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

NAPM - HOUSTON BUSINESS REPORT

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

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

HOUSTON’S ECONOMY:

GROWING, BUT SLOWING

EMPLOYMENT STILL EXPANDING

Houston’s PMI (Purchasing Manager’s Index) lost ground in August to 54.6 from July’s 58.5 and in so doing recorded the lowest growth rate for the local economy since October 1999. Even so, the Houston area economy continued to expand for the thirtieth consecutive month. The high water mark for the PMI was 62.7 in January of this year and has since lost about thirteen per cent of its growth rate.

The Sales and Production indices both slipped in August according to NAPM survey contributors. Sales growth slowed for the fourth consecutive month with 32% of survey respondents reporting increased sales in their respective firms while 20% saw net sales fall-off in their organizations between July and August results.

The Employment component of the PMI was perhaps the most positive number of the latest survey, showing continued job growth in the same positive range that it has reflected in eleven of the past twelve months. It would appear that employment is playing catch-up with the rapid Sales and Production gains of the past year and a half.

Purchases slowed again in August with nearly half of Houston’s supply chain executives reporting that the level of their buying activity was not changed in August despite continuing drops in inventory levels.

The closely watched Lead Times component (shipping time from seller to buyer) softened in August also with only 24% of those surveyed reporting longer lead times while two thirds of respondents saw no change in the past month.

Prices Paid was flat (no change from July to August) with an equal number of area purchasing pros having seen increases and decreases in the prices they paid for goods and services. For the time being inflation is virtually non-existent, according to those making the buying decisions.

Inventory downsizing moderated in the past thirty days with Purchased Materials Inventory actually reflecting a slight increase.

It’s likely that the growth rate of Houston’s economy will shrink further but it’s not a given that growing itself will cease. National and International economic numbers which are increasingly impacting Houston may improve before they can cause Houston’s PMI to become negative.

Items in short supply: Quality machined parts and labor, heat treating, pumps, motors, sub-contract machining, large O.D. tubing, braking components, piping (chrome, high nickel, heavy wall carbon), chrome tubing with 110 yield, bearings, gears, SS fittings, tube fittings, valves and regulators, electrical components, chemicals, Potter Brumfield parts, veneered wood panels, architectural metals, spud barges, electric line units, coiled tubing equipment, small portable house trailers, nickel base material.

Prices on the UP side: Manufactured tooling (dies, taps and drills), coatings, machined parts, titanium bar, specialty metal items, warehousing, chrome tubing, freight, fuel, lubricants, chemicals, fittings, architectural metals, tug day rates, nickel base material.

Prices on the DOWN side: Paper goods, nickel bar, fuel, ADP – RAM, glycols, caustic soda, solvents, offshore rigs, diesel fuel, computers & components, vaccines, offshore drilling rig rates, MRO materials, safety equipment.

COMMENTS FROM SURVEY PARTICIPANTS

"New orders have slowed down, cut back in manufacturing people."

"Customer base very nervous. Commitment changes almost daily."

"We are starting to see trends indicating a potential Seller’s Market developing in the industrial marketplace."

"Turnover of personnel increasing; either better paying jobs or less stressful jobs - morale problems more evident."

"Production continues to increase. As long as oil & gas pricing remains constant, business looks good thru 4^th Qtr 2001 and into 1 & 2^nd Qtr 2002."

"Rig activity is slowing down – still having problems with oilfield haulers – too much paper work – no help in sight."

"Drilling rig day rates have declined, the rig count is in decline, and eventually orders for equipment will likely follow."

"Quality of people - machine operators (is a concern). Short supply (of) training is slowing production."

"Almost every one of my freight companies has submitted notice of price increases."

"The pipeline has filled with finished parts – incoming orders have dropped sharply. People are looking for things to do."

"Hiring slowing, continue to be busy especially in aftermarket parts. Received a couple of really good unit orders that will keep us busy for 6 – 8 months.

"Good pitching will generally beat good hitting; likewise good relationships with vendors will generally yield the best results also."

"Busy, Busy, Busy – having a hard time keeping up."

"Offshore drilling rig rates starting to decline – more to come."

"Steady for now."

"More work in Houston than can be done!"

"Business is solid and 3^rd quarter should be good result."

"Production is starting to make a good dent in demand. Still a long way to go."

"Back to business as usual after the flood. 1^st Qtr capital orders coming in, busy, busy."

"Very competitive Buyer’s Market. Suppliers are hungry."

"There are no items in short supply, I am able to get anything, just not at my prices."

"Business is good – hope it continues."

AUGUST 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.