Prices Paid and Finished Goods Inventory Still a Concern
(Houston, Texas) – According to Houston supply chain executives, economic activity in the region expanded for the fifth month in March. Additionally, the 3-4 month forecast points to continued growth.
The March Houston Purchasing Managers Index registered 56.5, up marginally from 55.6 last month. The four underlying indicators that have a strong correlation with current economic activity (Employment, Lead Times, Production, and Purchases) showed good performance again this month. The Employment Index registered 62.2, up 0.9 points from its seasonally adjusted reading of 61.1 in February. The Lead Times Index registered 57.9, rising 0.7 points from 57.2. The Production Index registered 54.8, increasing 0.7 points from 54.1. The Purchases Index registered 50.6, falling 2.9 points from 53.5 in February.
The three-month forecast of economic activity registered 54.1, up 2.0 points from its February reading of 52.1. The primary drivers for this forecast improvement were reductions in the Prices Paid and Finished Goods Inventory Indices which registered 61.2 and 52.5 respectively. These measures have a significant inverse correlation with economic activity at all forecast horizons greater than two months. Current higher Prices and Finished Goods Inventory may constrain economic activity 3-4 months out.
On an industry specific basis, Health Care, Wholesale Trade, Mid-stream Operations, and Manufacturing are expanding at a strong pace. Oil & Gas is strengthening. EPC activities are weakening. All other sectors are at or just above neutral. From a three-month forecast standpoint, Health Care, Manufacturing, and Mid-Stream Operations are expected to continue healthy growth.
The Houston PMI provides a measure of current economic activity in the greater Houston area and a forecast of likely shifts in activity over a four-month forecast horizon. These indicators have a possible range of 0 to 100. Readings over 50 generally indicate economic expansion, while readings below 50 show contraction. The current and forecast PMI indices are based on diffusion indices for eight underlying indicators: Sales/New Orders, Production, Employment, Purchases, Prices Paid, Lead Times, Purchase Inventory, and Finished Goods Inventory.
The Institute for Supply Management – Houston has published the Houston Purchasing Managers Index monthly since January 1995 as a service to its members and the greater Houston business community.