The National Association of Purchasing Management Houston Inc.,

The Houston economy continued its meandering path in November and concluded the month modestly up with a PMI of 50.7 The PMI was slightly below the 50 (break-even) point in September and October. There does not appear to be much to motivate Houston's economy, either positively or negatively, at present.

The Sales and Production components of the PMI were indicative of economic shrinkage in November for the third consecutive month, albeit not by large margins. Sales backlogs appear to be generally contracting and that does not bode well for the first quarter of 2003.

Employment fell again in November for the fourteenth time in as many months, even though sixty-six per cent of survey respondents reported no change in the numbers of employees in their respective organizations. Layoffs seem to be continuing in about twenty per cent of participating firms while a slightly lesser percentage are adding new hires. Net affect = jobs continuing to be lost.

Purchases were reduced by forty-two percent of Houston supply chain pros in November, indicating that inventory reduction is still a major objective in

many firms. A general lack of confidence about near term Sales prospects also seems to be a factor in curtailing purchase commitments. Purchases have reflected an overall reduction for the past fifteen months.

Prices Paid was modestly down in November according to survey contributors with twelve per cent seeing net reductions in the prices they paid for goods and services over the past month. The word "deflation" seems to be surfacing here and there over the past few weeks. Certainly Houston's economic picture is reflecting something very close to that.

Inventories, both Purchased and Finished Goods, were reduced at accelerating rates over the past month and thereby contributed significantly to the small rise in the PMI. Inventories began reduction back in July '98 and have been purposely divested of in fifty of the ensuing fifty-three months.

Houston is currently following closely the national economy and its lackluster, driver-less performance. It is unlikely that any local improvement will occur until the national picture brightens.

Items in short supply: Pipe fittings, hose fittings, hydraulic parts, metal stencils, small diameter SS tubing, specialty gages, transmitters, electronic components, tube & tube fittings, vaccine, time, lifeboats, barge type work- over rigs, homopolymer resin.

Prices on the UP side: Oil based mud, bottled gas, air travel, nylon basic shapes (5 - 7%), steel, acrylic resin, transportation, vaccine, machine shop rates, petroleum based products, hydraulic motors.
.

Prices on the DOWN side: Computer components, services, MRO.

COMMENTS FROM SURVEY PARTICIPANTS

"Most prices are stable presently, but those that normally go down due to seasonality have remained up from six months ago."

“There is still an indication that resin prices will remain up although they normally go down at this time of year. TiD2 pigment suppliers are still trying to raise prices. We are trying to quality several new suppliers to increase competition to reduce prices.”

“Production has declined, however new drilling continues to look promising and will be completed in 4th quarter. Cost reductions are planned throughout the company to improve profit margins."

“No real changes, everyone and everything is waiting on the economic reactions.”

“Business must be slow because the number of sales people calling for appointments has tripled in the last two weeks.”

“Buying raw material, hoping for increase in sales.”

“Major project opportunities in our markets worldwide are not as plentiful. This is having an impact at the inquiry level (dropping off) and will affect future sales. Current workload is still at a high level as we work off backlog.”

“Our company is still selling assets to raise cash.”

“Our firm says no to any increases. Tells vendors we will look for someone else."

“Continuing uncertainty and high factory utilization in steel, coupled with continuing tariffs, makes pricing trends on this commodity in '03 very difficult to pin down. We are not optimistic about LTL in '03, due to supplier contraction and fuel prices.”

“BUSINESS HAS REBOUNDED DRASTICALLY. LOOKING AT GREAT END OF YEAR/1ST QTR '03.”

“Not much going on here. Everything's slowed down tremendously.”

“Purchasing big ticket items to spend last capital dollars at end of budget year.”

“Stayed up with the crowd until now. Faltering now. Hope it won't last."

“New orders are requiring new personnel to be employed."

“We have begun a holding pattern. It is like we are folding in our wings and tucking our head under one of them. The protection mode.”

“Orders and purchases are up due to seasonal needs. This will slow way down in January, slower than last year.”

“My 4th Qtr optimism has been replaced with Just wait till 2003…”

“Due to the current business climate, everything is negotiable.”

"Business is still flat."

"Raw material prices are on the up side because of Sect. 201 (tariffs)."

"The advent of Homeland Security is anticipated to increase our sales."

"Quality labor is in short supply."

“Employment and production increased due to acquisition of smaller competitor.”

“In heavy lay-off mode through 1Q 2003.”

(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
December 10, 2002	by Douglas R. Miller, C.P.M.	713-988-7306
	Copyright 2002 by NAPM-Houston, Inc. All Rights Reserved