EconoIndicators

Manufacturing Report At a Glance

• Purchasing Managers Index (PMI): 52.9
• 50+ represents growing economic conditions
• Monthly Change: Down 0.9
• Inventories: 45.4
• Monthly Change: Down 3.1
• New Orders: 55.3
• Monthly Change: Down 2.2

Technorati Tags: Purchasing Managers Index, ISM, manufacturing

August 2007 Manufacturing ISM Report On Business®
PMI at 52.9%
New Orders, Production and Employment Growing
Inventories Contracting

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in August for the seventh consecutive month, while the overall economy grew for the 70th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “Viewed from the manufacturing sector, the overall economy continues to grow at a significant rate. In comparing August to July, the rate of growth in manufacturing was slightly less but continues the expansion, although at the slowest pace in the past five months. Both the New Orders Index and the Production Index are encouraging for continuing growth as we head toward the fourth quarter of 2007.”
TOP PERFORMING INDUSTRIES
The 10 industries reporting growth in August — listed in order — are: Nonmetallic Mineral Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Wood Products; Chemical Products; Apparel, Leather & Allied Products; Fabricated Metal Products; Textile Mills; Electrical Equipment, Appliances & Components; and Furniture & Related Products.
WHAT RESPONDENTS ARE SAYING …

* “Business is strong but margins are down due to higher raw material cost.” (Primary Metals)
* “Business is still off by as much as 40 percent over last year in the building materials industry — residential.” (Nonmetallic Mineral Products)
* “The Chinese government’s recent decision to reduce the export rebate from 13 percent to 5 percent has resulted in higher priced export goods from China.” (Plastics & Rubber Products)
* “Inventory levels are high at our customers causing slower pulls toward the last quarter of 2007.” (Transportation Equipment)
* “We are starting to see signs of improvement.” (Machinery)

*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (9); Copper; Copper Products (5); Eggs; Flour; Freight; Lead; Packaging; Polyethylene Resins; Polypropylene Resins; Soybean Oil (3); and Steel.

Commodities Down in Price

Gasoline (2); Natural Gas (2); and Nickel (2).

Commodities in Short Supply

Sulfuric Acid is the only commodity listed in short supply.

Note: The number of consecutive months the commodity is listed is indicated after each item.

AUGUST 2007 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing grew at a slower rate in August as the PMI registered 52.9 percent, a decrease of 0.9 percentage point when compared to July’s reading of 53.8 percent. 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 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that both the overall economy and the manufacturing sector are growing. "The past relationship between the PMI and the overall economy indicates that the PMI average for January through August (53.1 percent) corresponds to a 3.5 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for August (52.9 percent) is annualized, it corresponds to a 3.4 percent increase in real GDP annually."

THE LAST 12 MONTHS

New Orders

ISM’s New Orders Index registered 55.3 percent in August. The index is 2.2 percentage points lower than the 57.5 percent reported in July. A New Orders Index above 49.1 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 August: Petroleum & Coal Products; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Wood Products; Chemical Products; and Fabricated Metal Products.

Production

ISM’s Production Index registered 56.1 percent in August, which is 0.5 percentage point higher than the 55.6 percent reported in July. August is the seventh consecutive month of production growth for manufacturers. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. Of the industries reporting in August, seven registered growth: Nonmetallic Mineral Products; Wood Products; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products.

Employment

ISM’s Employment Index registered 51.3 percent in August, which is an increase of 1.1 percentage points when compared to July’s reading of 50.2 percent. An Employment Index above 49.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The four industries reporting growth in employment during August are: Furniture & Related Products; Chemical Products; Machinery; and Food, Beverage & Tobacco Products.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was unchanged in August. ISM’s Supplier Deliveries Index registered 50 percent in August, indicating no change from July. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in August are: Printing & Related Support Activities; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; and Chemical Products.

Inventories

Manufacturers’ inventories registered 45.4 percent in August, which is 3.1 percentage points lower than July’s reading of 48.5 percent. This is the 13th consecutive month 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 four industries reporting higher inventories in August are: Textile Mills; Printing & Related Support Activities; Food, Beverage & Tobacco Products; and Paper Products.

Customers’ Inventories*

The ISM Customers’ Inventories Index registered 49 percent in August, which is 2 percentage points lower than the 51 percent reported in July. The index indicates that respondents believe their customers have less than sufficient inventories on hand (inventories are too low) at this time. Seven industries reported higher customers’ inventories during August: Paper Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; and Chemical Products.

Prices*

In August, the ISM Prices Index registered 63 percent, indicating manufacturers are paying higher prices on average when compared to July. While 33 percent of respondents reported paying higher prices and 7 percent reported paying lower prices, 60 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In August, 13 industries reported paying higher prices: Food, Beverage & Tobacco Products; Plastics & Rubber Products; Textile Mills; Printing & Related Support Activities; Transportation Equipment; Wood Products; Furniture & Related Products; Fabricated Metal Products; Paper Products; Chemical Products; Machinery; Miscellaneous Manufacturing; and Primary Metals.

Backlog of Orders*

ISM’s Backlog of Orders Index registered 50.5 percent in August, 1.5 percentage points lower than the 52 percent reported in July. Of the 84 percent of respondents who reported their backlog of orders, 19 percent reported greater backlogs, 18 percent reported smaller backlogs, and 63 percent reported no change from July. The five industries reporting an increase in order backlogs in August are: Wood Products; Machinery; Chemical Products; Transportation Equipment; and Food, Beverage & Tobacco Products.

New Export Orders*

ISM’s New Export Orders Index registered 57 percent in August, an increase of 0.5 percentage point when compared to July’s index of 56.5 percent. This is the 57th consecutive month of growth in export orders. The nine industries reporting growth in new export orders in August are: Wood Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Machinery.

Imports*

Imports of materials by manufacturers grew during August as the Imports Index registered 52.5 percent, 2 percentage points lower than the 54.5 percent reported in July. This is the 68th consecutive month of growth in import orders. The eight industries reporting growth in import activity for August are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing.

* 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 leadtime for Capital Expenditures decreased 5 days to 110 days. Average leadtime for Production Materials decreased 3 days to 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) Supplies increased 2 days to 24 days.

Source: Institute for Supply Management