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

NAPM - HOUSTON BUSINESS REPORT

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

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

ECONOMY REBOUNDING

SALES ENDS SLIDE

JOB LOSS SLOWING

The February PMI (Purchasing Manager's Index) clearly indicates a turnaround is in process in Houston's economy.
The index for February is 48.5, a full point better than January's 47.5. This appears to mark a path back to economic
expansion after the PMI has spent the past five months below the break-even point. By comparison, the national PMI
has breached the break-even point this month after eighteen consecutive months of contraction. And in Texas, the
Dallas/Fort Worth PMI has now been below 50 for fifteen consecutive months. The low point in D/FW was in the
mid-thirties compared to Houston's mid 40's.

The February Sales component of Houston's PMI was at zero, after four months of declining numbers. This
improvement seemed to be foretold over the last sixty days, however the magnitude of the move implies a solid
foundation for Sales growth over the next month

Production levels also improved significantly in February according to Houston supply chain executives. The
Production index for February was reported at +1, as opposed to January's -16. 20% of survey respondents reported an
increase in production output in February, with only 19% reporting decreases.

The Employment segment of the PMI showed marked improvement in February with the index going from January's
-20, where the index had been for three months, to -12, an improvement of about 40% over the prior month. With Sales
and Production levels in or about to be in positive index territory, Employment will likely follow shortly.

Purchases are still being reported as falling for the sixth consecutive month with nearly half of surveyed firms cutting
their buying in February.

Prices are nearly flat for the second consecutive month, with no immediate inflationary pressure in evidence.

Inventories continue to be reduced although at much slower rates than in the past four months.

It appears likely that Houston's PMI will be at or above the 50 mark in the next 30-60 days, with extended growth to
follow. This return to growth will be occurring earlier than was anticipated and could precede a very healthy
economic picture in Houston for the second half of 2002.

Items in short supply: 110 BHP diesel engines, PC components, casing, custom suture, hydraulic valves & gauges, SS adapters & valves, nurses, castings, valves, ammunition bunkers, breakers, contactors.

Prices on the UP side: tools for machine shops, printing, shipping rates, custom plastic tubing, insurance, fuel surcharge (freight), scrap surcharge (steel), vaccines, electronics, band saw blades, tooling, fittings, electrical components, forgings, castings, domestic ERW line pipe, highly engineered components, engine repairs, freight, steel, uniforms, transportation, polypropylene, bearings, corrugated steel.

Prices on the DOWN side: Hard drives, OCTG, surplus pipe, shipping and janitorial supplies, stainless, corrugated boxes, steel flat bar, computer components, fuel, mechanical tubing, honing, pipe, rebar, satellite comm. costs, MRO, polycarbonate, paint, glass, elec. components, PCBA's PC's & peripherals, gaskets, fasteners.

COMMENTS FROM SURVEY PARTICIPANTS

"We are watching carefully the idling capacity by producers of certain commodities. This is surely being done for pricing and inventory reasons, but a quick upturn in the economy may adversely affect lead times."

"Air cooler deliveries are starting to extend due to increased shop workloads. This is a good sign-but beware of price implications."

"Starting to deplete backlog, new sales projected based on gov't release of funds is trickling in."

"Capital expenditures for budget CY02 essentially axed. Sales forecast for 02 flat."

"New year price increases are hitting. Some down-sizing taking place."

"Sales have picked up again. We were planning to cut employees to 60 hours/week. Can't do it now that orders have picked up."

"We are ramping up slowly for drilling in 1st QTR. Outlook for 2nd QTR is strong."

"Business still slow, picking up slightly. Employees still being cut to keep up with down sales."

"Steel price increases are going to appear shortly due to FTC anti-dumping tariffs being imposed. Domestic producers will seize this opportunity."

"Beginning to see some softening in the oil and gas sector."

"Stainless surcharge will increase for the 3rd consecutive month."

"Along with all procurement for 12 facilities, I have 24 cost saving projects in the works. No stone is being left unturned."

"We are all being asked to economize and obtain lower pricing from vendors."

"Our shop is very busy building product to meet committed orders due out in the next 6 weeks. However, new business for our standard product line has virtually disappeared. Not sure what is going on in the marketplace."

"Another reorganization in the wind! I have been downsized, upsized, one-sized, undersized, hung out, hung up, bought, sold traded, borrowed. Somehow it doesn't matter anymore."

"The oil patch seems ready to start moving upward, again."

"We are developing a finished goods inventory for a certain number of units that are regular movers."

"Everything is so good, humming along, I'm waiting for the problem or opportunity."

"Extremely low level of new sales orders… production building to stock (finished goods inventory). More workforce downsizing is inevitable."

"Having to order smaller quantities which is raising prices paid."

"Business is BAD, employment down, work in shop very slow, trying to reduce inventory."

"Orders are the same but slow-downs are indicated."

"Upturn in our EPC business is stabilizing."

"Concern with pressure for private labeling companies for larger discounts and requirements to produce new models in shorter time frame."

"Business is at or near the levels normally expected this time of year. We have stabilized our current level of finished goods inventory and expect to increase production by summer."

"Homeland security is having a positive impact on workload."

FEBRUARY 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.