New Orders, Employment Higher in August, Purchase Managers Say

The nation’s economy continued to strengthen in August, as new orders and employment increased, while the rate of production hit its highest pace since April, a trade group said Monday.

The National Assn. of Purchasing Managers said its monthly indicator of future economic growth stood at 59.9%, up from 58.2% in July and the highest since April, 1984, when it reached 61%.

It also said that the number of price increases reported exceeded the number of price decreases for the 12th straight month.

“Production was exceptionally strong, considering the normal seasonal slowing, and appeared to be aided by some inventory buildup,” said Robert J. Bretz, chairman of the group’s Business Survey Committee.

“The continued rise in new orders virtually assures an excellent third quarter,” he added.

Bretz, who is also director of materials management at Pitney Bowes Inc., said that the group’s monthly index has averaged 56.1% for the first eight months of the year.

If this average were to continue for the remainder of 1987, he said, it would be consistent with a real growth of 3.7% in the nation’s gross national product.

The group, which has about 30,000 members, compiles its business indicators in a monthly survey of purchasing executives at 250 industrial companies. A reading above 50% in the index means that the economy is generally expanding; below 50% means that it is generally contracting, it says.

In the August survey, the group reported these findings:

- New orders rose, though not as quickly as in July. It was the eighth consecutive monthly increase, with 36% of the respondents reporting more new orders and 13% reporting fewer. That left a positive difference of 23 points, compared to 26 points in July and 20 in June.

- Production also rose for the eighth straight month, with 33% of the respondents reporting higher production and 8% lower, for a 25-point positive difference. The margin was up 15 points in July and and up 19 in June.

- Vendor deliveries slowed for the 11th straight month, indicating that orders are outrunning companies’ ability to fill them. Two percent of the respondents reported faster deliveries, while 20% reported slower. The 18% difference was the highest since a 19% margin in July, 1984, the group said.

- Inventories grew for the third time in four months, with some respondents citing slow deliveries as the reason, and others saying they were stocking up to avoid price increases.

Higher inventories were reported by 18% of the respondents, while 17% reported lower inventories, for a net increase of 1 point, compared to a 15-point drop in July and a 2-point gain in June.

While considered a positive sign, a buildup in inventories can also be a drag on future production, because factories can sell products off the shelves instead of producting more.

- Price increases were reported by 52% of the respondents, while 3% said prices were lower, for a net margin of 49 points, compared to 48 points in July and 46 points in June. The August figure was the highest since the 55% of April, 1984.

- Employment grew in August, after having declined in July, with 16% of the respondents reporting higher numbers of employees and 13% reporting fewer.

The 3-point gain, the fifth in six months, followed a negative margin of 3 points in July and a positive difference of 6 points in June.

- Lead times, an indicator of buying policies, expanded for production materials, while declines were registered for capital expenditures, maintenance repair and operating supplies.