Purchasers Report Sharp Decline in May Orders

The economy was stagnant in May after entering the second quarter on a mixed note, the National Assn. of Purchasing Management said Sunday.

New orders, a leading indicator of future production, fell sharply after increasing in April, the association’s latest monthly survey found.

Production also decreased, a change from the healthy pace of the previous four months, the association said.

Inventories were sharply lower in May, and that may have accounted for a slight slowing in the speed of vendor deliveries.

Prices continued to drift lower, but not as fast in the preceding months.

Employment continued weak, edging lower again in May.

The purchasing managers’ composite index registered 47.3% in May, unchanged from April and the lowest level since it registered 46.9% in January, 1983.

May was the fourth consecutive month that the seasonally adjusted index remained under 50%, which the association says indicates that the economy is in a declining phase. A reading above 50% indicates an expansion.

“The lack of growth in new orders, production, employment and inventories, underscored by the continued low level of the purchasing managers’ index indicates an underlying weakness in our industrial economy,” said Robert J. Bretz, director of corporate purchasing for Pitney Bowes Inc. and chairman of the group’s business survey committee.

The report is based on replies to various questions asked of purchasing managers in 250 industrial companies.

The number of members reporting new orders as being better fell to 25% from 32% in April. Members saying their new-order picture was worse increased to 29% from 19%.

Members reporting higher production by their companies fell to 23% from 30%, and those reporting lower production increased to 18% from 17%.

The speed at which vendors delivered their orders slipped somewhat after improving in April, possibly because inventories shrank.

Purchasers reported substantially lower inventories in May, once again confirming their intent to keep inventories in line with the decreasing level of production, the association said. Thirty-one percent of the members indicated lower inventories, compared to 23% in April.

Although May was the sixth consecutive month that more purchasing managers reported lower prices--13%--than higher--11%--the rate of decrease slowed from the fast pace of the past four months.

Until this trend is reversed, corporate profits are likely to continue lower, the association said.

Members reporting increased hiring rose to 18% from 13%, but this gain was more than offset by the six-point increase to the 25% saying their employment was lower.

May was the fourth consecutive month in which the purchasers said no commodity items were in short supply.