January Level Is Lowest in 2 Years : Drop in Purchasers’ Index May Signal Slowing

The National Assn. of Purchasing Management said Sunday that its purchasing managers’ index fell last month to its lowest level in two years, indicating that the economy may finally be slowing.

The trade group’s index declined to 53.2% from 57.3% in December. A rate of better than 50% means the economy is still growing.

The monthly report indicating a slowdown could bolster the financial markets, which have been responding favorably to any signs of a cooling economy.

“If December exited 1988 like a lion, January entered like a lamb,” said Robert Bretz, chairman of the survey committee. “Although still growing at a healthy rate the economy may have signaled the first signs of the long anticipated slowing.”

But conflicting signs remain. On Friday the government reported a surge in new jobs in January and a strong rise in factory orders for the month before, fanning worries that inflation could be ignited by a booming manufacturing sector working near capacity.

The purchasing managers reported a slower growth rate. The report said the rate of production grew for the 30th consecutive month, but the production index fell to 56.2% from December’s 60.0%, indicated a gradual production slowdown.

In addition, the report said vendor deliveries slowed for the 28th consecutive month, perhaps indicating a growing parity between demand and production capacity.

New orders increased for the 44th consecutive month, but the rate of growth in the new orders index slowed to 54.5% from 60.0% in December, a much slower rate.

The report showed that tight inventories may be taking a toll. They declined for the first time since October to 45.5%, down sharply from December’s 50.8%. The price of the raw materials index, possibly reacting to tight supplies, jumped dramatically to 71.6% from 68.6% in December, after six months of relatively stagnant price growth.

Although the employment index rose to 50.5% from 49.4%, the report said the increase was slight enough to be regarded as another indication of a slowing economy.

The National Assn. of Purchasing Management is an education and research organization of purchasing executives. It polls purchasing managers in more than 250 industrial firms for its survey.