Weak Growth Seen In Non-Manufacturing

The most recent non-manufacturing-focused monthly survey conducted by the National Association of Purchasing Management (NAPM) shows that business activity was barely growing during March. Responses from the 370 purchasing professionals surveyed are designed to zero in on the changes, if any, in the current month compared to the previous month for a wide range of business activities and indicators.

The composite Business Activity Index compiled by NAPM came in at 50.3 during March 2001, 1.4 percentage points lower than in February. Any reading above the neutral (no net change) level of 50 reflects growth in business activity for the non-manufacturing sector of the economy, so the current level is still evidence of at least slight business expansion. But it's another piece of evidence, along with a very negative NAPM manufacturing-focused report for the same month, suggesting that the U.S. economy recorded little if any growth in Gross Domestic Product during the first three months of 2001. Between February and March, the component index for new export orders dropped by 4.0 points and was below the 50 level for the first time in 13 months. The employment component also slipped below the break-even level during March, losing 0.9 points from February's 50.3.

The report did show a few more encouraging trends, however. The imports component index rose 1.3 points over the month, an indication of slightly stronger demand on the part of non-manufacturing firms. Further, new domestic orders—which have never dipped below the 50 level—rose 0.9 points in March to move up to a solidly expansive 52.2 reading.

On balance, though, the latest NAPM non-manufacturing report only adds to the concern that the current economic slowdown will persist at least through the fall of this year. Particularly revealing were survey questions that yield an "Inventory Sentiment Index." For this index, the lower the number, the better. Between February and March, the inventory sentiment gauge rose from 65.0 to 69.0, indicating that non-manufacturing purchasing executives felt a greater degree of discomfort with current levels of inventory. With a general sense that inventories are more than sufficient to meet anticipated product demand in the months immediately ahead, we're unlikely to see any surge in production or new orders in the short term.