EconoIndicators

Manufacturing Report At a Glance

• Purchasing Managers Index (PMI): 50.9
• 50+ represents growing economic conditions
• Monthly Change: Down 1.1
• Inventories: 47.2
• Monthly Change: Up 5.6
• New Orders: 52.5
• Monthly Change: Down 0.9

Technorati Tags: Purchasing Managers Index, ISM, manufacturing

October 2007 Manufacturing ISM Report On Business
PMI at 50.9%
New Orders, Employment Growing
Production, Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in October for the ninth consecutive month, while the overall economy grew for the 72nd 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. “Manufacturing growth slowed in October to its lowest level since March 2007. While the New Orders Index continued to grow and the Production Index fell below 50 for the first time since January 2007, the Employment Index grew slightly, signaling continuing strength in manufacturing employment. It does appear that the impact of the slow down in the financial, housing and transportation segments has spilled over into manufacturing with the exception being continued strength in new export orders.”
TOP PERFORMING INDUSTRIES

The nine industries reporting growth in October — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.
WHAT RESPONDENTS ARE SAYING …

* “Very busy fourth quarter.” (Primary Metals)
* “We are experiencing a slight slow down of current orders, but see this as temporary.” (Plastics & Rubber Products)
* “Business is softer than forecasted, market recovery appears to be delayed.” (Transportation Equipment)
* “Heavy truck industry is not seeing signs of a recovery yet.” (Fabricated Metal Products)
* “Business conditions are still sluggish. International orders are keeping us busy!” (Machinery)

*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda; Copper; Copper Products; Corrugated Containers (2); Flour (3); Methanol; Oil; Steel — Hot Rolled; and Wheat (2).

Commodities Down in Price

Aluminum is the only commodity reported as down in price.

Commodities in Short Supply

Methanol and Sulfuric Acid (3).

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

OCTOBER 2007 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing grew at a slower rate in October as the PMI registered 50.9 percent, a decrease of 1.1 percentage points when compared to September’s reading of 52 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 October (52.8 percent) corresponds to a 3.4 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for October (50.9 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually."

THE LAST 12 MONTHS

New Orders

ISM’s New Orders Index registered 52.5 percent in October. The index is 0.9 percentage point lower than the 53.4 percent reported in September. 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). Eight industries reported increases during October: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Computer & Electronic Products; and Chemical Products.

Production

ISM’s Production Index registered 49.6 percent in October, which is 5 percentage points lower than the 54.6 percent reported in September. October reverses a trend of eight consecutive months 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 October, seven registered growth: Apparel, Leather & Allied Products; Paper Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products.

Employment

ISM’s Employment Index registered 52 percent in October, which is an increase of 0.3 percentage point when compared to September’s reading of 51.7 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 six industries reporting growth in employment during October are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Transportation Equipment.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations decreased 1.3 percentage points in October as the index declined to 50.6 percent. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in October are: Textile Mills; Printing & Related Support Activities; Miscellaneous Manufacturing; Transportation Equipment; Fabricated Metal Products; and Computer & Electronic Products.

Inventories

Manufacturers’ inventories registered 47.2 percent in October, which is 5.6 percentage points higher than September’s reading of 41.6 percent. This is the 15th 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 six industries reporting higher inventories in October are: Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Textile Mills; Wood Products; and Furniture & Related Products.

Customers’ Inventories*

The ISM Customers’ Inventories Index registered 54 percent in October, an increase of 4 percentage points when compared to September. The index indicates that respondents believe their customers’ inventories are too high at this time. Seven industries reported higher customers’ inventories during October: Textile Mills; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; and Transportation Equipment.

Prices*

In October, the ISM Prices Index registered 63 percent, indicating manufacturers are paying higher prices on average when compared to September. 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 October, 13 industries reported paying higher prices: Paper Products; Food, Beverage & Tobacco Products; Textile Mills; Wood Products; Plastics & Rubber Products; Chemical Products; Primary Metals; Printing & Related Support Activities; Petroleum & Coal Products; Nonmetallic Mineral Products; Furniture & Related Products; Fabricated Metal Products; and Transportation Equipment.

Backlog of Orders*

ISM’s Backlog of Orders Index registered 46 percent in October, 5 percentage points lower than the 51 percent reported in September. While order backlogs have been growing modestly in recent months, this month’s decline represents a significant change. Of the 83 percent of respondents who reported their backlog of orders, 16 percent reported greater backlogs, 24 percent reported smaller backlogs, and 60 percent reported no change from September. The five industries reporting an increase in order backlogs in October are: Paper Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Transportation Equipment.

New Export Orders*

ISM’s New Export Orders Index registered 57 percent in October, an increase of 2.5 percentage points when compared to September’s index of 54.5 percent. This is the 59th consecutive month of growth in export orders. The 10 industries reporting growth in new export orders in October are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; and Fabricated Metal Products.

Imports*

Imports of materials by manufacturers failed to grow during October as the Imports Index registered 47.5 percent, 5.5 percentage points lower than the 53 percent reported in September. This decline ends 69 consecutive months of growth in imports as measured by this index. The six industries reporting growth in import activity for October are: Printing & Related Support Activities; Plastics & Rubber Products; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; and Chemical Products.

* 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 2 days to 123 days. Average leadtime for Production Materials increased 1 day to 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) Supplies decreased 4 days to 22 days.

Source: Institute for Supply Management