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August 2000 Manufacturing Report On Business®

FOR RELEASE: September 1, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
MANUFACTURING STALLS 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 2000.

Purchasing Managers' Index (PMI) at 49.5%
Decline in Production, New Orders, Employment
Prices, Imports Increasing

(Tempe, Arizona) — Economic activity in the manufacturing sector declined in August after 18 months of growth that began in February 1999. The overall economy continued to grow in August for the 112th 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 vice president, purchasing and strategic alliances, Chesapeake Display and Packaging Company. "The manufacturing sector failed to grow in August as recent softening in Production and New Orders lead the decline. Production fell below the 50 mark, reflecting particular weakness in manufacturing order volume since May. The NAPM Prices Index continues to indicate manufacturers are paying higher prices for their purchases; however, prices appear to be decelerating as the manufacturing economy cools and energy prices are stabilizing. While manufacturing Employment failed to grow in August, Imports increased after a decline during July."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the fourth consecutive month. NAPM's Supplier Deliveries Index again signals slowing deliveries, but at a slightly slower rate. Manufacturing Employment declined during August as the index fell below the breakeven point (an index of 50 percent) for the month. NAPM's Price Index remains positive, but lost momentum in August as manufacturers are experiencing fewer price increases, a market condition that has existed now for 16 consecutive months. The rate of growth in New Export Orders slowed in August. Imports returned to a growth mode after a decline in July. Comments from purchasing managers this month generally expressed concerns about the impact of higher interest rates on housing and automotive, energy prices with more focus on electricity, and general softening in sales.

NAPM's Purchasing Managers' Index was 49.5 percent in August, a decline of 2.3 percentage points from 51.8 percent in July. NAPM's Production Index decreased 4.7 percentage points from 53.4 percent in July to 48.7 percent in August. NAPM's New Orders Index declined 0.2 percentage point from 49.9 percent in July to 49.7 percent in August. NAPM's Backlog of Orders Index registered 49 percent, indicating smaller backlogs for the fourth consecutive month. NAPM's Supplier Deliveries Index is 53.1 percent in August, indicating slower deliveries during the month. The NAPM Employment Index is at 48.2 percent for August, a decrease of 4.5 percentage points when compared to the 52.7 percent reported in July. NAPM's Price Index in August is 56.2 percent, a decrease of 5.7 percentage points from July's 61.9 percent.

NAPM's Inventories Index is at 47.8 percent indicating a faster rate of inventory liquidation when compared to July's 48.4 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 15 percent of the purchasing executives felt they were too high (up from 10 percent in July), while 14 percent felt they were too low (up from 11 percent in July) and 71 percent thought they were about right (down from 79 percent in July).

NAPM's New Export Orders Index continued positive for the 19th consecutive month though the index declined to 50.7 percent from 51.5 percent in July. Imports of materials by manufacturers gathered some momentum as NAPM's Imports Index is 51.9 percent in August, up from July's 49.8 percent.

"The overall picture is one of declining volume in manufacturing activity during the month of August," added Ore. "We are seeing a decline in pricing power for metals with expectations that other basic commodities will follow. Energy price concerns still exist for petroleum products, but the focus is now on electricity as companies have been effected by interruptible contracts and fuel surcharges."

Of the 20 industries in the manufacturing sector, nine reported improved business in August. Industries that reported improvement over July were (listed in order): Tobacco; Furniture; Printing & Publishing; Instruments & Photographic Equipment; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Chemicals.

"Butadiene; Capacitors; Capacitors — Tantalum; Electronics; Flash Memory; Lumber; and Palladium are the commodities reported on the Short Supply List. Commodities with reports of price increases: Aluminum; Caustic Soda; Copper; Corrugated Containers; Energy; Linerboard; Natural Gas (also reported down in price); Paper; Petroleum Products; Plastics; Plastic Resins; Resins; Solvents; and Wood Pulp. Corn; Natural Gas (also reported up in price); Nickel; and Steel are the commodities reported down in price," Ore stated.

AUGUST 2000 NAPM BUSINESS SURVEY AT A GLANCE
Series August
Index
Direction
Aug vs Jul
Rate of Change
Aug vs Jul
PMI 49.5 Contracting From Growing
Production 48.7 Contracting From Growing
New Orders 49.7 Contracting Faster
Backlog of Orders 49.0 Contracting Slower
Supplier Deliveries 53.1 Slowing Slower
Inventories 47.8 Contracting Faster
Employment 48.2 Contracting From Growing
Prices 56.2 Increasing Slower
New Export Orders 50.7 Growing Slower
Imports 51.9 Growing From Contracting

THE ECONOMY AT A GLANCE
Overall Economy Growing Slower
Manufacturing Contracting From Growing

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of August with an index of 49.5 percent. This is the first time since February 1999 that the manufacturing sector has contracted when compared to the prior month. Though the decline in activity is only 0.5 percentage point under 50, it is a continuing indication that the manufacturing economy has been impacted by recent economic policy and higher energy costs. 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 42.4 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 (53.8 percent) corresponds to a 4.1 percent annual increase in real gross domestic product (GDP). However, if the PMI for August (49.5 percent) turned out to be the annual average for 2000, this would correspond to a 2.5 percent increase in GDP."

Month Aug'00 Jul‘00 Jun'00 May'00 Apr'00
PMI% 49.5 51.8 51.8 53.2 54.9
Month Mar'00 Feb'00 Jan'00 Dec'99 Nov'99
PMI% 55.8 56.9 56.3 56.8 57.1
Month Oct'99 Sep'99 Aug'99 Jul'99 Jun'99
PMI% 56.9 57.3 54.4 53.6 56.3

Production

NAPM's Production Index declined in August for the first time after 19 months of growth as the index slipped to 48.7 percent from 53.4 percent. This is a decrease of 4.7 percentage points when compared to the July index.

An index above 49.4 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): Tobacco; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Chemicals; and Electronic Components & Equipment.

Production %Better %Same %Worse Net Index
August 2000 16 63 21 -5 48.7
July 2000 19 63 18 +1 53.4
June 2000 25 58 17 +8 53.6
May 2000 30 58 12 +18 56.3

New Orders

NAPM's New Orders Index failed to grow in August for the second consecutive month; prior to July, the index grew for 18 consecutive months. The index at 49.7 represents a decrease of 0.2 percentage point when compared to 49.9 percent in July. A New Orders Index above 50.4 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, seven industries reported higher rates of increase in new orders. They were (listed in order): Tobacco; Furniture; Printing & Publishing; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Electronic Components & Equipment; and Chemicals.

New Orders %Better %Same %Worse Net Index
August 2000 21 57 22 -1 49.7
July 2000 23 56 21 +2 49.9
June 2000 27 50 23 +4 50.6
May 2000 28 53 19 +9 51.1

Backlog of Orders

The Backlog of Orders Index failed to grow for the fourth consecutive month in August. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 49 percent. Of the 88 percent of respondents who measure their backlog of orders, 23 percent reported greater backlogs, 25 percent reported smaller backlogs, and 52 percent reported no change from July. Five industries reported an increase in backlog of orders during the month: Electronic Components & Equipment; Instruments & Photographic Equipment; Apparel; Chemicals; and Transportation & Equipment.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
August 2000 88 23 52 25 -2 49.0
July 2000 90 17 56 27 -10 45.0
June 2000 90 23 51 26 -3 48.5
May 2000 88 19 60 21 -2 49.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in August indicates delivery performance continued to slow at a slightly decelerating rate, with an index of 53.1 percent (a reading below 50 indicates faster delivery performance). The index is 1.1 percentage points lower than July's 54.2 percent. August marks the 16th consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in August were: Instruments & Photographic Equipment; Rubber & Plastic Products; Electronic Components & Equipment; Apparel; Food; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Fabricated Metals; Primary Metals; and Printing & Publishing.

Supplier
Deliveries
%Slower %Same %Faster Net Index
August 2000 12 85 3 +9 53.1
July 2000 13 84 3 +10 54.2
June 2000 13 83 4 +9 55.1
May 2000 14 83 3 +11 55.0

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

Inventories

Manufacturers' inventories are still being liquidated, however, the rate of change is faster as the Inventories Index registered 47.8 percent, down from 48.4 percent in July. An Inventories Index greater than 41.1 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). The six industries reporting higher inventories in August over July were: Apparel; Paper; Primary Metals; Transportation & Equipment; Electronic Components & Equipment; and Food.

Inventories %Higher %Same %Lower Net Index
August 2000 17 63 20 -3 47.8
July 2000 13 69 18 -5 48.4
June 2000 13 68 19 -6 47.4
May 2000 15 64 21 -6 47.1

Employment

NAPM's Manufacturing Employment Index fell below 50 percent in August after 15 consecutive months of growth. The index registered 48.2 percent in August compared to 52.7 percent in July, a decrease of 4.5 percentage points. An Employment Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Seven industries indicated growth in employment: Tobacco; Furniture; Wood & Wood Products; Printing & Publishing; Electronic Components & Equipment; Fabricated Metals; and Transportation & Equipment.

Employment %Higher %Same %Lower Net Index
August 2000 14 68 18 -4 48.2
July 2000 19 68 13 +6 52.7
June 2000 20 67 13 +7 50.8
May 2000 23 66 11 +12 54.1

Prices

NAPM's Price Index indicates manufacturers continued to pay higher prices in August. With the index at 56.2 percent, there is significant deceleration as the index is 5.7 percentage points lower than July's 61.9 percent. Prior to August, this index registered above 60 percent for 11 consecutive months. In August, 27 percent of purchasing executives reported paying higher prices and 7 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 14 industries paying higher prices were: Leather; Glass, Stone & Aggregate; Printing & Publishing; Paper; Electronic Components & Equipment; Instruments & Photographic Equipment; Chemicals; Wood & Wood Products; Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Fabricated Metals.

Prices %Higher %Same %Lower Net Index
August 2000 27 66 7 +20 56.2
July 2000 33 60 7 +26 61.9
June 2000 34 60 6 +28 61.2
May 2000 38 59 3 +35 65.8

NOTE: A list of commodities up in price and down in price is available at the end of this report.

New Export Orders

Though the manufacturing sector is in decline, NAPM's New Export Orders Index for August continued positive (an index exceeding 50 percent) for the 19th consecutive month. NAPM's New Export Orders Index declined 0.8 percentage point to 50.7 percent from 51.5 percent in July. Industries reporting growth in new export orders in August were: Tobacco; Wood & Wood Products; Textiles; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Chemicals.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
August 2000 78 12 79 9 +3 50.7
July 2000 79 13 78 9 +4 51.5
June 2000 78 17 75 8 +9 53.2
May 2000 77 20 73 7 +13 56.3

Imports

Imports of materials by manufacturers grew slightly in August, reversing the one month decline the index experienced in July. The Imports Index registered 51.9, a 2.1 percentage points increase when compared to July's 49.8 report of percent. The eight industries reporting growth in import activity for August were: Leather; Furniture; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Paper; Fabricated Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Chemicals.

Imports %Importing %Higher %Same %Lower Net Index
August 2000 80 13 79 8 +5 51.9
July 2000 77 11 78 11 0 49.8
June 2000 79 17 79 4 +13 56.0
May 2000 77 20 72 8 +12 54.7

Buying Policy

Average commitment leadtime for Capital Expenditures rose 1 day to 117 days. Average leadtime for Production Materials declined 7 days to 41 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 1 day to 24 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
August 2000 21 9 12 20 27 11 117
July 2000 18 10 15 22 24 11 116
June 2000 18 8 14 20 30 10 120
May 2000 21 8 16 17 29 9 113
Production Materials              
August 2000 24 40 25 8 3 0 41
July 2000 22 38 27 7 5 1 48
June 2000 22 41 23 10 2 2 47
May 2000 23 39 23 11 4 0 44
MRO Supplies              
August 2000 52 33 10 4 1 0 24
July 2000 48 36 14 2 0 0 23
June 2000 51 36 9 3 0 1 25
May 2000 50 35 11 3 1 0 24

In Short Supply

Butadiene; Capacitors — 2nd month; Capacitors — Tantalum — 2nd month; Electronics — 6th month; Flash Memory — 2nd month; Lumber; and Palladium.

Up in Price

Aluminum — 2nd month; Caustic Soda — 2nd month; Copper — 2nd month; Corrugated Containers — 18th month; Energy; Linerboard; Natural Gas — 8th month (also shown down in price); Paper — 15th month; Petroleum Products — 7th month; Plastics — 10th month; Plastic Resins — 4th month; Resins — 12th month; Solvents — 2nd month; and Wood Pulp — 2nd month.

Down in Price

Corn; Natural Gas (also shown up in price); Nickel — 2nd month; and Steel — 3rd 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 42.4 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 42.4 percent, that it is generally declining. The distance from 50 percent or 42.4 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 45,000 members in the United States. 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. (ET).

The next Manufacturing NAPM Report On Business® featuring the September 2000 data will be released at 10:00 a.m. (ET) on October 2, 2000.


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