Manufacturing Activities Return to Expansion

Employment Continues as Largest Concern

(Houston, Texas) – According to Houston area supply chain executives, overall economic activity in Houston expanded in December for the seventh month. Manufacturing activities expanded for the first time since January. Services activities have now expanded for the last five months.

The Houston Purchasing Managers Index fell 0.9 points to 51.5 during the month. The sales/new orders and lead times indices, two of the three underlying indicators that have a strong direct correlation with the economy, 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 4.3 points in December to 55.1. The lead times index rose a strong 6.0 points to 58.6. The employment index fell 1.6 points to 46.0. Finished goods inventory, the underlying indicator that has the strongest inverse correlation with economic activity, rose 1.1 points to 51.4, continuing to show a weak contraction signal.

The three-month forecast for the Houston PMI fell 1.4 points to 54.1. This was driven by weakening in the sales/new orders and production indices offset modestly by strengthening in the prices paid index. These indices have a strong direct correlation with economic activity at the three-month forecast horizon.

On an industry specific basis leisure and hospitality, health care, and transportation reported expansion at a strong pace. Manufacturing and oil & gas reported expansion at a modest pace. Professional services reported contraction at a rapid 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 sales/new orders, production, and prices paid 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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