(Houston, Texas) – According to Houston area supply chain executives, overall economic activity in Houston expanded in July for the second month in a row. Manufacturing activity contracted at a modestly faster pace.
The Houston Purchasing Managers Index fell 1.6 points to 47.9 during the month. Two of the three underlying indicators that have a strong direct correlation with the economy, sales/new orders and lead times, pointed to expansion again this month. The third, employment, continues to give a strong signal for contraction. The sales/new orders index fell 3.1 points in July to 53.7. The lead times index was unchanged at 51.7. The employment index fell 3.5 points to 41.3. The underlying indicator that has the strongest inverse correlation with economic activity, finished goods inventory, fell 8.5 points this month to 49.8. This is a positive signal as it indicates that companies are getting inventories under control after the rapid fall in demand in the second quarter caused significant inventory increases.
The three-month forecast for the Houston PMI fell 2.7 points to 51.2. This was primarily driven by weakening in the sales/new orders, production, and prices paid indices. These indices, along with the lead times index, have a strong direct correlation with economic activity at the three-month forecast horizon.
On an industry specific basis, accommodations and foods services, transportation, utilities, and health care reported expansion again this month. Real estate, oil and gas, and nondurable goods manufacturing reported near neutral. Construction, durable goods manufacturing, and professional services continued to report contraction. The three-month forecast continues to be highly uncertain as further economic improvement is dependent on the severity of the COVID-19 pandemic.
Ross Harvison, CPSM
Business Survey Committee Chair
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