Indicators Hit 12-Month High : Purchasing Group Says Economy Grew in July

Associated Press

The nation's economy expanded further in July, with production and new orders rising but employment declining after four months of increases, a trade group said Sunday.

The National Association of Purchasing Management, whose members buy raw materials and products for industrial concerns, said its indicator of future economic growth hit a 12-month high last month.

It said the index rose to 58.2% in July from 57.3% in June, marking 12 consecutive months the indicator has been above 50%. A reading above 50% generally indicates that the economy is expanding, while one below indicates a decline, the group says.

"The economy is very healthy entering the second half of 1987," said Robert Bretz, chairman of the group's business survey committee. "Considering the normal seasonal slowing in July, production was very strong."

Bretz, who also is director of materials management for Pitney Bowes Inc., said the index has averaged 55.5% for the first seven months of 1987, which would be consistent with inflation-adjusted growth of about 3.5% in the gross national product.

The index consists of business indicators gathered from a monthly survey of purchasing executives at 250 industrial companies. The group has about 30,000 members.

In its survey, the group found:

New orders rose, surpassing the pace of the previous two months, with 39% of the respondents reporting an increase in orders and 13% reporting a decline in orders. That left a positive margin of 26 points, compared to 20 points in June and 23 points in May.

In production, 30% reported improvement and 15% reported a deterioration, for a positive margin of 15 points, compared to 19 points in June and 22 points in May.

Vendor deliveries slowed for the ninth consecutive month, partly due to continuing shortages of steel products. Three percent reported faster deliveries and 20% reported slower deliveries for a difference of 17 points, compared to gaps of 10 points in June and 9 points in May. A slowdown in deliveries is a positive sign, indicating orders to companies are outrunning the firms' ability to fill them.

Thirteen percent of the respondents reported higher inventories and 28% reported lower, leaving a gap of 15 points. That compared with a positive margin of 2 points in June and a gap of zero in May. A buildup of inventories indicates optimism, but also can be a drag on future production because factories can sell products off the shelves instead of producing more.

Employment declined in July after four consecutive months of growth. Fourteen percent reported their companies hired more people while 17% reported a decline in employment, for a difference of 3 points, compared with a positive difference of 6 points in both June and May.

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