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

NAPM - HOUSTON BUSINESS REPORT

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

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

ECONOMIC GROWTH CRAWLING

NO PRODUCTION INCREASE

EMPLOYMENT SLOWING

The Houston PMI (Purchasing Manager’s Index) showed a continuation of its deceleration in September for the fourth consecutive month. The PMI was 51.9 for September compared with 54.6 in August and 58.5 in July. A PMI reading of 50.0 marks a no-growth line, which may be reached in Houston by next month.

The Sales component of the PMI (there are eight component indices – see chart below) slowed for the fifth consecutive month with only 9% more survey contributors reporting increases in their Sales in September than reported decreases. Nearly half reported no change in Sales volume in the last thirty days.

The Production component failed to show any growth in September for the first time since February 1999. Only 14 percent of survey respondents reported Production gains in their firms in September, while an equal number saw a drop in Production levels.

Employment continued to reflect net growth for the past month, as it has in eleven of the last twelve months and twenty of the last twenty-two. The growth rate, however, slowed very significantly and, as now anticipated, will likely flatten further as Sales and Production rates continue to soften.

Purchases were in a negative mode in September with five percent more professional buyers reporting net reductions in their purchasing volume than reported net increases in the amount of material they bought. This was the first time Purchases reflected a month-to-month decline since October of 1997, and only the second time since March of that same year.

Prices increased slightly for the month, with nearly eighty per cent of Houston’s purchasing execs seeing no change in their costs in the past thirty days.

Purchased Materials Inventory fell marginally in September and generally stayed in the same area it has been in throughout 2001, while Finished Goods Inventory saw it’s first increase, albeit small, since June of 1998, a period of 38 months.

Houston’s economy is clearly softening and sees no motivation presently to do otherwise. The question now is whether the national economy will develop and give Houston impetus for a near-term reversal.

Items in short supply: Good people, coiled tubing units, wire line crews, OCTG casing/premium connections, 13 chrome 100 yield tubing, hydraulic components from Italy, custom suture, pump parts, pumps, motors, electronic components, sub-contract machining, large O.D. tubing, coolers, chrome PVF, metal products requiring heat treating, heavy wall piping, custom metal components, special rubber products, castings, forgings.

Prices on the UP side: Plastic based extrusions, imported OCTG tubing, insurance for oilfield haulers, fuel, cutting tools, SS valves and actuators, regulators, stainless plate base price raised 6%, chrome PVF, metal products requiring heat treating, heavy wall piping, machining, freight costs, rental tools.

Prices on the DOWN side: MRO materials, rig rates, bearings, paper goods, MRO supplies, computer hardware, welding gases, fuel, rig prices (drilling rigs), pipe.

COMMENTS FROM SURVEY PARTICIPANTS

"Business is slowing with fiscal year approaching. Working to reduce surplus inventories of OCTG."

"Oilfield has dropped some – plants still at capacity but backlog down."

"No material impact on our business anticipated resulting from events of Sept. 11^th."

"We have spent most of our budget for this year, therefore activity will slow for the remainder of the year."

"We have not seen significant cancellations. Quotation activity has declined. Analysts are quoting 950 rigs as a down size number. Let’s hope for better."

"Backlog down, new orders coming in, but slow."

"Business has been strong and steady. Still waiting to see how recent events will affect our industry and the local economy."

"Recent events of "Attack on America" are expected to slow things down temporarily. Drilling and production business should pick up next year due to same."

"Sales have been good, but the Engineering and Customer Review cycles are eating up too much of the lead time. Consequently we go from feast to famine on the operations side of the business. This month we are very busy. Next month we’ll be looking for work!"

"This past fiscal year we lost money. This next year looks hopeful."

"Markets appear unstable at present."

"Flat month. WTC took the news this month."

"Most suppliers all giving a 5% increase. Seems standard practice."

"We are 4 – 5 weeks behind in production."

"Medical supplies are being directed to the East Coast due to disaster – seeing some price increases Sept. 1^st."

"Backlog is shrinking, finished goods inventory up, hoping for turn around in 4^th quarter."

"Sales, production, purchases and raw materials inventory always go down in September as compared to August due to seasonal nature of business."

"Rail service has caused big problems with delivery once the railcars are in Houston."

" Keeping the pace with a smaller slow down in purchases."

"Keep up your good work!" (Thank You – Editor)

"We are holding steady and looking toward the future months."

"Prices holding very steady."

"There continues to be a shortage of good people at all levels of labor – machine operators to purchasing professionals." - Editor

SEPTEMBER Index 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.