• David Gill

NAPM hits lowest point since March of 1991

TEMPE, AZ -Manufacturing continued heading south in the first month of 2001-and so did business confidence.

The purchasing managers' index, the monthly indicator of manufacturing activity compiled by the National Association of Purchasing Managers (NAPM), slipped to 41.2 percent, down from a revised 44.3 percent posted in December.

The index underscores the feelings of business chief executives about the economy, as reported by The Conference Board in its quarterly business confidence survey. The board's business confidence index fell 16 points in the fourth quarter of 2000, to 31.

"The overall picture is one of continued decline in manufacturing activity," said Norbert Ore, the chairman of NAPM's manufacturing business survey committee. "The manufacturing sector definitely lacks momentum as we start the New Year. Volumes are falling while many industries are still experiencing upward price pressures driven primarily by energy costs."

The 41.2 percent reading indicates that manufacturing failed to grow for the sixth consecutive month (a 50 percent reading is the line between growth and non-growth). It's also the lowest the index has been since March 1991, when the economy was in recession.

"That the manufacturing sector is in recession is no longer an issue," said Anthony Karydakis, director and senior analyst of Banc One Capital Markets. "The dramatic further drop of the NAPM index...heightens the uneasiness over the extent of the current slowdown in economic activity."

The index's current level "seems to paint a picture that the overall U.S. economy is already in a recession," said Michael Niemira, vp of Bank of Tokyo-Mitsubishi.

"Weakness is apparent in all of the index's major components and a few have fallen to levels not seen since the deep recession of the early 1980s," said Mark Vitner, vp and economist of First Union Economics Group.

Vitner added that the production component index, which slipped to 37.9 percent, "marked the lowest level for that series since May 1982." The new-orders component, which finished January at 37.8 percent, "also exceeds the depths seen at the last recession, reaching a level last seen in November 1981."

Regarding business confidence, The Conference Board said 85 percent of the surveyed business leaders felt that current conditions are worse at this time than they were six months ago.

Yet Lynn Franco, director of the board's consumer research center, hastened to paint a more reassuring picture. Franco said, "The recent plunge in business confidence is yet another indication that a slower pace of economic growth will prevail in early 2001. But there is little evidence that we are on the verge of a recession."

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