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

NAPM - HOUSTON BUSINESS REPORT

August 10, 2001 ........................................by Douglas R. Miller, C.P.M......................................... 713-988-7306

Copyright 2001 by NAPM-Houston, Inc. All Rights Reserved

HOUSTON’S ECONOMY STILL GROWING

JOBS? MORE

INFLATION? NO

Houston’s PMI (Purchasing Managers Index), was 58.5 in July, showing little change in the growth pattern that has been in evidence for the past twenty-nine consecutive months. All elements of the PMI (there are eight; see chart below) contributed to the positive reading.

The rate of growth slowed for Sales and Production in July, according to NAPM survey contributors, although both areas continued to show strength with nearly forty per cent of respondents having seen growth in both Sales and Production in their respective firms during the past thirty days.

Employment continued growing in Houston in July with a third of respondents having witnessed more job development in the past month and more than half seeing no change in employment levels from a month earlier. Only fifteen per cent reported a drop in their job count. The employment growth rate has been at the same level for nine of the past ten months, and it shows no sign of changing at the moment, particularly with Sales and Production levels having expanded so consistently since turning around in March of 1999.

Prices Paid responses clearly reveal that although some commodities are reporting price escalation there would certainly appear to be stability overall with only nineteen per cent of Houston’s purchasing professionals facing price increases and nearly eighty per cent reporting no change from June to July.

Purchases are continuing to grow at about the same rate as Sales and Production although there has been some evidence of easing in this category in two of the last three months.

Lead Times have been varying somewhat from month to month but have remained in a range that appears to be manageable for most organizations.

Purchased Materials Inventory fell slightly in July but it also has remained in the same range, nearly neutral, for several months.

Finished Goods Inventory was brought down rather sharply in July, which has been occurring in most months since mid 1998. It seems impossible to tell when the cupboard will be bare.

Overall, Houston’s economy continues to counter the U.S. numbers, and shows very little signs of following the national trend. The Houston economy appears very stable at this time.

Items in short supply: Machined goods, some specialized electronics, chrome heavy wall tubing, custom suture, glass jars, molded rubber products, steel fabricators, hydraulic components, heat treating, some chromes, calcium chloride, saltwater disposal and storage barges, rigs (land and offshore), beryllium copper, high end nickel products, computer & electronic products, semi conductors.

Prices on the UP side: Plastic extrusions, insurance rates, freight, machining, electrical components, dry ice, titanium, machined parts, castings, forgings, electronics, energy, fuel, freight, sub-contract machining, chromes, calcium chloride, energy surcharge, lubricants, dry ice, labor, overhead rates, small quantity items.

Prices on the DOWN side: Fuel surcharges, fuel, computers, polyethylene products, land based drilling rigs, stainless, nickel grade steels, printers, vaccines, natural gas, computer goods, poly roll stock, shrink, stretch, paper bags.

COMMENTS FROM SURVEY PARTICIPANTS

"OCTG market slowing down. Forecast of 10-40% decline in rig activity predicted."

"Half of senior mgmt. pressuring to cut costs by standardizing – the other half refusing to allow change for fear of customer reaction."

"Overall business strong but paranoid – concerned about inventory build-ups and overall supply chain continuity."

"Pricing seems to be plateau – oil industry holding off, waiting for gas and oil pricing to resume."

"Still very busy despite slow economy."

"All units up and running after the flood!"

"Still trying to get the forecast and what’s shipping within 20% of each other. Hard to build what isn’t forecast. OEM contract becoming a bigger % of business shipped but not billed."

"Having difficulty with oilfield haulers following instructions. We still have too much paperwork and no relief in sight."

"July is normally a slow month for us. We look for business to pick up as the summer winds down."

"Training personnel is slowing production."

"Still long lead times on hydraulic components but overall delivery is improving. Business is slowing."

"We have hired 1900 new employees since Oct. 2000 for our expansion program." (Health care industry)

"Orders continue to be slower coming in."

"Fish or cut bait time…. everything too regular. Call it a gut feeling, things will move up or down shortly. We are planning for growth but I dunno!"

"Last quarters results were on target. Still going through peaks and valleys in sales and shipments, but overall things look healthy for the next couple of quarters."

"Machine shops providing quality work are loaded."

"Busy, busy, busy. Hard to find qualified employees."

"OCTG prices have flattened out due to inventories/O&G prices. Expect onshore rates to decline over next several months."

"It’s one o’clock on Friday and I’m still working – nuff said."

"Prices for fuel are decreasing, however, surcharges are slow to respond to the down-swing."

"Surcharges added for fuel on most invoices."

"Several personnel changes have been effected due to loss of staff in different areas."

"Entire company closed down for one day to assist flood victims, this was a tremendous experience as a team to help the community."

"Short supply of quality, service, on time deliveries, and common sense."

"Still more work than we can handle."

"Replacing flood ruined inventory and equipment – not buying due to good sales."

"Things are getting worse. We have given up hope that the 3^rd quarter will improve so all efforts are being geared toward the 4^th quarter."

"Shipping finished goods is delayed due to manufacturer’s mergers and ability to keep their orders on schedule during transition."

"Some suppliers enforcing MPQ (min. purchase qty.). Pushing to sell what they have packaged, rather than a minimum quantity customer needs."

"Short supply of quality, service, on time deliveries, and common sense."

"Short supply of good people with knowledge of parts and equipment."

"High demand for product, sales over-running our headlights (again)."

JULY Index 2000/2001 (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.