The National Association of Purchasing Management Houston Inc.,

The Houston PMI (Purchasing Manager’s Index) remained slightly below the break-even point in October for the second consecutive month. The PMI was 49.0 for the month, nearly the same as the 48.8 reported in September. The PMI had risen for four months prior to September's fall, producing some optimism about the fourth quarter of 2002. It now appears likely that Houston's economy will finish 2002 very near the slightly negative point at which the year began (47.5).

The Sales component of the PMI remained at virtually the same downside level as was reported a month ago with about thirty per cent of survey contributors seeing net reductions in Sales in their firms over the last month. For some representative firms this may simply be a seasonal trend that will show an improvement after the first of the year.

Production rates also fell in October according to Houston's supply chain professionals, with only fourteen per cent of respondents reporting Production gains for the month, while twenty-five per cent experienced Production rate losses.

Purchases slowed again in October with forty-one per cent of Houston's industrial purchasers reducing their commitments for goods and services from the level assumed in September.

The Employment index for October revealed that the job loss rate accelerated, falling to -11 from September's -4. This was the lowest Employment reading since June and seems to have reversed a three-month trend indicating slowing of job losses. Most of those firms reporting net job reductions for the month were previously, some for many months, holding their manpower number steady, anticipating an economic upturn of sufficient magnitude to warrant those staff levels.
It now appears that at least some of those firms may have decided that an upturn is not imminent and that they can hold the line on layoffs no longer. Hence, we may see further manpower trimming as firms strive to improve their balance sheets prior to year-end.

Prices remain well under control, according to survey respondents and inventories have begun depletion again after flattening out in September.

Items in short supply: Electronic components, sand and die castings, vaccine, posted barge rings for inland barge jobs, rig hands, machine castings, electronic components and assemblies.

Prices on the UP side: Lubes, oil base products, natural gas, paper, structural steel tubing, steel plate, corrugated boxes, vaccine, fuel, hydraulic motors, hydraulic valves, electronic assemblies, machine shop rates, wire line services, stretch wrap, natural gas, frame relay services, computer software, galvanized steel, stampings, PVC, container freight.

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Prices on the DOWN side: Corrugated boxes, janitorial supplies, paper goods, nickel bearing metals, MRO items, safety equipment, machined parts, computer hardware, plastic molded parts, tooling, services, telecom services, some bulk commodities.

COMMENTS FROM SURVEY PARTICIPANTS

“(A lack of) stability is fueling management to run models looking for more profit. However, it seems to only frustrate the middle management who are being pulled in different directions.”

“Time is in short supply due to frozen increase in people which is the biggest problem we have.”

“Business about the same, working on next order for overseas aircraft builders.”

“The steel tariff affords U.S. steel producers and suppliers to do some profit-taking yet they are not improving their processes. The U.S. industry and economy will pay the price.”

“All vacant positions must be justified by "Position Management" before position can be filled.”

“Stay alive 'til 2005.”

“Lots of R & D work. Picking up a few new customers.”

“Management being held to the wire for cost savings in all business aspects. Don't like what I am seeing. Fourth quarter which held promise now looks dismal.”

“Production will be heavy through December, but January and beyond backlog not looking that great.”

“Financial Due Diligence is necessary for large dollar orders, even with companies which have been used regularly in the past, but all now being downgraded in their credit ratings."

“Increased production, employment, purchases due to acquisition of smaller competitor.”

“Peaks and valleys flattening out, normal for this time of year. Hiring temps full time to actually reduce costs.”

“Company is completing 2002 drilling program---no new wells for balance of the year. Work-overs planned to boost production.”

“Business is off dramatically. One branch talking about lay-offs.”

“Business is as poor as it's been since 1986.”

“Employment has bottomed out, order board showing signs of recovery."
“Minimal activity."

“We are almost at a stand-still until the merger is complete. That is why you see no changes.”

“4th Qtr. production is up and the first two quarters of 2003 look very good.”

“While consumer business remains strong, industrial business is still languishing.Inventory build-up due to anticipated West Coast labor problem will stall Q4 purchases.”

“Increase in number of Gulf of Mexico projects impacting availability of inventory to meet project schedules.”

(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
November 12, 2002	by Douglas R. Miller, C.P.M.	713-988-7306
	Copyright 2002 by NAPM-Houston, Inc. All Rights Reserved