitment leadtime for Capital Expenditures remained at 118 days in August. Average leadtime for Production Materials remained constant at 49 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose to 28 days, up 6 days from July.
In Short Supply
Up in Price
Aluminum — 4th month; Copper — 2nd month; Corn; Corrugated Containers — 6th month; Linerboard — 6th month; Natural Gas — 5th month; Paper — 3rd month; Paperboard; Plastic — 2nd month; Plastic Resins; High Density Polyethylene — 5th month; Low Density Polyethylene; Polyethylene Resin — 2nd month; Polypropylene — 4th month; Polystyrene; Stainless Steel; Steel; and Wood Pulp.
Down in Price
Caustic Soda — 11th 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 182 affiliates with more than 46,000 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 September 1999 data will be released at 10:00 a.m. (EDT) on October 1, 1999.