• David Gill

NAPM shows pace of slowdown speeds up

If the May index of purchasing executives shows anything, it is that it's possible to accelerate the pace of slowing down.

As compiled by the National Association of Purchasing Managers, the purchasing managers' index (PMI) fell to 42.1 percent last month, compared with 43.2 percent in April. Given that the 50 percent mark in this key indicator is the bar between growth and contraction, the May result marks the 10th consecutive month of decline for the manufacturing sector.

Images of the manufacturing economy in braking mode abound in the assorted commentary on this result. NAPM's chairman of the manufacturing business survey committee, Norbert Ore, said, "The manufacturing sector continued to decelerate, and at a faster pace, in May. May appears to be a continuation of the soft start for the second quarter that we saw in April … The key indicators continue to decelerate at a faster pace."

Among the sluggish key components are production, new orders, order backlogs, employment and new export orders. Of an even more serious nature, said Ore, "The average PMI for the months of January through May (42.3 percent) corresponds to a 0.2 percent annual decrease in real gross domestic product."

Analysis from outside the NAPM tells a similarly bleak story. Tim O'Neill, chief economist for the Bank of Montreal, said, "The May NAPM report…reinforced the impression of weakness in [the manufacturing] sector."

O'Neill's analysis accompanied his report on U.S. payroll employment, which dropped 19,000 last month. "The weakness in May employment was largely concentrated in manufacturing," he said. "The pace of employment decline in this sector shows no signs of abating as the magnitude of the drops has worsened over the last seven months."

An assessment from Carol Stone, analyst with Nomura Securities International, underscored the uneasiness about the manufacturing sector. Noting the decline in the NAPM index's key components, Stone said, "There's no question whatsoever that the manufacturing sector is in a deep and broad-based recession. A sharp drop in the new export orders index suggests weakness abroad and the stronger dollar are taking their toll."

Employment levels are clearly a key to the overall health of manufacturing —and judging from the recent figures, that health is not good. Mitchell Held, managing director of equity research for Salomon Smith Barney, noted that manufacturing employment fell 124,000 in May, and has fallen 675,000 since July 2000.

NAPM's Ore said, "The overall picture is one of continued decline in manufacturing activity in the month of May. Major concerns are slowing demand, both domestically and internationally, and energy-related issues."

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