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September 1999 Manufacturing Report On Business®

FOR RELEASE: October 1, 1999

Contact: Zenobia Daruwalla
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
GROWTH IN MANUFACTURING STRENGTHENS IN SEPTEMBER 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 September 1999.

Purchasing Managers' Index (PMI) at 57.8%
Growth in Production, New Orders, New Export Orders
Prices Accelerating

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the eighth consecutive month in September as the sector appears to be returning to the positive growth pattern that existed prior to the Asian financial crisis. The overall economy continued to grow in September for the 101st 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 September and at a faster rate than it grew in August. Both production and new orders accelerated during the month while NAPM's Price Index jumped to its highest level since May 1995, indicating that manufacturers continue to pay higher prices for their purchases."

NAPM's Backlog of Orders Index continues to grow, and NAPM's Supplier Deliveries Index once again signals slowing deliveries. Manufacturing Employment grew during September, but at a slower rate than in August as the index rose above the breakeven point (an index of 50) for the second consecutive month. NAPM's Price Index continued to strengthen as 14 of 20 industries indicated paying higher prices on average during September. Export Orders continue to grow, registering the highest reading since March 1997. Imports grew at a faster rate during September. Purchasing Managers are generally satisfied with the level of business activity at present. Concerns expressed this month included Y2K readiness and interest rates. (See responses to the special question on the Y2K issue at the end of this release.) While growth indicators are strong, there are still comments regarding excess capacity in commodity industries.

NAPM's Purchasing Managers' Index was higher at 57.8 percent in September, up from 54.2 in August. NAPM's Production Index increased 5.0 percentage points from 56.7 percent in August to 61.7 percent in September. NAPM's New Orders Index rose 7.8 percentage points from 56.6 percent in August to 64.4 percent in September. NAPM's Backlog of Orders Index registered 54.5 percent, 2.0 percentage points higher than the 52.5 percent recorded in August. NAPM's Supplier Deliveries Index rose to 55.9 percent in September up from 51.1 percent in August. NAPM Employment Index is at 51.5 for September, a decrease of 1.9 percentage points than the 53.4 percent reported in August. NAPM's Price Index in September is 67.6 percent, an increase of 7.8 percentage points from August.

NAPM's Inventories Index showed continued inventory liquidation, and at a faster rate than in August, declining to 43.2 percent from 46.6 percent in August. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 7 percent of the purchasing executives felt they were too high (down from 11 percent in August). On the other hand, 20 percent felt they were too low (same as August) and 73 percent thought they were about right (up from 69 percent in August).

NAPM's New Export Orders Index continued positive for the eighth consecutive month while increasing 2.4 percentage points to 56.6 percent. Imports of materials by manufacturers continued to increase in September, as NAPM's Imports Index was up from 53.9 percent to 55.7 percent.

"The overall picture is one of continuing growth in manufacturing activity during the month of September," added Ore. "Production and New Orders gained momentum and coupled with the continuing strength in New Export Orders paint a picture of a vigorous manufacturing economy during the third quarter. We see continued strengthening in prices with pricing power apparent in a broad base of commodities."

Of the 20 industries in the manufacturing sector, fourteen reported improved business in September. Industries that reported improvement over August were (listed in order): Electronic Components & Equipment; Printing & Publishing; Furniture; Paper; Fabricated Metals; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Chemicals; Food; Primary Metals; Tobacco; Transportation & Equipment; and Petroleum.

"No commodities are reported on the Short Supply List. Commodities with reports of price increases were Aluminum, Caustic Soda, Chemicals, Copper, Corrugated Containers, Ethylene, Gasoline, Linerboard, Natural Gas, Offset Paper, Paper, Plastic, High Density Polyethylene, Polyethylene, Resins, Stainless Steel, Steel, Uncoated Bond Paper, Wood Pulp, and Zinc. The only commodities with reports of price decreases were Lumber and Steel Components," Ore stated.

SEPTEMBER 1999 NAPM BUSINESS SURVEY AT A GLANCE
Series September
Index
Direction
September vs August
Rate of Change
September vs August
PMI 57.8 Growing Faster
Production 61.7 Growing Faster
New Orders 64.4 Growing Faster
Backlog of Orders 54.5 Growing Faster
Supplier Deliveries 55.9 Slowing Faster
Inventories 43.2 Contracting Faster
Employment 51.5 Growing Slower
Prices 67.6 Increasing Faster
New Export Orders 56.6 Growing Faster
Imports 55.7 Growing Faster

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 and at an accelerating rate, during the month of September with an index of 57.8 percent. This is 3.6 percentage points higher when compared to August and the eighth 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 September (54.1 percent), corresponds to a 3.7 percent increase in gross domestic product (GDP). However, if the PMI for September (57.8 percent), turned out to be the annual average for 1999, this would correspond to a 4.9 percent increase in real GDP.

Month Sep'99 Aug'99 Jul'99 Jun'99 May'99
PMI% 57.8 54.2 53.4 57.0 55.2
Month Apr'99 Mar'99 Feb'99 Jan'99 Dec'98
PMI% 52.8 54.3 52.4 49.5 45.3
Month Nov'98 Oct'98 Sep'98 Aug'98 Jul'98
PMI% 47.0 48.4 49.1 48.9 49.2

Production

NAPM's Production Index grew in September for the ninth consecutive month, and at a faster rate of growth than it registered for the month of August. NAPM's Production Index in September is 61.7 percent, an increase of 5.0 percentage points when compared to the August index of 56.7 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 September were (listed in order): Electronic Components & Equipment; Printing & Publishing; Fabricated Metals; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Tobacco; Food; Chemicals; Furniture; Petroleum; Primary Metals; Transportation & Equipment; and Paper.

Production %Better %Same %Worse Net Index
September 1999 34 56 10 +24 61.7
August 1999 27 58 15 +12 56.7
July 1999 27 57 16 +11 58.2
June 1999 36 54 10 +26 63.0

New Orders

NAPM's New Orders Index accelerated in September with an index of 64.4 percent, an increase of 7.8 percentage points when compared to August. 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 September, fifteen industries reported higher rates of increase in new orders. They were (listed in order): Paper; Electronic Components & Equipment; Furniture; Fabricated Metals; Petroleum; Primary Metals; Chemicals; Printing & Publishing; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Tobacco; Food; Transportation & Equipment; and Instruments & Photographic Equipment.

New Orders %Better %Same %Worse Net Index
September 1999 39 52 9 +30 64.4
August 1999 28 58 14 +14 56.6
July 1999 26 58 16 +10 54.4
June 1999 36 51 13 +23 61.7

Backlog of Orders

The Backlog of Orders Index indicated accelerated growth in manufacturer's leadtimes when compared to August. This is the seventh consecutive month that NAPM's Backlog of Orders Index (not seasonally adjusted) has been above 50 percent. The index recorded 54.5 percent, 2.0 percentage points higher than August. Seven industries reported an increase in backlog of orders during the month: Paper; Furniture; Primary Metals; Electronic Components & Equipment; Fabricated Metals; Printing & Publishing; and Industrial & Commercial Equipment & Computers.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
September 1999 90 27 55 18 +9 54.5
August 1999 90 22 61 17 +5 52.5
July 1999 89 20 61 19 +1 50.5
June 1999 90 25 59 16 +9 54.5

Supplier Deliveries

NAPM's Supplier Deliveries Index in September indicates delivery performance continued to slow, but at a faster rate than in August with an index reading of 55.9 percent (a reading below 50 indicates faster delivery performance). The index is 4.8 percentage points higher than August. September marks the fifth consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in September were: Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Chemicals; Transportation & Equipment; Printing & Publishing; Primary Metals; Fabricated Metals; Rubber & Plastic Products; Paper; and Food.

Supplier
Deliveries
%Slower %Same %Faster Net Index
September 1999 14 85 1 +13 55.9
August 1999 8 89 3 +5 51.1
July 1999 13 84 3 +10 54.2
June 1999 9 87 4 +5 53.1

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

Inventories

Manufacturers' inventory activity in September indicated a faster rate of reduction than reported in August. NAPM's Inventories Index for September declined to 43.2 percent from 46.6 percent in August. 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 September over August were: Furniture; Printing & Publishing; Petroleum; and Paper.

Inventories %Higher %Same %Lower Net Index
September 1999 10 69 21 -11 43.2
August 1999 14 67 19 -5 46.6
July 1999 14 60 26 -12 44.4
June 1999 13 63 24 -11 44.1

Employment

NAPM's Manufacturing Employment Index rose above 50 in September for the second consecutive month. The index registered 51.5 percent in September compared to 53.4 percent in August, a decrease of 1.9 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. Five industries indicated growth in employment and they were: Printing & Publishing; Furniture; Electronic Components & Equipment; Food; and Industrial & Commercial Equipment & Computers.

Employment %Higher %Same %Lower Net Index
September 1999 16 69 15 +1 51.5
August 1999 17 71 12 +5 53.4
July 1999 18 66 16 +2 49.6
June 1999 21 66 13 +8 51.9

Prices

NAPM's Price Index gained 7.8 percentage points to 67.6, rising above the 50 mark for the fifth consecutive month. The index indicates higher prices paid by manufacturers during September when compared to August, and the highest the index has been since May 1995. In September, 42 percent of purchasing executives reported paying higher prices, 6 percent reported paying lower prices, while 52 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: Printing & Publishing; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Fabricated Metals; Food; Paper; Textiles; Instruments & Photographic Equipment; Wood & Wood Products; Chemicals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; and Transportation & Equipment.

Prices %Higher %Same %Lower Net Index
September 1999 42 52 6 +36 67.6
August 1999 32 62 6 +26 59.8
July 1999 23 65 12 +11 54.7
June 1999 22 67 11 +11 53.5

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 September continued positive (an index exceeding 50 percent) for the eighth consecutive month. NAPM's New Export Orders Index rose 2.4 percentage points to 56.6 for the month of September. Industries reporting growth in new export orders in September were: Petroleum; Electronic Components & Equipment; Furniture; Industrial & Commercial Equipment & Computers; Primary Metals; Textiles; Fabricated Metals; Food; Chemicals; Paper; and Transportation & Equipment.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
September 1999 77 20 76 4 +16 56.6
August 1999 77 16 78 6 +10 54.2
July 1999 80 13 77 10 +3 50.4
June 1999 79 15 78 7 +8 53.3

Imports

Imports of materials by manufacturers continued to grow in September with an index of 55.7 percent. The Imports Index is 1.8 percentage points higher than August's report of 53.9 percent. The eleven industries reporting growth in import activity for September were: Leather; Petroleum; Furniture; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Printing & Publishing; Paper; Fabricated Metals; and Chemicals.

Imports %Importing %Higher %Same %Lower Net Index
September 1999 77 17 77 6 +11 55.7
August 1999 76 14 81 5 +9 53.9
July 1999 76 17 73 10 +7 51.6
June 1999 78 13 80 7 +6 52.9

Buying Policy

Average commitment leadtime for Capital Expenditures declined by 6 days to 112 days in September. Average leadtime for Production Materials declined 5 days to 44 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined to 23 days, down 5 days from August.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
September 1999 19 10 14 21 27 9 112
August 1999 18 8 14 20 31 9 118
July 1999 16 8 14 24 29 9 118
June 1999 17 9 13 21 31 9 118
Production Materials              
September 1999 23 45 16 12 3 1 44
August 1999 27 36 21 11 2 3 49
July 1999 21 40 23 11 3 2 49
June 1999 25 43 17 10 4 1 44
MRO Supplies              
September 1999 47 40 9 4 0 0 23
August 1999 45 40 10 3 1 1 28
July 1999 51 36 9 4 0 0 22
June 1999 46 40 10 3 0 1 27

In Short Supply

No commodities in short supply.

Up in Price

Aluminum — 5th month; Caustic Soda; Chemicals; Copper — 3rd month; Corrugated Containers — 7th month; Ethylene; Gasoline; Linerboard — 7th month; Natural Gas — 6th month; Offset Paper; Paper — 4th month; Plastic — 3rd month; High Density Polyethylene — 6th month; Polyethylene; Polypropylene — 5th month; Resins; Stainless Steel — 2nd month; Steel — 2nd month; Uncoated Bond Paper; Wood Pulp — 2nd month; and Zinc.

Down in Price

Lumber and Steel Components.

Y2K Special Question

This month business survey committee members were asked special questions regarding the Year 2000. Questions focused on inventory and production issues.

Members were asked if they planned to build inventories because of continuity of supply concerns related to Y2K. Thirty-eight percent of the respondents indicated that they plan to build inventories with 62 percent indicating they would not. Responses received in May 1999 to this same question indicated that 34.6 percent planned to build Y2K inventory with 65.4 percent indicating they would not.

For those who indicated they planned on building inventories, the respondents listed a total of 61 different commodities that will be stockpiled. However, none of the commodities had sufficient responses to signal major concerns. Respondents in most cases categorized purchases into commodity groups and the following are mentioned most often: Components; Chemicals; Finished Goods; Imported Parts; Packaging Materials; and Raw Materials. The inventories that will be stockpiled represent an average of 22.6 percent of their overall company's inventories.

Based on the responses below, the majority of those who are going to build inventories will be doing so in the fall.

April 1999 1%
May 1999 1%
June 1999 8%
July 1999 3%
August 1999 5%
September 1999 12%
October 1999 34%
November 1999 24%
December 1999 12%

The additional days of supply they will add are:

1-10 39%
11-20 21%
21-30 22%
31-40 9%
41-50 9%
50+ 0%

Most purchasing managers responding to the questions are confident or very confident that their organization is ready for Y2K (99.5 percent). Though all of the purchasing managers are confident in their suppliers' readiness (100 percent), those in the very confident category drop significantly when compared to those that are very confident in their own organization (78% for their organization to 48% for their suppliers organizations).

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 45,000 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. (ET).

The next Manufacturing NAPM Report On Business® featuring the October 1999 data will be released at 10:00 a.m. (EST) on November 1, 1999.



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