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

NAPM - HOUSTON BUSINESS REPORT

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

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

ECONOMIC SLIDE CONTINUES

JOB DROP ACCELERATES

PRICES FALLING

The Houston PMI (Purchasing Manager’s Index) slipped further in November, finishing the month at 48.1, slightly below October’s 48.6 and in so doing indicated further shrinkage in the Houston economy.

The Employment component of the PMI (there are eight components that comprise the PMI; see chart below) fell sharply in November, according to Houston area purchasing pros. The Employment index for the month was –20 compared to October’s –10. This means that the percentage of disparity between firms that increased manpower and firms that decreased manpower doubled in the past thirty days. The good news, if no change is good news, is that sixty-five percent of survey contributors reported a stable job compliment for the month – neither up nor down.

The Sales index portion of the PMI, which fell very precipitously in October after thirty-one months of continuous growth, continued to fall in November but at a considerably slower rate than a month earlier.

Production actually turned around from October’s fall and became slightly positive in November, although 60% of survey participants reported that Production rates in their firms were either the same or down when compared to the October index.

Purchases were greatly reduced in November as a result of perceived decreases in Sales order input, with nearly half of NAPM survey respondents having purchased less goods and services in November than they contracted for in October.

Prices Paid reflected a significant softening in November as 97% percent of Houston’s procurement experts reported that prices they paid for the month were the same or lower than those reported last month. The move into negative territory came after twenty-eight months of month-over-month net price increases. This would appear to be a clear indication of fewer buyers chasing more goods; hence, deflationary price pressure. This will likely continue.

Inventories continued to be driven down as they have in 40 of the last 42 months. However, in October and again in November the rate of divestiture increased sharply, presumably with a view toward year-end, but also reflecting a growing lack of confidence about near term Sales and Production levels.

Items in short supply: Shielded connectors, vaccine, gauges, pumps, electronic heaters, chrome materials, work over rigs (offshore), deck barges, coiled tubing units, nickel products, electrical products, outside machining, alloy steel bar, electric winches, foreign hydraulic components.

Prices on the UP side: Medical IV Plastic fittings, insurance, special cutting tools, aluminum castings, machining, forgings, fabrications, consultants, valves, actuators, rubber goods, electronics, chrome materials, OCTG, nickel products, casing/tubing running services.

Prices on the DOWN side: Fuel, paper goods, fasteners, gears (specials), MRO items, computers and components, nickel and titanium alloys, natural gas, petroleum, valves, oil and lubricants, fuel surcharge, PC peripherals, calcium carbonate, DNIP, co-poly resin, rig prices.

COMMENTS FROM SURVEY PARTICIPANTS

"Items purchased from a manufacturer whose primary customers support military are in short supply."

"We are suffering layoffs, purchasing staff cut by 25%. Domestic oil equipment sales dropped to "0". Customers have slight expectation for upswing in 2^nd or 3^rd qtr 2002. Foreign sales slowed a little, petroleum equipment sales in a nose dive."

"After a short lull business is up. Overseas market good."

"This is an uneasy time for all of us. Business, surprisingly, is not retreating. Bearing any catastrophe… we look for a good year next year."

"The next 3 to 4 months are going to be great for us. We will be at full capacity and hard pressed to meet all of our delivery commitments. A nice problem to have."

"Very serious efforts to cut all raw materials, chemicals, ingredients and packaging (inventories) in half by September 2002."

"Now that the hectic pace has slowed we should have time to count our blessings."

"The overall market trends are resulting in a greater responsiveness on the part of manufacturers in the areas of delivery and cost competitiveness."

"Off the shelf items have a smaller inventory and are therefore in short supply."

"Training becoming more important."

"Everything seems to have gone up about 2% (prices)."

"Machine shops seem to be getting busier."

"Continued slow down for balance of 2001, forecast for 2002 is a slow increase in drilling activity."

"We have de-expedited raw materials orders until 2002. May have to push out again."

"Economy starting to effect business. Business is slowing down. Elective surgeries are down."

"Customers expecting shorter lead-times for their manufactured products. We don’t foresee any until late 1^st quarter 2002. "

"Busy, busy, busy."

"Revenues in oilfield servicing expected to be down 30% in 2002. Longer term outlook is still positive."

"Parent company pushing Internet bids and on-line reverse auctions – causing serious questions regarding cost of service and quality. Several suppliers reporting negative margins."

"Market is very unstable. People aren’t confident of the economic future."

"Distributors are lowering inventory for the end of the year. Our rig activity is expected to be 2/3’s lower in 2002."

"Business not good. More layoffs possible."

"Reduced employment occurring in manufacturing departments. Backlog down, incoming orders down."

"We had layoffs last month. We have cut all overtime. Our back log is coming down."

"Business is steady. Recent events (9/11) have our customers a bit stingy with awarding new orders, but there is work out there. We will survive, maybe even prosper."

NOVEMBER 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.