Purchasing Managers See More Signs of a Slowdown

In another sign of widespread weakness in the economy, the nation’s purchasing agents said Tuesday that their closely watched index of buying activity fell below the critical 50% level in July for the third straight month.

The National Assn. of Purchasing Management said in its monthly report on business that the index, compiled from purchasing executives at more than 250 industrial companies, fell to 46% from 48.8% in June and 49.7% in May.

A reading above 50% indicates that the manufacturing segment of the economy is expanding, while one below 50% suggests that it is contracting.

The July reading was the lowest since January, 1983, when the index was also 46%, the association said. It was the third consecutive reading below 50%, following 33 consecutive months above that level.

The report comes after a string of recent government reports indicating that economic growth in the United States is slowing and may be grinding to a halt.

The Commerce Department reported Tuesday that construction spending fell 0.8% in June, a sharper decline than the 0.3% decline that had been expected by economists. On Friday, the department said growth in personal spending practically came to a halt last month.

Reaction to the purchasing agents’ report was strong in the bond market, which took it to mean that a recession was imminent and that interest rates were headed lower.

Dollar Declines

In the stock market, the report initially had little effect as stocks rose modestly. But by the close, the Dow Jones industrial index dropped 19.54 to 2,641.12, apparently on recession fears bolstered by the report.

The dollar also fell, trading at 1.8570 West German marks after closing Monday at 1.86.50. Against the Japanese yen, it was at 136.45, down from 136.92, on expectations of lower interest rates.

The purchasing agents said their index has averaged 50.6% for the first seven months of 1989.

“Past experience indicates that if this average were to continue for the balance of 1989, it would be consistent with real (economic) growth of about 2.1%,” said Robert Bretz, chairman of the group’s business survey committee.

But Bretz said the index’s average for the past four months, 49.4%, appears to be more consistent with real growth in gross national product of about 1.7%.

The index would have to fall below 44% before indicating a real decline in the nation’s total output of goods and services.

The association said production declined in July, snapping a string of 35 consecutive months of expansion. The production index slid to 48.3% in July from 52.4% the month before. The index last month was at its lowest level since July, 1985, when it was 48.2%.

New orders fell for the second consecutive month, following 48 continuous months of growth. The new order index fell to 44.8% last month, its lowest level since November, 1982, when the economic recovery began.

The group also said prices fell for the second straight month after 34 consecutive months of increase. The price index slipped to its lowest level since April, 1986. Corrugated shipping containers, considered an economic bellwether, fell in price after many years of increases.

PURCHASING MANAGERS INDEX

The index, based on a survey of 250 purchasing executives, is a composite of five separate indicators: new orders, production, vendor deliveries, inventories and employment.

July ‘89: 46%

Source: Associated Press