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


NAPM - HOUSTON BUSINESS REPORT

November 13, 2001 ........................................... by Douglas R. Miller, C.P.M. ........................................ 713-988-7306

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

HOUSTON ECONOMY CONTRACTING

SALES IN NOSEDIVE

EMPLOYMENT REVERSING

The Houston PMI (Purchasing Manager’s Index) fell in October for the fifth consecutive month and ended the month in negative territory after signaling economic growth in Houston for thirty-one consecutive months. October’s PMI was 48.6, down from 58.5 in just three months. The impact of a slowdown in drilling activity and the continued pressure of a weakening national economy and a strong dollar were finally too much for Houston’s previously robust numbers to handle.

The Sales component of the PMI took the biggest hit in October. After sliding, but still growing, for the past six months the Sales index turned sharply down in October with forty-one percent of survey contributors reporting fewer Sales than one month ago. This percentage was twenty in September.

Production also declined sharply according to Houston’s supply chain executives. The index for Production fell from 0 (no growth) in September to -14, meaning that 14% more survey participants reported lower production levels than reported increases in their firms’ production in the past 30 days.

The Employment component of the PMI also fell significantly into negative territory after having been in

a growth mode for eleven of the past twelve months and twenty of the past twenty-two. The Employment index of -10 was the deepest into job loss the index has gone since March of 1999.

Purchases were curtailed in October and resulted in the lowest Purchases index since March 1999. Thirty-six per cent of Houston’s materials professionals bought less in October than in the prior month, while only twenty-four per cent increased their purchases.

Prices Paid were nearly unchanged in the past month (very slight increases) and Lead Times shrunk greatly as demands dwindled.

Inventories, both Purchased and Finished Goods, were divested of at greatly increased rates in October as concerns about further Sales declines surfaced.

While the tragedy of September 11^th did not bring about a general economic pessimism it would appear that it did deepen the already developing concerns about where Houston was headed. We have now received clear evidence of how fifteen months of nationwide economic decline has finally begun to deflate Houston’s growth.

Items in short supply: Pump parts, OCTG casing with premium connections, bearings, sheaves, custom suture, electronics, circuit boards, high pressure fittings, large spring wire, pumps, motors, large O.D. tubing, heat treating, braking components, chrome & other heat treated piping products, sub contract machining, architectural metal fabricators, work over rigs, jack up rigs, high end alloy materials, nickel products.

Prices on the UP side: Machining, long distance trucking, imported OCTG tubing, insurance, stainless steel, electric winches/repair parts, heavy gauge spring wire, cutting tools, fuel, valves, actuators, fittings, castings, forgings, hydraulic cylinders, ball valves, chrome and other heat treated piping products, tooling, larger OD OCTG, drilling consultants.

Prices on the DOWN side: Nickel alloys, petroleum products, gas, drilling rig prices, pipe inspection, gasoline and diesel, paper goods, bearings, springs, paper goods, fuel surcharge, travel costs, MRO items, PC equipment, lubricants, resin.

COMMENTS FROM SURVEY PARTICIPANTS

"Considering 9/11 things have been very steady."

"Terrorist activity having no impact on travel except longer check-in times."

"Prices more competitive as suppliers anxious to get orders."

"No real changes other than people seem to be more tolerant of each other. Wish that would stay around forever."

"Building security has been beefed up. Taking physical inventories, reconciliation, budgets and planning meetings are taking up most of my time."

"Slow!!! Experiencing a few layoffs. Bleak ‘til end of the year."

"The impact of 9/11 is still not clear. The business was beginning to show signs of slowing back in July. We are still expecting a recovery 1^st and 2^nd Q 2002."

"Still getting long lead times from some stamping houses."

"Very guarded optimism currently. Hiring has slowed. Before 9/11 the promise of second quarter 2002 up-swing was almost certain. Now it seems to be watch & see."

"Customer base nervous, commitment changes almost daily."

"Anticipating flat Q4, slow Q1, unsure about Q2."

"Due to seasonal nature, our business has slowed to a steady walk. Next year is going to be great. Sales up, purchases up, production up, etc, etc… Our calendar is busy, busy, busy. Things are looking up."

"Historically this is our slow time of the year yet business is still steady. Work is out there!"

"Our budget expenditures have already been reached for 2001, business always slows this time each year."

"September 11^th resulted in temporary travel reduction; but folks are now traveling at their normal rate."

"A downturn in energy was already affecting our business. The September 11^th attack may or may not have impacted our business. Natural gas was already low."

"The only thing lower than $ shipped is $ booked (new orders)."

"Suppliers are attempting to regain margins. However, due to slow business economy, most are willing to cut prices to maintain volume. Import/Export lead times slowed due to increased security and restrictions. Oil field business still strong."

"Reduced employment is occurring due to automation equipment and other manufacturing efficiencies."

"Business activity has been slow. But, anticipating a very busy first 6 weeks of the calendar year."

"Fiscal year just ended with sales up 20%, profits up 50% and inventory reduced by 15% for a very good past year."

"Starting to see a slow down in the order rate from land based drilling companies – trust it will not be a sustained one."

"We’re busy – strong 3^rd Qtr and 4^th looks like it will be too."

"Demand slowing. Gives us a chance to catch our breath."

"Business has slowed but appears to be at the low point now."

"Benefiting from lower fuel costs."

"Running steady and keeping the pace."

"Orders seem to be falling off but backlog is still up."

OCTOBER 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.