Optimism wanes as buyers look to new year
By Brian Milligan -- Purchasing, 1/11/2001 7:00:00 AM
Business is slowing down and buyers are not as optimistic about the near future, according to Purchasing's latest monthly grassroots business survey.
Nationally, the index of buyers reporting business conditions as the same or better in the latest month took a dip to 43.5 from 45.3 in the month prior. The index of buyers comparing business to the same period last year also dipped to 49.6 from 55.9.
These results echo the Federal Reserve Board's Beige Book report for December. The report indicates that district reports show further evidence of slowing in economic growth, along with ongoing increases in cost pressures, though prices of finished goods and services remain stable. Boston, Cleveland, Richmond, Chicago, St. Louis, Kansas City, Dallas and San Francisco note some slowing in the pace of growth, while New York, Philadelphia, Atlanta and Minneapolis report moderate, steady growth.
Manufacturing activity is said to be leveling off or slowing in most districts, according to the report. The sector is described as flat in Philadelphia, Richmond and Kansas City, and slowing in Boston, Cleveland, Atlanta, Chicago, St. Louis and Dallas. However, continued expansion was reported in Minneapolis and San Francisco. Manufacturers in Philadelphia, Cleveland and Chicago complain that they are being squeezed by rising input costs (mainly labor and energy) and flat to declining selling prices.
Overall, the percentage of buyers who are optimistic about business for the next six months continues to slide downward, according to the grassroots survey. Only 43% of buyers surveyed project business will be better in six months' time. This compares with 44% who were optimistic in the prior month. Pessimists garner 19% of the latest tally, up from 17% in the month prior.
Some buyers say politics, both at home and abroad, are influencing their outlook here.
"Our concerns are the aftershock of the presidential election, instability in the Middle East, and a lack of strong international capacity to combat terrorism," says a buyer from a Kansas-based manufacturer.
Nationally, the commodity price trend diffusion index (the percentage of buyers reporting stable to higher pricing) shows the most widespread price activity in markets for refined petroleum products, (89.2), transportation (84.6), industrial chemicals and semiconductors (both at 74.1). Inflation also appears to be gaining ground in markets for wood pulp (70) and plastic resins (66.7).
Curiously, the national index tracking semiconductors bucks developments in the industry. Buyers built up their inventory of semiconductors in the second quarter, reducing any need to purchase more as the year progressed and leading to reduced prices. But buyers are undoubtedly experiencing the high prices on the spot market, and suppliers are taking advantage of their need.
"Customer orders increased during November, and I had to scramble to get material delivered in time to meet the shipping date," admits one buyer from an Ohio-based manufacturer.
The national index tracking petroleum products, plastic resins (66.7) and industrial chemicals remains on the high end of the trend as crude oil prices remain high, hovering at around $27/bbl.
At 37.1, the national index tracking computers seems to remain on the low side of the trend. This could be partly because technology is improving and buyers are getting more computer for their money, delaying any need to upgrade to a new model.
Not surprisingly, the national index for steel is on the low end of the scale at 39.7. Prices for metals were sliding in the fourth quarter of 2000, with most buyers saying they paid the same or less than they did in November. And the price of steel has collapsed, as the metal lost 25% of its value since the beginning of 2000 due to oversupply.
"Steel pricing has gone down due to slow demand," says a buyer from a conveyor manufacturer in Ohio.
The index for aluminum mill products now stands at 51.3, down 11% because of a fourth-quarter slippage in orders. On the other hand, the index tracking copper and brass goods pricing registers at 66.3 in the latest month. The price of copper, which went up 5% in 2000, continues to show strong growth in demand because it plays such an important role in electronics manufacturing.
Regionally, buyers in the Northeast have been most affected by rising prices for steel, pulp, paper and plastic resins. Buyers in the South have been the most affected by rising prices for semiconductors. Buyers in the Mid-Atlantic region have been the most affected by rising prices for MRO items.
Here are the price trend details by major commodity grouping:
Paper and corrugated: The diffusion index for paper pricing in December is 65.8 and corrugated is 60.9. The numbers indicate only moderate national upward price pressure for both commodity segments. Upward pricing pressure for paper is highest in the Northeast.
Industrial chemicals: The diffusion index for industrial chemicals in December edged up only to 74.1, just barely a point increase from the previous month. Prices and leadtimes of industrial chemicals represent problems in the Northeast and Mid-Atlantic especially.
Resins: Diffusion index for resins pricing is 66.7, up just slightly from the previous month. For December, the Northeast reports the strongest upward pricing pressure with a diffusion pricing index of 71.4
Refined petroleum products: The diffusion index for petroleum products took an impressive leap upward in December. The index jumped to 89.2, up from 77.6 the previous month. This was no doubt influenced by pricey crude oil barrels, which stayed at around $27/bbl. In December, petroleum surpassed transportation with the highest diffusion index rating of commodities. Pricing pressure is strongest in the Mid-Atlantic and Western states, and weakest in the South.
Steel: Steel prices continue to plummet. The grassroots diffusion index for steel pricing is 39.7, the lowest for 2000. Market data suggests that sales and prices had touched bottom in November. Still, domestic steel prices ended the year at a low point with hot-rolled sheet spot prices some 35% below the peak achieved in March-April. Analysts and buyers agree there won't be any meaningful improvement in spot prices during the first quarter, and contract prices are likely to be down 2% or more for the year. Market feedback from OEM and service-center buyers alike is that sales were weak in December and will be weak through March.
Copper and brass: The copper and brass diffusion pricing index edged back up from November's dip. The index reached 66.3 in December, climbing from November's index of 57.1. The price of copper, which went up 5% in 2000, continues to show strong growth in demand because it plays such an important role in electronics manufacturing.
Semiconductors: The diffusion index for prices in December is 74.1, up from 58.7 in November. Buyers are undoubtedly experiencing the high prices on the spot market, and suppliers are taking advantage of their need.
Computers: This industry segment showed some upward price movement in December, edging up to a diffusion index of 37.1 from November's 30.8. Western buyers report the most upward pressure on pricing with a diffusion index rating of 50. Meanwhile, the Northeast continues to report considerable downward pressure of computers pricing (25).
Machinery: For the second time in the last quarter, machinery prices dropped in December. The national diffusion index for pricing stands at 54.1, indicating little upward pressure on pricing. Buyers report the largest increases in the Midwest (65.4).
MRO: The diffusion index for pricing in December is 58.8, indicating a slight drop in upward pressure on MRO prices. While most of the regions held an index of around 60, MRO prices appear to skyrocket in the Mid-Atlantic states. That region showed a diffusion index of 80.
Packaging: Packaging prices stopped dropping in December, climbing from November's index of 55.7 to 62.3.
Transportation: Transportation continues its upward climb, with the diffusion index climbing from November's index of 84.0 to December's 84.6.
Commodity price trends diffusion indexes (% reporting stable to higher pricing)
| Total | Northeast | Mid-Atlantic | South | Midwest | West/PNW | |
|---|---|---|---|---|---|---|
Pulp |
70.0 |
100.0 |
n/a |
66.7 |
56.3 |
83.3 |
Paper |
65.8 |
81.3 |
64.3 |
68.2 |
58.3 |
62.5 |
Corrugated |
60.9 |
66.7 |
66.7 |
59.4 |
56.6 |
65.0 |
Industrial chemicals |
74.1 |
90.0 |
90.0 |
79.2 |
72.2 |
62.5 |
Plastic resins |
66.7 |
71.4 |
66.7 |
70.0 |
70.6 |
60.0 |
Refined petroleum products |
89.2 |
93.8 |
100.0 |
82.1 |
84.4 |
100.0 |
Steel |
39.7 |
66.7 |
50.0 |
36.8 |
35.7 |
43.8 |
Aluminum |
51.3 |
50.0 |
60.0 |
30.0 |
48.6 |
68.8 |
Copper & brass |
66.3 |
64.3 |
75.0 |
75.0 |
56.3 |
71.4 |
Semiconductors |
74.1 |
16.7 |
83.3 |
90.0 |
75.0 |
85.7 |
Computers |
37.1 |
25.0 |
30.0 |
33.3 |
40.0 |
50.0 |
Other office equipment (faxes, copiers, etc.) |
43.4 |
42.9 |
50.0 |
50.0 |
50.0 |
41.7 |
Industrial machinery |
54.1 |
50.0 |
50.0 |
50.0 |
65.4 |
37.5 |
MRO items |
58.8 |
65.0 |
80.0 |
47.1 |
59.1 |
61.5 |
Packaging |
62.3 |
55.0 |
65.0 |
59.4 |
65.6 |
62.5 |
Transportation |
84.6 |
87.5 |
88.9 |
86.8 |
78.3 |
90.0 |
SOURCE: PURCHASING MAGAZINE |
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