This morning The National Association of Purchasing Management released its November survey of business conditions in the manufacturing sector.

The widely-followed Purchasing Managers' Index [PMI] declined to 46.5 from a value of 46.8 in October. A PMI reading of more than 50 signifies that the manufacturing sector of the economy is expanding. Readings between 44 and 50 are interpreted to mean that the manufacturing sector is slipping, but the overall economy is growing. Readings below 44 signify contraction of the overall economy.

The PMI has been trending generally downward since November 1994 when it peaked out at 59.9. In May of this year the index dropped below 50 where, except for a blip up to 50.5 in July, it has remained.

The NAPM has determined that there is a strong relationship between the PMI and the Gross Domestic Product [GDP] -- the ultimate measure of U. S. economic activity. For the year to date the average value of the PMI was 49.7. This translates into an approximate GDP growth of 1.9% for all of 1995. By way of contrast, this month's PMI value of 46.5 corresponds to a GDP growth rate of only 0.7%.

For the November report, the NAPM conducted a survey to determine how purchasing managers were dealing with stocks of materials and supplies and inventories of finished goods. Regarding materials and supplies, 50% of the repondents said inventories were about right [compared to 51% in July]. 44% of the repondents said inventories of materials and supplies were too high [compared to 47% in July]. In assessing finished goods inventories, 43% said inventories were about right, down from a figure of 55% in July. 49% of the respondents said inventories of finished goods were too high, up from 37% in July. The message is clear: demand has been slowing and excess finished goods are stacking up at the factories.

On the jobs front, NAPM reported that employment in the manufacturing sector has now fallen for nine months in a row.

On the bright side, the NAPM price index dropped to 44.5% from 46.7% last month, and 27% of purchasing managers reported paying lower prices. This was the highest percentage reporting lower prices since July of 1991 -- four months after the bottom of the last recession.

In an overall assessment of business and the economy the NAPM concluded that in the October-to-November timeframe the manufacturing sector had contracted and that it had contracted faster this month than last month. As to the economy, the NAPM concluded that in the past month it had grown; but, the rate of growth was slower than that of the preceding month.

Slowing demand, inventory buildups, higher unemployment: phenomena we've been observing for some time now in data released by government agencies. Now we have confirmation of all this from the business community in the form of the November NAPM survey.

Byline: Lafferty (MF Merlin)