• David Gill

Purchase managers' index continues slide

TEMPE, AZ -The manufacturing sector has clearly entered some unhappy times. In December, for the fifth month in a row, the key purchasing managers' index (PMI) fell-and fell harder than it did in November.

As compiled by the National Association of Purchasing Managers, the PMI was 43.7 percent last month, exactly 400 basis points off its November reading of 47.7 percent. The December percentage was the lowest for the index since April 1991, near the end of the 1990-1991 recession.

NAPM's Norbert Ore, chairman of the association's business survey committee, said of the indicator's latest dive, "Manufacturing activity has fallen sharply in the fourth quarter as the production index (a component of the overall figure) has been below 50 (the good-health marker) for three consecutive months."

"New orders continue to be a concern as that index (which finished December at 42 percent, 640 basis points below its November reading) has failed to grow since June and new export orders fell below 50 for the third consecutive month," Ore added.

Checking the behavior of the other components, the backlog of orders index registered 36 percent, which, according to the association, means that manufacturers had smaller backlogs for the eighth consecutive month. The inventories index stood at 39.8 percent, indicating a faster rate of inventory liquidation than in November. The employment index finished at 42.8 percent, down from 46 percent the previous month.

David Orr, chief economist for First Union Economics Group, said the 43.7 percent figure "would correlate with a meager 0.5 percent annual rate of growth in real GDP.[which] would not technically be a recession.but certainly a very hard landing."

Orr added that the index's plunge over the past year "should convey to the Fed a sense of 'high anxiety,' if not panic." He pointed out that December 2000's PMI was below any monthly index reading from the 1995-1996 "soft landing," and lower than any reading in 1989.

Michael Niemira, vp and analyst for Bank of Tokyo-Mitsubishi Ltd., was almost as skittish about the PMI as Orr, saying, "This is shaping up to be the most severe slowdown for the manufacturing sector since the last recession."

Noting that the purchasing-manager respondents to NAPM's survey cited "significant weakness in exports," Niemira went on to say, "To the extent that the [fall in] the euro has been blamed for the weakness here, its turn in recent weeks should strengthen export orders and overall orders with it."

Ore appeared to share the analysts' view. "The manufacturing sector is definitely struggling at this point," he stated. "For manufacturing, higher interest rates and higher energy prices in 2000 contributed greatly toward a lackluster year for most of the sector."

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