The economy weakened further in August, with no sign of improvement for the rest of the year, according to a report released Tuesday by a national group of purchasing managers.
New orders, the source of future production, remained virtually unchanged last month, and overall inventory levels increased, the National Association of Purchasing Management said. Vendor deliveries were faster, and no items were reported in short supply, an indication that demand was not strong. Also, employment fell after rising in June and July.
For the seventh consecutive month, the purchasing managers` composite index of indicators fell, although slightly, to 46.7 percent from 46.8 percent in July. A reading below 50 percent generally indicates the economy is contracting; above 50 percent means it is expanding. The index is a broad measure adjusted for seasonal variations.
The report, based on a survey of purchasing managers at 250 major companies representing 21 industries, is viewed as an early indicator of future economic activity.
”I wish I could be more optimistic about the economy, but I don`t see anything to smile about in the next two or three months,” said Robert J. Bretz, chairman of the association`s business survey committee and director of corporate purchasing at Pitney Bowes Inc., the office equipment company based in Stamford, Conn. ”The only hope is that we are stuck in the summer doldrums, but because new orders are down, I`m not really encouraged by that possibility.”
For the third month in a row, new orders were flat in August. That is based on 26 percent of the survey respondents reporting an improvement and 26 percent reporting a decline.
Overall production increased, with 21 percent of the purchasers indicating that their output was up, compared with 14 percent in July. But many members noted that this improvement was the result of plants starting up after being shut down in July. And for the second consecutive month, more respondents reported production had declined–23 percent–than those reporting an improvement.
Fourteen percent of the purchasers said inventory levels were higher in August, up from 13 percent in July, with many respondents indicating they had been unable to cut back shipments quickly enough to match slowing demand. The speed at which vendors came through with their orders also picked up for the second consecutive month, with three times as many purchasers reporting faster deliveries than in July.
As for employment, a significant drop was observed. Only 9 percent of the members reporting said they had increased hiring, down from 14 percent in July. Twenty-seven percent said hiring had decreased, versus 20 percent in July.
For the ninth month in a row, more purchasers found prices declining. Looking at specific commodities, the survey noted that two items, resins and phenol, an ingredient of resins used in housing and automobile production, were up in price. But commodities declining in price included aluminum, steel, integrated circuits, corn, wheat, soybean oil, fuel oil, natural gas, corrugated shipping containers, folding cartons and caustic soda, which is used in petroleum refining and papermaking.
For the seventh consecutive month, no items were reported in short supply –another reflection of declining demand.
In answer to a special question, 32 percent of the purchasers said their 1985 capital outlays would be lower than planned, while 16 percent said they would be higher. Of those indicating higher spending, 21 percent cited belief in an improving economy as the reason; 14 percent said their companies were trying to beat a deadline in the Reagan administration`s proposed tax changes regarding capital investments; and 21 percent cited both factors.
August`s report, Bretz said, was also notable for the number of survey respondents who cited competition from imports as a major factor in their economic problems.
”Many industries report being hurt by the high level of imports, which are causing lower sales, lower selling prices and lower profits,” he said.
