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March 1998 Manufacturing Report On Business®

FOR RELEASE: April 1, 1998

Contact: NAPM Media Relations
  Tempe, AZ
  480/752-6276 ext. 3015
MANUFACTURING GROWTH FASTER IN MARCH 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 March 1998.

Purchasing Managers' Index (PMI) at 54.8%
Production and New Orders Growing
Prices Declining, Imports Rising

(Tempe, Arizona) — Economic activity in the manufacturing sector grew at a faster rate in March than in February. The overall economy continued to grow in March for the 83rd 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 Business Survey Committee and director, corporate purchasing, Chesapeake Corporation. "The manufacturing sector grew at a faster pace in March than in February. Both Production and New Orders grew at a faster pace," said Ore. "Supplier Deliveries continued to indicate slow delivery performance while the Backlog of Orders Index grew after declining for two months. Manufacturing Employment continued its recent trend showing growth in March. NAPM's Price Index indicates prices paid by manufacturers are still declining. Exports failed to grow for only the third time in 26 months. Imports grew at a faster rate than recorded in February. Purchasing executives are pleased by the continued strength of the economy as evidenced by the PMI. Their greatest concern is still the impact of the Asian economic situation on their exports and imports."

The Purchasing Managers' Index rose to 54.8 percent in March from 53.3 percent in February. NAPM's Production Index increased 2.3 percentage points from 55.3 percent in February to 57.6 percent in March. NAPM's New Orders Index increased 1.4 percentage points from 55.9 percent in February to 57.3 percent in March. NAPM's Backlog of Orders Index registered 51.5 percent indicating larger backlogs when compared to February.

NAPM's Supplier Deliveries Index in March indicates deliveries are slowing at a slightly faster rate. The index was up 1.3 percentage points to 53.4 percent from February's index of 52.1 percent. The NAPM Employment Index indicates continuing growth with an index of 52.5 percent up from 50.9 percent in February. NAPM's Price Index in March is 44.4 percent, slightly lower than the 45.8 percent for February, indicating prices paid by manufacturers are decreasing at a faster rate.

NAPM's Inventories Index showed continued inventory liquidation, but at a faster rate than in February. The Inventories Index decreased slightly to 46.8 percent from 46.9 percent in February. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, nine percent of the purchasing executives felt they were too high (up from eight percent in February). On the other hand, 15 percent felt they were too low (the same as February) and 76 percent thought they were about right (down from 77 percent in February).

NAPM's New Export Orders Index continued to contract in March, though rising slightly by 0.1 percentage point to 48 percent. Imports of materials by manufacturers increased at a faster rate than in February as NAPM's Imports Index was up 2.2 percentage points to 53.4 percent from 51.2 percent in February.

"The overall picture in March as indicated by growth in production and new orders is one of continued growth in manufacturing activity," added Ore. "New orders are growing at a faster rate and as a leading indicator, predicts higher production rates in the coming months. Production is still strong while supplies and deliveries of commodities do not appear to be a problem."

Of the 20 industries in the manufacturing sector, 12 reported improved business in March. Industries that reported improvement over February were (listed in order): Petroleum; Apparel; Primary Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Transportation & Equipment; Fabricated Metals; Chemicals; Rubber & Plastic Products; Wood & Wood Products; Printing & Publishing; and Industrial & Commercial Equipment & Computers.

"Aluminum, Caustic Soda, Corrugated Containers, Natural Gas, Paper, Steel and Titanium Dioxide were the commodities reported with price increases. Commodities with reports of price decreases include Aluminum, Copper, Gasoline, Methanol, Natural Gas, Nickel, Polyethylene, Polypropylene, Propylene, Stainless Steel, Steel, Steel Scrap, and Zinc. There were no reports of commodities in short supply for the third consecutive month," Ore stated.

MARCH 1998 NAPM BUSINESS SURVEY AT A GLANCE
Series March
Index
Direction
Mar vs Feb
Rate of Change
Mar vs Feb
PMI 54.8 Growing Faster
Production 57.6 Growing Faster
New Orders 57.3 Growing Faster
Backlog of Orders 51.5 Growing From Contracting
Supplier Deliveries 53.4 Slower Faster
Inventories 46.8 Contracting Faster
Employment 52.5 Growing Faster
Prices 44.4 Decreasing Faster
New Export Orders 48.0 Contracting Slower
Imports 53.4 Growing Faster

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

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicated growth in March with an index of 54.8 percent, up from 53.3 percent in February. This indicates that the manufacturing economy grew at a faster pace in March than it did in February. March is the 20th consecutive month that the PMI has indicated manufacturing growth. 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 43.6 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 January through March (53.5 percent), corresponds to a 3.4 percent increase in real gross domestic product (GDP). However, if the PMI for March (54.8 percent) turned out to be the annual average for 1998, this would correspond to a 3.9 percent increase in real GDP."

Month Mar '98 Feb '98 Jan '98 Dec '97 Nov '97
PMI (%) 54.8 53.3 52.4 53.1 54.5
Month Oct '97 Sep '97 Aug '97 Jul '97 Jun '97
PMI (%) 55.9 54.6 56.4 57.5 55.6
Month May '97 Apr '97 Mar '97 Feb '97 Jan '97
PMI (%) 56.4 54.2 55.1 53.3 52.8

Production

NAPM's Production Index grew at a faster rate in March than in February. March is the 24th consecutive month of growth according to the index. The Production Index in March is 57.6 percent, a 2.3 percentage point increase when compared to the February index of 55.3 percent.

An index above 50.1 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 March were (listed in order): Petroleum; Primary Metals; Chemicals; Transportation & Equipment; Food; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Wood & Wood Products; Printing & Publishing; Rubber & Plastic Products; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Production %Better %Same %Worse Net Index
March 1998 30 55 15 +15 57.6
February 1998 24 59 17 +7 55.3
January 1998 26 55 19 +7 53.3
December 1997 24 60 16 +8 55.8

New Orders

NAPM's New Orders Index rose to 57.3 percent in March from 55.9 percent in February. The New Orders Index increased 1.4 percentage points while indicating growth for the 24th consecutive month. A New Orders Index above 50.6 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Twelve industries reported higher rates of increase in new orders. They were (listed in order): Petroleum; Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Food; Fabricated Metals; Industrial & Commercial Equipment & Computers; Chemicals; Wood & Wood Products; Transportation & Equipment; Rubber & Plastic Products; and Printing & Publishing.

New Orders %Better %Same %Worse Net Index
March 1998 31 53 16 +15 57.3
February 1998 28 52 20 +8 55.9
January 1998 30 48 22 +8 55.2
December 1997 24 54 22 +2 53.9

Backlog of Orders

NAPM's Backlog of Orders Index (not seasonally adjusted) moved upward in March to 51.5 percent from 48 percent in February, indicating a larger backlog of orders for the month of March when compared to February. The five industries that reported greater rates of increase in backlog of orders in March over February were: Primary Metals; Fabricated Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Chemicals.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
March 1998 90 22 59 19 +3 51.5
February 1998 90 21 54 25 -4 48.0
January 1998 92 17 60 23 -6 47.0
December 1997 90 23 58 19 +4 52.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in March indicates delivery performance continued to slow with an index reading of 53.4 percent, a 1.3 percentage point increase from February's index. Deliveries have been reported slower in the last 14 consecutive months. The industries reporting slower supplier deliveries in March were: Transportation & Equipment; Wood & Wood Products; Instruments & Photographic Equipment; Textiles; Paper; and Fabricated Metals.

Supplier
Deliveries
%Slower %Same %Faster Net Index
March 1998 8 88 4 +4 53.4
February 1998 7 90 3 +4 52.1
January 1998 8 87 5 +3 52.0
December 1997 11 85 4 + 7 54.0

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

Inventories

Manufacturers' inventory activity in March indicated a slightly faster rate of reduction than reported in February. The NAPM Inventories Index for March decreased slightly to 46.8 percent from 46.9 percent in February. This continues a long-term trend of inventory reduction by manufacturers. An Inventories Index over 42.1 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). The industries reporting higher inventories in March over February were: Rubber & Plastic Products; Food; and Electronic Components & Equipment.

Inventories %Higher %Same %Lower Net Index
March 1998 14 65 21 -7 46.8
February 1998 15 66 19 -4 46.9
January 1998 16 58 26 -10 46.7
December 1997 15 63 22 - 7 46.5

Employment

Manufacturing employment grew in March for the 13th consecutive month. The March index is higher than February, increasing from 50.9 percent to 52.5 percent. An Employment Index above 46.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The four industries that reported growth in employment in March were: Furniture; Printing & Publishing; Rubber & Plastics; and Fabricated Metals.

Employment %Higher %Same %Lower Net Index
March 1998 20 64 16 +4 52.5
February 1998 17 69 14 +3 50.9
January 1998 12 72 16 -4 50.1
December 1997 16 68 16 0 50.9

Prices

NAPM's Price Index declined slightly in March to 44.4 percent from 45.8 percent in February. This index indicates lower prices for the third straight month after six consecutive months of paying higher prices. In March, nine percent of purchasing executives reported paying higher prices, 23 percent reported paying lower prices, while 68 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 two industries that reported paying higher prices in March were (listed in order): Printing & Publishing and Industrial & Commercial Equipment & Computers.

Prices %Higher %Same %Lower Net Index
March 1998 9 68 23 -14 44.4
February 1998 12 66 22 -10 45.8
January 1998 12 66 22 -10 44.7
December 1997 14 71 15 -1 50.8

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 March failed to indicate growth (an index exceeding 50 percent) marking the third consecutive month that the index has contracted. The index has been above 50 percent in 23 of the last 26 months. The New Export Orders Index moved slightly upward to 48.0 percent from 47.9 percent in February. The industries reporting growth in new export orders in March were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Wood & Wood Products; Textiles; and Food.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
March 1998 82 13 68 19 -6 48.0
February 1998 79 10 73 17 -7 47.9
January 1998 77 8 75 17 -9 45.0
December 1997 78 14 70 16 -2 50.6

Imports

Imports of materials by manufacturers grew at a faster rate in March than in February with an index of 53.4 percent. NAPM's Imports Index increased 2.2 percentage points from 51.2 percent in February. The index has indicated growth in the purchase of imports for 20 of the last 21 months. The seven industries reporting growth in import activity for March were: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Instruments & Photographic Equipment; Food; Electronic Components & Equipment; Rubber & Plastic Products; Primary Metals; and Chemicals.

Imports %Importing %Higher %Same %Lower Net Index
March 1998 82 13 80 7 +6 53.4
February 1998 78 13 77 10 +3 51.2
January 1998 78 15 76 9 +6 53.9
December 1997 76 19 73 8 +11 55.4

Buying Policy

Average commitment leadtime for Capital Expenditures dropped to 117 days in March. Average leadtime for Production Materials is 47 days, up four days from February. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies decreased two days to 23 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
March 1998 17 10 12 22 30 9 117
February 1998 12 10 12 20 35 11 131
January 1998 14 9 13 23 29 12 127
December 1997 16 7 14 22 31 10 123
Production Materials              
March 1998 23 40 21 12 2 2 47
February 1998 25 39 23 10 2 1 43
January 1998 23 39 23 9 3 3 51
December 1997 21 44 19 11 3 2 48
MRO Supplies              
March 1998 49 39 8 4 0 0 23
February 1998 45 41 10 3 1 0 25
January 1998 44 43 9 3 0 1 27
December 1997 46 41 8 3 1 1 28

In Short Supply

No mentions

Up in Price

Aluminum (also shown down in price); Caustic Soda — 10th month (used heavily in papermaking, petroleum refining, and soap making); Corrugated Containers — 9th month; Natural Gas (also shown down in price); Paper; Steel (also shown down in price); and Titanium Dioxide.

Down in Price

Aluminum — 5th month (also shown up in price); Copper — 9th month; Gasoline; Methanol; Natural Gas — 3rd month (also shown up in price); Nickel; Polyethylene (HDPE) – 2nd month; Polypropylene; Propylene; Stainless Steel; Steel — 5th month (also shown up in price); Steel Scrap — 2nd month; and Zinc — 6th 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 43.6 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 43.6 percent, that it is generally declining. The distance from 50 percent or 43.6 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 has more than 44,000 members in the United States and Puerto Rico. The report has been issued by the association since 1931, except 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. (EST)

The next Manufacturing NAPM Report On Business® featuring the April 1998 data will be released at 10:00 a.m. (EDT) on May 1, 1998.



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