Falling Production, Inventories, Prices Reflect Slump, Group Says : Survey of Purchasing Managers Sees Economy Weakening

An industrial slump continued in June, with production, manufacturers’ inventories and prices falling, a business group said Sunday in a report that warned that “the economy definitely has problems.”

The National Assn. of Purchasing Management said its composite index declined to 46.7% in June from 47.3% in each of the previous two months and was at its lowest level since December, 1982, when the economy was just beginning to recover from the last severe recession.

The seasonally adjusted index has been below 50% since February.

A reading below 50% generally indicates that the economy is in a declining phase, while a reading above 50% is a signal of expansion, according to the group, which represents executives who purchase raw materials and other supplies for the nation’s industry.

“The economy definitely has problems based on the information we are receiving from our members,” said Robert J. Bretz, director of purchasing for Pitney Bowes Inc. and chairman of the purchasing agents’ business survey committee.

‘Serious Concern’

“The continuing decline of the purchasing managers index and the weakness exhibited in production, inventories, prices and vendor deliveries are of serious concern,” he said.

The group’s monthly reports are among the earliest indicators each month of the health of the manufacturing economy.

The report for June said production fell to its lowest level since December, 1984, reflecting a sharp decline in new orders in the previous month.

“Production levels are now at a point where they are no longer growing,” the report said.

The speed at which suppliers delivered orders also improved in June, an indication that demand was not heavy enough to cause backlogs.

Thirteen percent of the managers surveyed said that deliveries from vendors were faster in June, nearly three times those reporting slower delivery.

Only 9% of the purchasing managers surveyed in June reported that inventories were higher than in May, while 29% said inventories fell.

Typically, companies reduce inventories when they anticipate decreased demand or are uncertain about future demand, the report said.

The group said none of the 250 companies surveyed reported items that were in short supply, another sign of decreasing demand.

Lower Prices

Meanwhile, the number of purchasing managers reporting lower prices in June was 2 1/2 times that of those reporting higher prices, the seventh straight month in which more purchasers said prices were lower than said they were higher.

The 23% reporting lower prices in June was unparalleled since January, 1983.

“Efforts to increase prices in July are meeting stiff resistance in the battle to protect shrinking corporate profits,” the latest report said.

There were two bright spots in the June report: slight improvements in new orders and employment.

Twenty-four percent of the purchasing managers surveyed said that new orders declined from the previous month, not as bad as the 29% in that category in the May report.

Thirteen percent said employment rose in June from May, compared to 9% in the previous report.

But June was the ninth consecutive month in which more members reported lower employment than higher employment, with 22% saying that June employment was below May levels.