The National Association of Purchasing Management Houston Inc.,

The Houston PMI (Purchasing Managers Index) revealed growth in the Houston economy in August for the fourth consecutive month. The rate of growth accelerated slightly in the past month with the PMI rising to 53.0 from the 51.3 reported in July. This was the highest point the PMI has reached since August of 2001. The PMI has reflected fairly steady improvement in the Houston economy since its low point (46.1) in December 2001.

The Sales component of the PMI (there are eight components; see chart below) rose in August from 6 to 11, indicating an accelerating of new Sales growth in the past thirty days. This was the highest Sales index recorded since August 2001 and appears to be setting a steadily upward-moving trend for Sales.

Production rates improved in August and contributed to the positive PMI movement. The Production rate was "0" for the past month, (meaning that the percentage of contributors who reported increases in Production was equal to the percentage of those who reported decreases). The Production index has been in negative territory in seven of the last ten months,

having hit -22 in April of this year (meaning that 22% more firms experienced Production rate reduction than reported Production growth.)

Employment continued to dwindle slightly in August according to Houston supply chain executives. The Employment component of the PMI was below the break-even point for the eleventh consecutive month, but after recording a low point of -23 in March the index has improved to -4 over the past five months. The slow recovery of this key indicator may imply a solid foundation developing and an imminent move into growth territory.

Inflation remains well under control with eighty per cent of survey participants reporting no change in the prices they paid in August.

Both Purchased Materials Inventories and Finished Goods Inventories fell again in August for the forty-ninth consecutive month.

All factors seem to point to continued, controlled, moderate economic growth for Houston.

Items in short supply: Hydraulic power units/components (British), bearings, Prevnac vaccine, large OD safety valves, titanium tubing, high nickel alloy speciality products.

Prices on the UP side: Alloy lifting hooks, corrugated packaging and paper products, steel-structural/tubing and bar stock, capacitors and semi's, insurance, steel-aluminum bars, shipping cost (freight), shipping materials, Lexan, Ultem (resin), travel agencies-up charges on tickets, screw machine parts, rubber components, seals, O-rings & gaskets, stabilizers, drill bits, drilling jars, titanium tubing, forgings and castings, homopolymer resin, white pigment, plasticizer and packaging, steel, PC, PVE, steel components & fabrications, anything containing polyethylene or corrugated.

Prices on the DOWN side: Paper goods, machine parts, cartons, natural gas, diesel fuel, oils & lubes, communication services, cell phones, pagers, IT hardware, PCBA's hotels, airfares, construction services & projects.

COMMENTS FROM SURVEY PARTICIPANTS

"It seems many suppliers who reduced inventory are not prepared for our demands. Many are announcing price increases. I hope it does not squash the growth of the past few months PMI."

"August was slow and uneventful."

"Wish we could get a more stable forecast. Disposable sales are up but the capital equipment is slow. Can't survive on disposable income."

"Cost reduction is a major roll in the 3rd & 4th qtr."

"Roller coaster ride, 1 month busy, 1 month not. Hope to raise the valleys - get more stable."

"Commodity pricing for oil and gas is good. So where is the business? Bar and tube mills have minimal backlogs. Projects for the 4th qtr. are flat."

"Business still is unstable, looks like it's going to stay down for remainder of year."

"Selling from our finished goods inventory, our backlog is now down; still looking for business to move forward."

"Crunch time! Time to reduce operating costs."

"Business is good, very healthy."

"A lot of R & D work in the oil patch."

"Production is strengthening for new units slightly. Spare parts sales continue. Growth is slow…. But it is real and it is there!"

"We have been offered some very substantial deals from some of our preferred services suppliers so that they can keep their employees working."

"Overall, sales for the next 3 to 4 months look strong in all of our business sectors. Purchases were down in July, but August is going to be heavy as Engineering starts releasing their projects. Production will be slow through August waiting for material to arrive."

"Senior management is relying more and more on purchasing to be part of strategic planning."

"Things" are not getting worse. However, improvement is slight."

"EPC market conditions are volatile. Shops known for competitive prices and on-time deliveries have work. Some shops that are able to sell quality also have some work. The current market, however, is shifting towards price."

"Homeland security is having a positive impact at present."

"Drilling activity continues to be strong; we are trying to take advantage of good oil & gas prices for 3rd quarter."

"Finally able to put some safety stock on the shelves. Forth quarter looks promising."

"Keeping a pace."

"Seasonal adjustment to reduce inventories. Overall sales early in the year were down but current month's and remainder of the year are meeting budgets."

"Labor difficulties on West Coast continue trend toward increased raw materials inventories of goods from Asia."

"Even though we show production, purchases and purchased inventory all up for this month, we were at our lowest level in the past 5 to 10 years for these categories in July, so we really have no where to go but up."

"Time and energy are in a short supply."

(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
September 10, 2002	by Douglas R. Miller, C.P.M.	713-988-7306
	Copyright 2002 by NAPM-Houston, Inc. All Rights Reserved