The National Association of Purchasing Management Houston Inc.,

The Houston PMI (Purchasing Managers Index) fell below the break-even point in September after four consecutive months of growth. The PMI was 48.8 for the month compared to 53.0 in August.

The Sales component of the PMI fell in September after rising in August to its fastest growth rate since August 2001. Twenty per cent of survey respondents reported lower Sales for the past month while sixteen per cent reported higher Sales rates. Thirty-one per cent had reported Sales increases in August, prompting speculation that Sales had finally "turned the corner" and was likely to sustain its growth trend.

Production results have also vacillated for the past several months with September ending as the third worst month of 2002 in terms of Production growth. 22% of Houston's supply chain execs reported lower Production rates in their firms over the past thirty days.

Employment remained at the same level it has loitered at for the past three months, just below the breakeven point. Employment has now been in negative territory

for twelve consecutive months, even though the rate of job loss has been slowing since April. Hiring decisions are generally being approached with a great deal of caution and a view towards what appears to be a clouded future.

Purchases declined overall in September for the 13th consecutive month and at a rate that has been nearly constant since June.

Prices Paid showed a slight elevation of the minimal inflation rate that has been the hallmark of this category for eleven months. It is unlikely that any significant change will occur in Prices Paid through the balance of 2002.

Purchased Materials Inventory was at breakeven in September and Finished Goods Inventory rose slightly for the first time in fifty months.

Houston's economic ship has continuing rudder problems and in addition it seems to be running on only one engine. Is that because of engine breakdown or lack of fuel?

Items in short supply: Electronic parts, specialty rubber products, hydraulic components, bearings, tool steel grade of raw bar stock, vaccine, hydraulic power unites, hydraulic motors (U.K.), electric winches, hydraulic parts, poshed barge rigs for inland waters, rig hands, cast iron machined components, high nickel alloy material, A213-19 tubing.

Prices on the UP side: Building materials, natural gas, mineral exploration, machine costs, stainless steel valves, forgings, tube fittings, valves and valve components, aluminum bar, shipping supplies (boxes & paper goods), investment castings, drills, taps, end mills, vaccine, steel fabrications, PVC, polycarbonate, container freight, raw plastic resin, paper, steel plate, structural steel & steel tube, corrugated products, spm field iron, folding carts, poly resin, labor, drill bits, drilling jars, wire line services, fiberglass reinforcements, products that require heat treatment, fuel surcharges, rubber goods, TiO2(White pigment), plasticizer, industrial diesel engines, crude, utilities.

Prices on the DOWN side: Fabrications, repair of pumps/compressors/valves, finished machine products, cell phones, telecom services, field labor rates, fabricated towers/vessels, large pumps, MRO items, PCBA's, glass, computer hardware, injection molded parts, computer peripherals, paper goods, towels, toilet tissue, outside services.

COMMENTS FROM SURVEY PARTICIPANTS

“Market for services continues to grow, employment levels remain steady. Many clients are pursuing cost containment initiatives."

“Business steady."

"Very, very slow."

“Spare part sales remain good, new unit sales down, but outlook for 4th Qtr promising. Still hiring where needed.”

“Seeing a slight increase in orders, shop busy, starting to work some Saturdays."

“Purchasing activity in August was very strong and at a level not seen in 2 or 3 years. September is also going to be a strong month. We have had to add some technical support people to deal with the influx of orders. Our production people are going to be extremely busy through end of the year."

“U.S. steel tariffs, coupled with the U.S. steel producers' decisions to significantly raise prices, have raised serious concern over '03 cost projections.”

“No one seems comfortable with the economy. It seems to be fragile. Rumors can drive it down or up."

“Still looking for cost reductions."

“Outlook dimming until 2Q 2003."

“Sales continue in straight line, still look for upward motion.”

"Business is steady, but suppliers are not completely prepared to support us. No one seems to carry enough inventory."

"Hiring new personnel to replace summer help."

"Positive comments, about the future, are beginning to out number the negative. Good 4th Qtr forecast!"

"Business basically flat. Still looking for movement in the oil and gas sector."

"Deliveries remain relatively constant while pricing is somewhat down. This would appear to indicate a steady labor market and a willingness to reduce profits or cut pricing of components through better purchasing efforts."

"Positions filled by temps are slowly being filled by permanent hires."

"Budgeting expenditures tightly thru balance of 2002 to stay within forecasted levels. Highest drilling activity for the year is right now."

"Orders picking up. Everything a rush."

"Visiting with forge, casting and metal suppliers: Business is still slow. Our fastener supplier said August was a record month for them."

"Most of reductions are due to seasonal affects on Sales. The sales are still below last year for some time frames after seasonal adjustment is considered."

"Time and experienced company men for rigs are in a very 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
October 10, 2002	by Douglas R. Miller, C.P.M.	713-988-7306
	Copyright 2002 by NAPM-Houston, Inc. All Rights Reserved