National Association of
Purchasing Management - Houston, Inc.
PO Box 771203 - Houston, Texas 77215 -1203

NAPM - HOUSTON BUSINESS REPORT

February 11, 2002 ........................................by Douglas R. Miller, C.P.M. ........................................713-988-7306

Copyright 2002 by NAPM-Houston, Inc. All Rights Reserved

IS THE ECONOMIC DROP OVER ?

PMI POINTS UPWARD

SALES DOWN, BUT IMPROVING

January's PMI (Purchasing Manager's Index) seems to provide substantial evidence that Houston's economy has
reached the bottom of its current, short-lived slide into contraction. The PMI for January is 47.5, compared to
December's 46.1 and marks only four months since the index fell below the break-even point of 50. Could Houston
return to a growth pattern as early as 60 to 90 days from now? The numbers reported for January imply a clear
possibility of an early return to economic growth, maybe before the end of the first half of 2002.

The Sales component of the PMI was perhaps the most positive indicator in the January PMI. The number of survey
respondents reporting fewer Sales in their firms dropped by 1/3 from December. Not all of those contributors
witnessed Sales increases in the past thirty days (some saw no change), but for the second successive month there
has been no further erosion of Sales numbers, and in fact, some improvement.

Employment, although still decreasing overall, maintained the numbers reported in December, including the 70% of
survey respondents who saw no change in job numbers in the past month.

Production and Lead Times were also reported as having seen little or no change in January from the levels
reported a month earlier. More survey participants reported slight increases and slight decreases in their Production
levels with the "unchanged" column falling.

Purchased Materials inventory and Finished Goods Inventory were reduced again in January, as they have been for
almost all of the past three and a half years, but at about the same rate of depletion as was the case in December.

Prices Paid was the component that contributed most noticeably to the rise in the PMI in January, however, that
significant change (-23 in December, to 0 in January) likely was spiked by a round of price increases that were
previously announced for launch in January. It remains to be seen whether all those increases will stick. In some
soft areas of the economy they may not. Potentially, Prices Paid could weaken in the next thirty to sixty days,
however, all other areas of the PMI appear to point to flattening, with improvement just ahead.




Items in short supply: Nickel alloy, quality tools, hydraulic power units, vaccines, castings, electronic components, hydraulic valves, actuators and components, specialty valves, specialty machining.

Prices on the UP side: Small quantity orders, taps, end mills and other tooling, electrical components, hydraulic winches, electric winches, MMR & Tripedia vaccines, electronics, castings, electrical components, machined carbides, UPS rates, FedEx rates, forgings, tubing, running services, freight, steel, polystyrene, polypropylene, PVC.

Prices on the DOWN side: Stainless steel, some plastics, MRO materials, small corrugated box sizes, structural steel & stubbing, flat bar, paper products, PC's & components, steel, nickel & titanium materials, electronic circuit board assemblies, OCTG, used tubing, diesel fuel, capital equipment (PC's & Copiers), calcium carbonate (limestone & marble), TID2, sea freight, nylon, poly carbonate.

COMMENTS FROM SURVEY PARTICIPANTS

"Incoming orders for Jan. looking better than December, but still not that good."

"We are seeing some relief from the international side of the business. Domestically, the 3rd QTR is starting to be the target for business as usual."

"Looking at increases (in price) for some stock items to 4%.

"No orders coming in. Business does not look good for near future."

"At year end, here comes the automatic price increases. Still I question everything, reject the increase and demand price reductions. Somehow, last year's price is maintained.

Suppliers must justify everything."

"A few foreign orders, none for domestic oil service companies. Hiring freeze."

"We are holding-on, waiting for the upswing."

"Expect a slow Q1 with gradual increase in sales for spare parts. New unit sales are off. Expect overall 15% decrease in sales for 2002. Hiring freeze is on."

"Customer inquiries are still coming in strong indicating good business still out there. We have recently lost some significant orders, however, due to intense competition from the Far East that we haven't seen in quite some time."

"January order rate noticeably higher than Q4 average - high hopes of a sustained improvement."

"Not quite sure how, but we continue to be busy. Fluctua-

tions in Oil & Gas haven't seemed to "trickle down" to us."

"Companies lacking the ability to reduce costs are finding it difficult to maintain volume and profit levels."

"Gas & Oil pricing has everyone preparing for slow-down in Q1 & Q2 - long term prognosis is still very good."

"Beginning to see things slow down."

"Flat period affected by holiday season."

"Orders slowed down the Q4 of 2001, but they seem to gradually be picking up this past week."

"We are experiencing 2% to 3% across the board increases"

"The 1Q has started off slowly, but the outlook looks good. Worldwide production cuts will impact us favorably."

"We are limiting over-time hours worked. We plan to scale back hours soon."

"We will be re-organizing for the next couple of months. Busy, busy!"

"Very healthy sales thus far in January."

"Seems to be stabilizing on the purchasing side."

"Sales backlog still down, capital budgets for 2002 dropped from 2001 levels, expect employment and inventory levels to downsize."

"Starting to deplete backlog. New sales projected based on government release of funds. (Our customers are Universities & Colleges.)"

"Business good - hope it continues."

JANUARY Index 2001/2002 (9 months)

(Note: Each monthly index was calculated by subtracting the "DOWN" percentage from the "UP" percentage. The indices are not seasonally adjusted.)

A reading above 50 indicates that the Houston economy is generally expanding; a reading below 50 indicates that it is generally contracting.