The National Association of Purchasing Management Houston Inc.,

The Houston economy grew in July for the third consecutive month but at a slower rate than in the previous month. The PMI (Purchasing Managers Index) was 51.3 (50 is break-even) in July, slightly slower than June's 52.3. On a broader scale the national PMI, as reported by ISM for July, indicated a slowing also as the Manufacturing and Non-manufacturing indices both reflected growth but at a rate about ten percent less than for the prior month. It would appear that Houston's economy is accurately mirroring that of the national economy and that fluctuation is occurring nation-wide and may be expected to continue doing so until several causative factors exhibit considerable stabilization. Those factors, both nationally and internationally, are certainly not secret and are in the news headlines daily.

The Production component of the Houston PMI fell back into negative territory in July, registering -7 as compared to +7 in June. The Production index has indicated contraction in seven of the last ten months in Houston. Twenty-six per cent of survey contributors reported slower production rates for July while only nineteen per cent saw increases in their firms.

Employment continued to slide in July according to Houston supply chain execs. The loss, however was at a single digit rate (-7) for the first time in the ten month downward trend. Two thirds of firms represented in the survey reported no change in manpower complement in the past month. That's the good news.

Sales continued to add wood to the growth fire for the third month running. Twenty-eight percent of organizations reporting saw Sales increases in July while only twenty-two per cent experienced Sales drops.

Purchases were reported to be in slight contraction in July, as they were in June, and Prices Paid was slightly higher for the fifth consecutive month, although eighty-one percent of purchasing pros reporting indicated no increases in the prices they paid for goods and services in the last thirty days.

Inventories, both Purchased Materials and Finished Goods, reflected continuation of the now four-year-long program of divestiture. "If you receive an order for it, then you make it."

Items in short supply: Steel/aluminum cans, castings, bearings, hydraulic motors, hydraulic pumps, vaccines, HP hospital standard computers, film, capacitors, IC's, specialty rubber parts, electrical components, O-rings, seals, gaskets, 1" chrome tubing, odd sized OCTG/tubing, molded phenolic components, homopolymer resin

Prices on the UP side: Steel/steel fabrications, castings, homopolymer resin, plasticizer, TiO2 (white pigment), carbon black, copolymer resin, stabilizers, electricity, truck engines, fiberglass cloth, used OCTG, tubing, labor, travel management services, items containing moly (chrome moly pipe), all HDPE items, poly roll stock, industrial poly bags, shrink/stretch wrap, vaccines (MMR and Prevnar), swivel hooks, freight, steel pipe, aluminum/steel bar stock, molded parts, ERW casing, insurance, PVC, plastic molded fittings, ABS.

Prices on the DOWN side: Diesel fuel, gasoline, paper goods, office supplies, boxes (corrugated), OEM purchased parts, MRO supplies, computers/components/peripherals, hydraulic oils, mobile communication services, rubber fabrications, computer services.

COMMENTS FROM SURVEY PARTICIPANTS

"Business is very slow, problems with latest software upgrade released."

"Our recent re-alignment has left the Purchasing Department short handed, under-trained and over-worked with no hope of relief in the foreseeable future."

"We're looking at a dip in procurement activity through the end of the year."

"Business is incrementally better. Margins are not as good as hoped on products, but should improve. Managing the company-controlling costs and maintaining customer service-very difficult."

"Business still on a roller coaster, but starting to see more up than down."

"Backlog is still decreasing; sales seem to be stabilizing; marketing still feels outlook is good for fourth quarter."

"Business hasn't been this slow in 25 years."

"Business is steady but trouble in the financial market is eroding confidence. I hope we can sustain this growth."

"We are on a Cost Savings Initiative after our large expansion project."

"Business is holding its own. Doing well."

"Demand for spare parts very good. We have met and exceeded spare part sales volume for 1st & 2nd Qtr's. Drilling rate is picking up. Looks good for 2nd half."

"Raw bar stock is going up due to tariffs."

"Standard product line, which is affected by drilling activity, continues to be soft. Our custom, highly engineered products used on large platforms and power plants, continues to be strong and is over-burdening our engineering dept. Management doesn't believe the economy has turned the corner yet."

"Actual sales are not meeting plan."

"Business pretty flat. Working hard to reduce inventories."

"Hiring freeze."

"It's been a busy - but fast month."

"Most people in planning are wearing more than one hat."

"Production is down only in specific fields, however it impacts the entire business. Oil & gas prices keep us looking good right now."

"As soon as engineers prove a new tool, orders come in. Word of mouth about new tools spreads like wildfire."

"Things are slowing down in purchasing. Looking for 12 months of very contracted spending."

"Steady incoming of new orders for small units; no large systems. Keeping up with shipments."

"Suppliers are now beginning to use the "tightening of supply due to '01 consolidation and rationalization" card to try to recoup margins from '01. Concern now is what telecommunications pricing will do with recent major provider troubles."

(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.

	NAPM - HOUSTON BUSINESS REPORT
August 12, 2002	by Douglas R. Miller, C.P.M.	713-988-7306
	Copyright 2002 by NAPM-Houston, Inc. All Rights Reserved