Despite lower interest rates, buyers remain pessimistic

By Damon Francis -- Purchasing, 2/8/2001

Despite lower interest rates, optimism continues to wane among buyers, according to PURCHASING Magazine's latest monthly grassroots business survey.

Nationally, the index of buyers reporting business conditions as the same or better in the latest month dipped below 40 for the first time in more than a year. With a mark of 43.5 in the latest month, January's mark of 39.8 reflects a growing pessimism among buyers in the new year and under the new presidential administration. On an annual basis, the index of buyers comparing business to the same period last year also sharply fell to 39.3 from 49.6 in the prior month.

The survey findings reflect the Federal Reserve Board's Beige Book report for January, which indicates that economic growth slowed in December, easing labor shortages somewhat and limiting price pressures for finished goods and services. Most districts report a further deceleration in growth from the previous survey. Philadelphia reports an actual decline in activity, while Cleveland says that economic growth remained at the same slow rate as in the previous report. New York and San Francisco indicate that growth remains solid but shows some signs of softening.

The Beige Book report also indicates that manufacturing activity weakened in all districts in December. Steel producers were reported to be in difficulty in many districts, with Cleveland and Chicago reporting a number of bankruptcy filings among steel firms. There were also announcements in several districts of temporary auto assembly plant shutdowns in the first quarter. Slower construction activity in recent months has precipitated a drop-off in production of construction-related materials and equipment in the Boston, Dallas and San Francisco districts. In the grassroots survey, buyers from the Midwest and South, two regions heavily entrenched with automotive suppliers, report especially pessimistic views as the predicted automotive slowdown begins to materialize.

"We anticipate that 2001 is going to be a slow year," says a purchasing manager from Copley, Ohio, who deals primarily with the automotive industry and reports a pessimistic business outlook for the next six months. "The predicted automotive slowdown is forcing us to prepare for heavy price pressure."

The percentage of buyers who are optimistic about business for the next six months continues to decline, according to the survey. Only 35% of respondents say business is expected to be better in six months than it is now. Forty-three percent of respondents were optimistic about the six-month business outlook in the month prior, and these latest figures reflect a six-point percentage drop in that category. As the number of optimistic buyers decreases, accordingly the number of pessimists continues to rise. Twenty-two percent of respondents indicate that they are pessimistic about the next six months, up from 19% in the month prior.

The commodity price trend diffusion index, which measures the percentage of buyers reporting stable to higher pricing, continues to show the most upward price pressure in the markets for refined petroleum products (86.0), transportation (85.6), industrial chemicals (80.3) and semiconductors (78.6).

The California-based Intel Corp., the world's largest manufacturer of semiconductors, announced its fourth quarter and 2000 earnings on Jan. 16. For 2000, Intel's net income excluding acquisition-related costs was $12.1 billion, up 49% from $8.1 billion in 1999. However, the company's best estimate is that revenue for the first quarter of 2001 will be down 15%, plus or minus several points, from fourth-quarter revenue of $8.7 billion, due to seasonal factors and the impact of slowing worldwide economies.

A buyer from Rockaway, N.J., says, "I expect that semiconductor equipment manufacturing is in for a decline. Many of us will be adversely affected."