New Orders and Production Show Strength

Concern Regarding Employment Continues

(Houston, Texas) – According to Houston area supply chain executives, overall economic activity in Houston expanded in November for the sixth month. Non-durable goods manufacturing joined services in pointing to expansion. Durable goods manufacturing, while improving, continued to report contraction.

The Houston Purchasing Managers Index fell 0.8 points to 52.4 during the month. Sales/new orders and lead times, two of the three underlying indicators that have a strong direct correlation with the economy, moderated somewhat but continue to point to strong expansion. Employment, the third indicator with a strong positive correlation, continues to show economic weakness. The sales/new orders index fell 1.5 points in November to 59.4. The lead times index fell 1.6 points to 52.6. The employment index rose 0.4 points to 47.6. Finished goods inventory, the underlying indicator that has the strongest inverse correlation with economic activity, rose 2.2 points to 50.3, showing a very modest contraction signal.

The three-month forecast for the Houston PMI rose 2.5 points to 55.5. This was driven by strengthening production and prices paid indices offset modestly by weakening in the sales/new orders index. These indices have a strong direct correlation with economic activity at the three-month forecast horizon.

On an industry specific basis transportation, wholesale trade, accommodations and foods services, and health care reported expansion. Durable goods manufacturing reported contraction at a slower pace. All other sectors reported near neutral. The three-month forecast predicts strong improvement for all sectors primarily due to the current strength of the production and sales/new orders indices. As noted previously, this is dependent on the severity of the current pandemic.

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 three-month forecast horizon. These indicators have a possible range of 0 to 100. Readings over 50 generally indicate goods producing industry expansion; readings below 50 show contraction. A PMI above 45 generally correlates with expansion of the Houston-The Woodlands-Sugar Land Business Cycle Index. 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.

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Posted in Houston Business Reports.

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