EconoIndicators

Manufacturing Report At a Glance

• Purchasing Managers Index (PMI): 50.7
• 50+ represents growing economic conditions
• Monthly Change: Up 2.3
• Inventories: 49.1
• Monthly Change: Up 3.7
• New Orders: 49.5
• Monthly Change: Up 2.6

Technorati Tags: Purchasing Managers Index, ISM, manufacturing

January 2008 Manufacturing ISM Report On Business
PMI at 50.7%
This report reflects the U.S Department of Commerce’s recently completed annual adjustment to the seasonal factors used to calculate the indexes.

Production Growing
New Orders, Employment and Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in January, while the overall economy grew for the 75th 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. “The manufacturing sector gained momentum in January as the PMI rose 2.3 percentage points, signaling stronger performance in January when compared to the seasonally adjusted 48.4 percent recorded in December. This represents a return to the recent trend of slow growth in manufacturing, as the PMI has averaged 50.2 percent for the past six months. The PMI was driven by the Production Index, which made a rebound of 6.6 percentage points during the month, while the New Orders Index reflected a slight decline at 49.5 percent.”
TOP PERFORMING INDUSTRIES

The eight industries reporting growth in January — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; Primary Metals; Miscellaneous Manufacturing; and Machinery. The industries reporting contraction in January are: Nonmetallic Mineral Products; Printing and Related Support Activities; Textile Mills; Wood Products; Furniture & Related Products; Fabricated Metal Products; Plastics & Rubber Products; Computer & Electronic Products; and Transportation Equipment.
WHAT RESPONDENTS ARE SAYING …

* “We are in a squeeze between supplier pressure to raise prices and customer pressure to reduce prices.” (Chemical Products)
* “The softness in residential construction has begun to manifest itself in commercial construction.” (Machinery)
* “Strong backlog now, better than last year [at the] same time.” (Furniture & Related Products)
* “Commodity prices continue to trade at all-time highs.” (Food, Beverage & Tobacco Products)
* “Customer demand was generally soft last month due to the holidays and a downturn in automobile production.” (Fabricated Metal Products)

*Number of months moving in current direction
Indexes reflect newly released seasonal adjustment factors.

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda (4); Chemicals; Cobalt; Copper Laden Products; Corn; Corrugated Containers (5); Diesel Fuel (2); Freight; Fuel Surcharges (2); Low Density Polyethylene; Natural Gas (3); Nickel; Oil (3); Oil-related Products; Plastic Resin; Polypropylene Resin (3); PVC; Soybean Oil; Steel; and Sulfuric Acid (3).

Commodities Down in Price

Zinc is the only commodity reported down in price.

Commodities in Short Supply

No commodities are reported in short supply.

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

SPECIAL QUESTIONS

Two additional questions were asked in a special poll of the manufacturing panel in January.

Question 1 — Is the turmoil in financial markets having any effect on your firm’s ability to obtain regular or additional financing?

Yes — 7.4%

No — 92.6%

Question 2 — Indicate how you and your management feel about the next 12 months compared to 2007.

Better	22.9%
Same	37.5%
Worse	39.6%
Diffusion Index	41.7%

JANUARY 2008 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing expanded in January as the PMI registered 50.7 percent, an increase of 2.3 percentage points when compared to December’s seasonally adjusted reading of 48.4 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 41.1 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 at this time. "The past relationship between the PMI and the overall economy indicates that the PMI for January (50.7) corresponds to a 3 percent increase in real gross domestic product (GDP) on an annual basis."

THE LAST 12 MONTHS

New Orders

ISM’s New Orders Index registered 49.5 percent in January. The index is 2.6 percentage points higher than the seasonally adjusted 46.9 percent reported in December. 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).

Four industries reported increases during January: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Machinery. The industries that reported decreases in January are: Nonmetallic Mineral Products; Wood Products; Furniture & Related Products; Printing & Related Support Activities; Textile Mills; Computer & Electronic Products; Fabricated Metal Products; Paper Products; and Electrical Equipment, Appliances & Components.

Production

ISM’s Production Index rose to 55.2 percent in January, an increase of 6.6 percentage points when compared to December’s seasonally adjusted reading of 48.6 percent. 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 January, eight registered growth: Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Fabricated Metal Products; and Chemical Products. The industries reporting contraction in January are: Nonmetallic Mineral Products; Printing & Related Support Activities; Textile Mills; Wood Products; Plastics & Rubber Products; Computer & Electronic Products; and Transportation Equipment.

Employment

ISM’s Employment Index registered 47.1 percent in January, which is a decrease of 1.6 percentage points when compared to December’s seasonally adjusted reading of 48.7 percent. 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 four industries reporting growth in employment during January are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; and Food, Beverage & Tobacco Products. The industries reporting contraction in employment in January are: Nonmetallic Mineral Products; Printing & Related Support Activities; Textile Mills; Plastics & Rubber Products; Furniture & Related Products; Machinery; Wood Products; and Fabricated Metal Products.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations continued to slow in January as the Supplier Deliveries Index increased 0.2 percentage point to 52.8 percent from 52.6 percent registered in December (seasonally adjusted). A reading above 50 percent indicates slower deliveries.

The seven industries reporting slower supplier deliveries in January are: Textile Mills; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Chemical Products; Computer & Electronic Products; and Fabricated Metal Products. The industries reporting faster supplier deliveries in January are: Printing & Related Support Activities; Nonmetallic Mineral Products; Primary Metals; and Machinery.

Inventories

Manufacturers’ inventories contracted in January as the Inventories Index registered 49.1 percent, which is 3.7 percentage points higher than December’s seasonally adjusted reading of 45.4 percent. This is the 21st 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 seven industries reporting higher inventories in January are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Petroleum & Coal Products; Machinery; Paper Products; Food, Beverage & Tobacco Products; and Transportation Equipment. The industries reporting lower inventories in January are: Furniture & Related Products; Textile Mills; Fabricated Metal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; and Chemical Products.

Customers’ Inventories*

The ISM Customers’ Inventories Index registered 49.5 percent in January, a decrease of 2 percentage points when compared to December’s reading of 51.5 percent. The index indicates that respondents believe their customers’ inventories are too low at this time.

Three industries reported higher customers’ inventories during January: Plastics & Rubber Products; Furniture & Related Products; and Fabricated Metal Products. The industries reporting lower customer’s inventories in January are: Miscellaneous Manufacturing; Wood Products; Primary Metals; Machinery; and Chemical Products.

Prices*

The ISM Prices Index registered 76 percent in January, indicating manufacturers are paying significantly higher prices on average when compared to December. While 55 percent of respondents reported paying higher prices and 3 percent reported paying lower prices, 42 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 January, 15 industries reported paying higher prices: Textile Mills; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; Paper Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Wood Products; Printing & Related Support Activities; Primary Metals; Machinery; Fabricated Metal Products; Computer & Electronic Products; Miscellaneous Manufacturing; and Transportation Equipment. Petroleum & Coal Products is the only industry reporting paying lower prices in January.

Backlog of Orders*

ISM’s Backlog of Orders Index registered 44 percent in January, 1 percentage point higher than the 43 percent reported in December. This is the fourth consecutive month of contraction in the Backlog of Orders Index. Of the 85 percent of respondents who reported their backlog of orders, 19 percent reported greater backlogs, 31 percent reported smaller backlogs, and 50 percent reported no change from December.

The two industries reporting an increase in order backlogs in January are: Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. The industries reporting a decrease in order backlogs in January are: Nonmetallic Mineral Products; Printing & Related Support Activities; Machinery; Fabricated Metal Products; Wood Products; Transportation Equipment; Miscellaneous Manufacturing; and Chemical Products.

New Export Orders*

ISM’s New Export Orders Index registered 58.5 percent in January, an increase of 6 percentage points when compared to December’s index of 52.5 percent. This is the 62nd consecutive month of growth in export orders.

The 10 industries reporting growth in new export orders in January are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; Plastics & Rubber Products; Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing; Machinery; and Computer & Electronic Products. The industries reporting a decrease in new export orders in January are Nonmetallic Mineral Products and Wood Products.

Imports*

Imports of materials by manufacturers expanded during January as the Imports Index registered 52.5 percent, 4.5 percentage points higher than the 48 percent reported in December.

The six industries reporting growth in import activity for January are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Plastics & Rubber Products; Transportation Equipment; and Machinery. The industries reporting contraction in import activity in January are: Wood Products; Fabricated Metal Products; Chemical Products; Miscellaneous Manufacturing; and Computer & Electronic 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 lead-time for Capital Expenditures decreased 1 day to 122 days. Average lead-time for Production Materials is unchanged at 50 days. Average lead-time for Maintenance, Repair and Operating (MRO) Supplies increased 4 days to 25 days.

Source: Institute for Supply Management (formerly National Association of Purchasing Managers)