Purchasing index hints worst is over
March 12, 2001,
TEMPE, AZ -Although the purchasing managers' index rose in February-for the first time in five months-U.S. manufacturing appears to be stuck on a southward track. Still, there were signs from the National Association of Purchasing Management's (NAPM) survey that the bottom has been reached.
However, he was encouraged by the February numbers, saying, "We see slowing in the rate of decline in six of the nine [indices]. Bright spots were new orders and backlog of orders, which, though still declining, slowed significantly in their rate of decline."
NAPM's backlog of orders index was 37 percent, up 450 basis points from January. The new orders index rose 300 basis points from January to February, to 40.8 percent; but the inventories index finished the month at 45.7 percent, up 350 basis points from the January level and indicating a slower pace of inventory liquidation. In addition, the employment index plummeted 580 basis points from January to February, to 37.2 percent. The prices index fell 760 basis points between the two months, to 58.1 percent.
Observers outside of NAPM also found reason for hope in this survey. For Stan Shipley and Mary Dennis, both senior economists with Merrill Lynch, the February index hinted "that the downward momentum in the industrial sector is abating. The prices-paid index dropped sharply due to lower natural-gas prices."
David Orr, First Union Economics Group chief economist, said the February NAPM data might indicate that the manufacturing sector bottomed out in January, although it "shows a manufacturing sector still clearly mired in recession." Orr put a rosy light on some of the components that increased their February numbers.
New orders, he said, "had not seen a decent uptick since last February." Order backlogs had "a nice increase," and export orders were "less bad."
However, Michael Niemira, vp of Bank of Tokyo Mitsubishi Ltd., said these recent results depicted a contracting manufacturing sector, although the February readings weren't as weak as January's. Noting that the prices index showed reduced pressure from prices on manufacturers, Niemira added, "This continued to be the rub, in that demand has weakened but prices have not. The high prices continued to be driven by high energy costs."
NAPM's Ore was also reserved, saying that "it takes more than one month's data to make that determination [that manufacturing is safely headed upward]."
NAPM also reported that only one of the 20 industry categories involved in the survey, tobacco/food, said business had improved in February.