June Manufacturing ISM Report On Business(R)
Economic activity in the manufacturing sector expanded in June following four months of contraction, while the overall economy grew for the 80th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business(R).
The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management(TM) Manufacturing Business Survey Committee. "The manufacturing sector showed a slight improvement in June as the PMI registered above 50 percent after four months of decline. While the PMI indicates minimal change is taking place month over month that is hardly the situation. When viewed from the manufacturer’s perspective, they are experiencing higher prices for their inputs while demand for their products is slowing."
PERFORMANCE BY INDUSTRY
The nine industries reporting growth in June — listed in order — are: Printing & Related Support Activities; Paper Products; Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; Furniture & Related Products; and Fabricated Metal Products. The industries reporting contraction in June are: Wood Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Machinery; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; and Plastics & Rubber Products.
WHAT RESPONDENTS ARE SAYING …
— "The shock waves from high crude price continue to put pressure on derivative pricing." (Chemical Products)
— "Business appears to have bottomed out." (Transportation Equipment)
— "Seeing renewed interest in outstanding quotes." (Machinery)
— "Volume is normal, and we are able to recover some of the raw material (steel cost) increases." (Fabricated Metal Products)
— "Commodity bubble is killing profitability." (Food, Beverage & Tobacco Products)
— "Orders have slowed, and prices for metals are going up." (Computer & Electronic Products)
MANUFACTURING AT A GLANCE JUNE 2008 Series Series Percentage Direction Rate of Trend(a) Index Index Point Change (Months) Index June May Change PMI 50.2 49.6 +0.6 Growing From 1 Contracting New Orders 49.6 49.7 -0.1 Contracting Faster 7 Production 51.5 51.2 +0.3 Growing Faster 2 Employment 43.7 45.5 -1.8 Contracting Faster 8 Supplier 55.1 53.7 +1.4 Slowing Faster 12 Deliveries Inventories 51.2 48.0 +3.2 Growing From 1 Contracting Customers' 55.0 47.0 +8.0 Too High From 1 Inventories Too Low Prices 91.5 87.0 +4.5 Increasing Faster 18 Backlog of 47.5 46.0 +1.5 Contracting Slower 2 Orders Exports 58.5 59.5 -1.0 Growing Slower 67 Imports 46.0 49.5 -3.5 Contracting Faster 5 OVERALL ECONOMY Growing Faster 80 From Manufacturing Sector Growing Contracting 1
(a) Number of months moving in current direction
COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY
Commodities Up in Price
ABS; Acrylics (2); Aluminum (5); Aluminum Extrusions (4); Caustic Soda (4); Chemicals (2); Corn (3); Corrugated Containers (2); Diesel Fuel (4); Electricity; Freight (2); Fuel Oil — #2 (2); Fuel Surcharges (4); Gasoline (3); Natural Gas (8); Petroleum Based Products (2); Plastics; Polypropylene Resins; Resins (3); Soybean Oil (3); Stainless Steel (2); Steel (6); Steel — Alloys, Cold Finished, Hot Rolled, Specialty; Sulfuric Acid (8); and Titanium Dioxide.
Commodities Down in Price
Copper is the only commodity reported down in price.
Commodities in Short Supply
Caustic Soda (4) and Steel (3) are the only commodities reported in short supply.
Note: The number of consecutive months the commodity is listed is indicated after each item.
JUNE 2008 MANUFACTURING INDEX SUMMARIES
PMI
Manufacturing grew in June as the PMI registered 50.2 percent, 0.6 percentage point higher than the 49.6 percent reported in May. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates the overall economy and the manufacturing sector are growing at this time. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (49.3 percent) corresponds to a 2.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (50.2 percent) is annualized, it corresponds to a 2.9 percent increase in real GDP annually."
THE LAST 12 MONTHS
Month PMI Month PMI Jun 2008 50.2 Dec 2007 48.4 May 2008 49.6 Nov 2007 50.0 Apr 2008 48.6 Oct 2007 50.4 Mar 2008 48.6 Sep 2007 50.5 Feb 2008 48.3 Aug 2007 51.2 Jan 2008 50.7 Jul 2007 52.3 Average for 12 months - 49.9 High - 52.3 Low - 48.3
New Orders
ISM’s New Orders Index registered 49.6 percent in June, 0.1 percentage point lower than the 49.7 percentage points registered in May. A New Orders Index above 51.6 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
Seven industries reported increases during June: Computer & Electronic Products; Printing & Related Support Activities; Paper Products; Primary Metals; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The industries that are reporting contraction in New Orders are: Wood Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Machinery.
New Orders %Better %Same %Worse Net Index Jun 2008 29 46 25 +4 49.6 May 2008 25 52 23 +2 49.7 Apr 2008 26 48 26 0 46.5 Mar 2008 25 50 25 0 46.5
Production
ISM’s Production Index increased to 51.5 percent in June, an increase of 0.3 percentage point from the 51.2 percent reported in May. An index above 49.9 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.
Of the industries reporting in June, seven registered growth: Printing & Related Support Activities; Computer & Electronic Products; Petroleum & Coal Products; Primary Metals; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products. The industries failing to grow in June are: Nonmetallic Mineral Products; Wood Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Machinery.
Production %Better %Same %Worse Net Index Jun 2008 25 54 21 +4 51.5 May 2008 24 59 17 +7 51.2 Apr 2008 28 50 22 +6 49.1 Mar 2008 20 60 20 0 48.7
Employment
ISM’s Employment Index registered 43.7 percent in June, which is a decrease of 1.8 percentage points when compared to the 45.5 percent reported in May. An Employment Index above 49.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The three industries reporting growth in employment during June are: Petroleum & Coal Products; Furniture & Related Products; and Paper Products. The industries that reported decreases in employment during June are: Wood Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Chemical Products; Machinery; Food, Beverage & Tobacco Products; and Transportation Equipment.
Employment %Higher %Same %Lower Net Index Jun 2008 11 69 20 -9 43.7 May 2008 17 63 20 -3 45.5 Apr 2008 12 72 16 -4 45.4 Mar 2008 15 70 15 0 49.2
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations continued to slow in June, as the Supplier Deliveries Index increased 1.4 percentage points to 55.1 percent from the 53.7 percent registered in May. A reading above 50 percent indicates slower deliveries.
The eight industries reporting slower supplier deliveries in June are: Wood Products; Paper Products; Petroleum & Coal Products; Chemical Products; Primary Metals; Transportation Equipment; Plastics & Rubber Products; and Food, Beverage & Tobacco Products. The industries reporting faster deliveries in June are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products.
Supplier Deliveries %Slower %Same %Faster Net Index Jun 2008 16 79 5 +11 55.1 May 2008 14 81 5 +9 53.7 Apr 2008 10 88 2 +8 54.0 Mar 2008 11 85 4 +7 53.6
Inventories
Manufacturers’ inventories increased in June as the Inventories Index registered 51.2 percent, which is 3.2 percentage points higher than the 48 percent reported in May. This is the first month of inventory expansion following 25 consecutive months of inventory liquidation. An Inventories Index greater than 42.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
The six industries reporting higher inventories in June are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Chemical Products. The industries that reported decreases in June are: Petroleum & Coal Products: Machinery; Miscellaneous Manufacturing; Primary Metals; Computer & Electronic Products; Plastics & Rubber Products; Paper Products; and Transportation Equipment.
Inventories %Higher %Same %Lower Net Index Jun 2008 21 58 21 0 51.2 May 2008 19 58 23 -4 48.0 Apr 2008 16 66 18 -2 48.1 Mar 2008 15 63 22 -7 44.9
Customers’ Inventories(b)
The ISM Customers’ Inventories Index registered 55 percent in June, an increase of 8 percentage points when compared to May’s reading of 47 percent. The index indicates that respondents believe their customers’ inventories are too high at this time.
Eight industries reported higher customers’ inventories during June: Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Chemical Products; Machinery; and Transportation Equipment. The industries that reported lower customers’ inventories during June are: Nonmetallic Mineral Products; Primary Metals; and Miscellaneous Manufacturing.
Customers' Inventories % %Too %About %Too Net Index Reporting High Right Low Jun 2008 72 25 60 15 +10 55.0 May 2008 67 14 66 20 -6 47.0 Apr 2008 72 12 66 22 -10 45.0 Mar 2008 78 16 70 14 +2 51.0
Prices(b)
The ISM Prices Index registered 91.5 percent in June, indicating manufacturers are paying higher prices on average when compared to May. This is the highest reading for the index since it registered 93.2 percent in July 1979. While 84 percent of respondents reported paying higher prices and 1 percent reported paying lower prices, 15 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.
In June, all 18 industries reported paying higher prices: Textile Mills; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Petroleum & Coal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Machinery; Paper Products; Primary Metals; Furniture & Related Products; Transportation Equipment; and Computer & Electronic Products.
Prices %Higher %Same %Lower Net Index Jun 2008 84 15 1 +83 91.5 May 2008 78 18 4 +74 87.0 Apr 2008 71 27 2 +69 84.5 Mar 2008 69 29 2 +67 83.5
Backlog of Orders(b)
ISM’s Backlog of Orders Index registered 47.5 percent in June, 1.5 percentage points higher than the 46 percent reported in May. Of the 86 percent of respondents who reported their backlog of orders, 19 percent reported greater backlogs, 24 percent reported smaller backlogs, and 57 percent reported no change from May.
The four industries reporting an increase in order backlogs in June are: Printing & Related Support Activities; Paper Products; Primary Metals; and Computer & Electronic Products. The industries that reported decreases in order backlogs during June are: Wood Products; Apparel, Leather & Allied Products; Transportation Equipment; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Fabricated Metal Products.
Backlog of Orders % %Greater %Same %Less Net Index Reporting Jun 2008 86 19 57 24 -5 47.5 May 2008 87 18 56 26 -8 46.0 Apr 2008 85 23 57 20 +3 51.5 Mar 2008 85 18 59 23 -5 47.5
New Export Orders(b)
ISM’s New Export Orders Index registered 58.5 percent in June, a decrease of 1 percentage point when compared to May’s index of 59.5 percent. This is the 67th consecutive month of growth in the New Export Orders Index.
The 10 industries reporting growth in new export orders in June are: Nonmetallic Mineral Products; Paper Products; Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; Machinery; Computer & Electronic Products; Transportation Equipment; and Electrical Equipment, Appliances & Components. The only industry that reported a decrease in new export orders in June is Apparel, Leather & Allied Products.
New Export Orders % %Higher %Same %Lower Net Index Reporting Jun 2008 79 22 73 5 +17 58.5 May 2008 78 26 67 7 +19 59.5 Apr 2008 79 23 69 8 +15 57.5 Mar 2008 76 22 69 9 +13 56.5
Imports(b)
Imports of materials by manufacturers contracted during June as the Imports Index registered 46 percent, 3.5 percentage points lower than the 49.5 percent reported in May. This is the fifth consecutive month of contraction in imports.
The three industries reporting growth in import activity for June are: Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Chemical Products. The industries that reported decreases in imports during June are: Nonmetallic Mineral Products; Wood Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; and Fabricated Metal Products.
Imports % %Higher %Same %Lower Net Index Reporting Jun 2008 82 9 74 17 -8 46.0 May 2008 82 12 75 13 -1 49.5 Apr 2008 85 11 74 15 -4 48.0 Mar 2008 83 9 72 19 -10 45.0
(b) The Backlog of Orders, Prices, Customers’ Inventories, Imports and New Export Orders Indexes do not meet the accepted criteria for seasonal adjustments.
Buying Policy
Average commitment lead time for Capital Expenditures increased 7 days to 123 days. Average lead time for Production Materials increased 3 days to 54 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased 2 days to 25 days.
Percent Reporting Capital Hand-to- 30 60 90 6 1 Average Expenditures Mouth Days Days Days Months Year+ Days Jun 2008 23 7 11 20 25 14 123 May 2008 22 12 10 19 25 12 116 Apr 2008 28 6 13 18 23 12 112 Mar 2008 24 6 13 19 26 12 118
Production Hand-to- 30 60 90 6 1 Average Materials Mouth Days Days Days Months Year+ Days Jun 2008 18 41 24 9 6 2 54 May 2008 22 37 25 10 4 2 51 Apr 2008 21 38 27 9 3 2 49 Mar 2008 23 35 30 8 3 1 46
MRO Hand-to- 30 60 90 6 1 Average Supplies Mouth Days Days Days Months Year+ Days Jun 2008 50 38 8 3 0 1 25 May 2008 51 35 8 4 1 1 27 Apr 2008 50 34 11 3 2 0 26 Mar 2008 56 32 9 3 0 0 21
About this Report
The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.
Data and Method of Presentation
The Manufacturing ISM Report On Business(R) is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).
Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).
The resulting single index number for those meeting the criteria for seasonal adjustments (PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators with equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.
Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI in excess of 41.1 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.1 percent, it is generally declining. The distance from 50 percent or 41.1 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.
Responses to Buying Policy reflect the percent reporting the current month’s lead time, the approximate weighted number of days ahead for which commitments are made for Production Materials; Capital Expenditures; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.
The Manufacturing ISM Report On Business(R) is published monthly by the Institute for Supply Management(TM). The Institute for Supply Management(TM), established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM’s mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education. This report has been issued by the association since 1931, except for a four-year interruption during World War II.
The full text version of the Manufacturing ISM Report On Business(R) is posted on ISM’s Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).
The next Manufacturing ISM Report On Business(R) featuring the July 2008 data will be released at 10:00 a.m. (ET) on Friday, August 1, 2008.