NAPM Report: Growth in Manufacturing Continues in April
•Purchasing Managers' Index (PMI)
•Production
•New Orders
•Backlog of Orders
•Supplier Deliveries
•Inventories
•Employment
•Prices
•New Export Orders
•Imports
•Buying Policy
According to the National Association of Purchasing Management (NAPM), economic activity in the manufacturing sector grew for the third consecutive month in April, providing continuing signs of recovery. The overall economy continued to grow in April for the 96th consecutive month, say the nation's purchasing executives in the latest Manufacturing NAPM Report on Business. However, economists noted the pace of production was not enough to revive inflation.
The report was issued by Norbert J. Ore, C.P.M., chair of the NAPM's Business Survey Committee and director, corporate purchasing, Chesapeake Corp. "The manufacturing sector continued to improve in April. Both production and new orders remained positive and it appears that the manufacturing sector has significant momentum, with a much broader base of growth this month as 16 of 20 manufacturing industries were above the breakeven line (an index greater than 50). Capital expenditures showed some improvement over March, but still remain weak by historical measures. NAPM's Backlog of Orders Index has strengthened significantly in the last three months and should help drive activity in May and June. The NAPM Price Index indicates the decline in prices paid by manufacturers all but subsided in April as the index reached its highest level since turning downward in January 1998."
"NAPM's Backlog of Orders Index gained additional momentum, indicating growing manufacturing order backlog, while NAPM's Supplier Deliveries Index sends a somewhat contrary signal that indicates deliveries are slightly faster. Manufacturing Employment failed to grow again in April for the eleventh consecutive month. NAPM's Price Index continues to decline, but at a significantly slower rate. Export Orders are once again growing and have reversed the downward trend that first surfaced in December 1997. Imports also grew during April. Our panel of purchasing managers say that business conditions are improving and many note a very positive environment for the second and third quarters. The major concern is steel imports and their impact on a depressed domestic steel industry."
NAPM's Purchasing Managers' Index was slightly lower at 52.8% in April. NAPM's Production Index decreased two percentage points from 59.6%in March to 57.6% in April. NAPM's New Orders Index declined 3.4 percentage points from 58.2% in March to 54.8% in April. NAPM's Backlog of Orders Index registered 53.0%, one percentage point higher than the 52.0% recorded in March.
NAPM's Supplier Deliveries Index moved to 49.4% in April down from 52.5% in March. The NAPM Employment Index is at 49.5 for April, slightly higher than the 48.0% reported in March. NAPM's Price Index in April is 49.9%; a significant slowing of the trend of deceleration that started in January 1998.
NAPM's Inventories Index showed continued inventory liquidation and at a slower rate than in March. NAPM's Inventories Index rose to 46.6% from 44.6% in March. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, seven percent of the purchasing executives felt they were too high (down from nine percent in March). On the other hand, 17% felt they were too low (down from 22% in March) and 76% thought they were about right (up from 69% in March).
NAPM's New Export Orders Index continued positive for a third month though decreasing 0.1 percentage point to 51.6%. Imports of materials by manufacturers continued to increase in April, but at a slower rate as NAPM's Imports Index was down slightly from 55.3 percentage points to 53.4% in April.
"The overall picture is one of continuing growth in manufacturing activity during the month of April," added Ore. "Production and New Orders remain quite positive and provide an indication that the manufacturing sector is gaining strength as we move toward the middle of 1999. Employment decline has slowed as the growth in the sector gains momentum. Commodity prices are declining at a slower rate, but only a few commodities appear on the up in price list."
Of the 20 industries in the manufacturing sector, sixteen reported improved business in April. Industries that reported improvement over March were (listed in order): petroleum; apparel; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); furniture; rubber & plastic products; wood & wood products; glass, stone & aggregate; primary metals; fabricated metals; chemicals; electronic components & equipment; food; paper; industrial & commercial equipment & computers; transportation & equipment; and instruments & photographic equipment.
"No commodities appeared on the Short Supply List. Commodities with reports of price increases were corrugated containers, diesel fuel, gasoline, linerboard, natural gas, high density polyethylene, and resins. Commodities with reports of price decreases include aluminum, caustic soda, copper, plastic, and steel," Ore stated.
Purchasing Managers' Index (PMI)
The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow during the month of April with an index of 52.8%. This is 1.5 percentage points lower when compared to March and the third month that the index has been above 50. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.
A PMI in excess of 43.5%, 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 April (52.3%), corresponds to a three percent increase in gross domestic product (GDP). However, if the PMI for April (52.8%), turned out to be the annual average for 1999, this would corresponds to a 3.2% increase in real GDP.
NAPM's Production Index grew in April for the fourth consecutive month, but at a slightly slower rate than it registered for the month of March. NAPM's Production Index in April is 57.6%, a decrease of two percentage points when compared to the March index of 59.6%.
An index above 49.8%, 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 April were (listed in order): petroleum; apparel; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); chemicals; rubber & plastic products; primary metals; electronic components & equipment; glass, stone & aggregate; fabricated metals; furniture; wood & wood products; paper; industrial & commercial equipment & computers; transportation & equipment; instruments & photographic equipment; and food.
NAPM's New Orders Index continued its strong performance, though at a slightly slower rate of growth, with an index of 54.8% in April, a decrease of 3.4 percentage points. A New Orders Index above 50.7%, 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 April, 17 industries reported higher rates of increase in new orders. They were (listed in order): petroleum; glass, stone & aggregate; apparel; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); furniture; wood & wood products; paper; primary metals; chemicals; rubber & plastic products; fabricated metals; electronic components & equipment; food; instruments & photographic equipment; industrial & commercial equipment & computers; printing & publishing; and transportation & equipment.
NAPM's Backlog of Orders Index (not seasonally adjusted) increased in April for the second consecutive month after ten consecutive months of decline. The index recorded 53.0%, one percentage point higher than March. Twelve industries reported an increase in backlog of orders during the month: furniture; leather; rubber & plastic products; primary metals; wood & wood products; fabricated metals; industrial & commercial equipment & computers; paper; chemicals; printing & publishing; electronic components & equipment; and food.
NAPM's Supplier Deliveries Index in April indicates delivery performance accelerated with an index reading of 49.4% (a reading below 50 indicates faster delivery performance) after reporting slower for three consecutive months. The industries reporting slower supplier deliveries in April were: petroleum; textiles; rubber & plastic products; electronic components & equipment; fabricated metals; and industrial & commercial equipment & computers.
Manufacturers' inventory activity in April indicated a slower rate of reduction than reported in March. NAPM's Inventories Index for April rose to 46.6% from 44.6% in March. This continues a long-term trend of inventory reduction by manufacturers. An Inventories Index over 41.5%, 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 April over March were: furniture; apparel; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); food; and fabricated metals.
NAPM's Manufacturing Employment Index was 49.5% in April, up from 48.0% in March, an increase of 1.5 percentage points. This is the eleventh consecutive month in which manufacturing employment has failed to grow. An Employment Index above 47.0%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Ten industries indicated growth in employment and they were: apparel; tobacco; rubber & plastic products; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); furniture; wood & wood products; food; fabricated metals; electronic components & equipment; and transportation & equipment.
NAPM's Price Index attained its highest level since December 1997, but still failed to indicate higher prices overall. NAPM's Price Index gained 6.7 percentage points to 49.9%, up from 43.2% in March. The index indicates lower prices paid by manufacturers for the sixteenth consecutive month. In April, 15% of purchasing executives reported paying higher prices, 19% reported paying lower prices, while 66% reported that prices were unchanged from the preceding month.
A Price Index below 46.7%, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The industries reporting paying higher prices were: miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); glass, stone & aggregate; food; textiles; printing & publishing; and transportation & equipment.
NOTE: A list of commodities up in price and down in price is available at the end of this report.
NAPM's New Export Orders Index for April continued positive for the third consecutive month following 14 months of decline (an index exceeding 50%) with an index of 51.6%. NAPM's New Export Orders Index declined 0.1 percentage point during the month. Industries reporting growth in new export orders in April were: petroleum; wood & wood Products; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); paper; fabricated metals; chemicals; rubber & plastic products; electronic components & equipment.
Imports of materials by manufacturers continued to grow in April with an index of 53.4%. However, the rate of growth is 1.9 percentage points lower than the 55.3% reported in March. The eight industries reporting growth in import activity for April were: leather; miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); fabricated metals; rubber & plastic products; printing & publishing; food; industrial & commercial equipment & computers; and transportation & equipment.
Average commitment lead-time for Capital Expenditures rose to 115 days in April, up five days from March. Average lead-time for Production Materials is 45 days, down one day from March. Average lead-time for Maintenance, Repair, and Operating (MRO) supplies declined to 24 days, down four days from March.