ISM Manufacturing Report on Business – March 2008

Manufacturing Report At a Glance

Purchasing Managers Index (PMI): 48.6
50+ represents growing economic conditions
Monthly Change: Up 0.3
Inventories: 44.9
Monthly Change: Down 0.5
New Orders: 46.5
Monthly Change: Down 2.6

Technorati Tags: Purchasing Managers Index, PMI, ISM, manufacturing

March 2008 Manufacturing ISM Report On Business
PMI at 48.6%
New Orders, Production, Employment and Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in March, while the overall economy grew for the 77th 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 failed to grow in March as the PMI fell below 50 percent for the second consecutive month. This completes the weakest quarterly performance for the U.S. economy since Q2 of 2003. Manufacturers’ order backlogs continue to erode as the New Orders Index failed to grow for the fourth consecutive month. Additionally, manufacturers continue to experience heavy cost pressures, as the prices they pay are still rising even with slower overall demand. Some manufacturers are still benefiting from strong export demand and continue to see growth in export orders.”
PERFORMANCE BY INDUSTRY

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

* “Automotive demand continues to decline.” (Fabricated Metal Products)
* “Business is still cautiously optimistic.” (Machinery)
* “High oil prices and material shortages are becoming a real challenge to deal with in day-to-day operations.” (Paper Products)
* “European business continues robust.” (Primary Metals)
* “Business continues to be down by 20 percent over the past four months.” (Furniture & Related Products)

MANUFACTURING AT A GLANCE MARCH 2008
Index	Series Index March	Series Index February	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	48.6	48.3	+0.3	Contracting	Slower	2
New Orders	46.5	49.1	-2.6	Contracting	Faster	4
Production	48.7	50.7	-2.0	Contracting	From Growing	1
Employment	49.2	46.0	+3.2	Contracting	Slower	5
Supplier Deliveries	53.6	50.1	+3.5	Slowing	Faster	9
Inventories	44.9	45.4	-0.5	Contracting	Faster	23
Customers’ Inventories	51.0	49.0	+2.0	Too High	From Too Low	1
Prices	83.5	75.5	+8.0	Increasing	Faster	15
Backlog of Orders	47.5	45.0	+2.5	Contracting	Slower	6
Exports	56.5	56.0	+0.5	Growing	Faster	64
Imports	45.0	47.5	-2.5	Contracting	Faster	2

OVERALL ECONOMY				Growing	Faster	77
Manufacturing Sector				Contracting	Slower	2

*Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (2); Aluminum Extrusions; Caustic Soda; Chemicals (3); Copper (2); Copper Laden Products; Corrugated Cartons; Crude Oil; Diesel Fuel; Electrical Components; Fuel Oil; Fuel Surcharges; Natural Gas (5); Plastics; Steel (3); Sulfuric Acid (5); and Zinc.

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

Caustic Soda is the only commodity reported in short supply.

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

MARCH 2008 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing failed to grow in March as the PMI registered 48.6 percent, which is an increase of 0.3 percentage point when compared to February’s seasonally adjusted reading of 48.3 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 the overall economy is growing and the manufacturing sector is contracting at this time. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (49.2 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for March (48.6 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

THE LAST 12 MONTHS

Month	PMI	Month	PMI
Mar 2008	48.6	Sep 2007	50.5
Feb 2008	48.3	Aug 2007	51.2
Jan 2008	50.7	Jul 2007	52.3
Dec 2007	48.4	Jun 2007	53.4
Nov 2007	50.0	May 2007	52.8
Oct 2007	50.4	Apr 2007	52.8
Average for 12 months — 50.8 High — 53.4 Low — 48.3

New Orders

ISM’s New Orders Index registered 46.5 percent in March. The index is 2.6 percentage points lower than the seasonally adjusted 49.1 percent reported in February. 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).

Eight industries reported increases during March: Printing & Related Support Activities; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Paper Products; Primary Metals; Computer & Electronic Products; and Chemical Products. The industries that reported decreases during March are: Nonmetallic Mineral Products; Plastics & Rubber Products; Wood Products; Machinery; Fabricated Metal Products; and Transportation Equipment.

New Orders	% Better	% Same	% Worse	Net	Index
Mar 2008	25	50	25	0	46.5
Feb 2008	27	48	25	+2	49.1
Jan 2008	25	43	32	-7	49.5
Dec 2007	15	55	30	-15	46.9

Production

ISM’s Production Index declined to 48.7 percent in March, a decrease of 2 percentage points when compared to February’s seasonally adjusted reading of 50.7 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 March, six registered growth: Apparel, Leather & Allied Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Primary Metals; Computer & Electronic Products; and Transportation Equipment. The industries that reported decreased production during March are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; and Machinery.

Production	% Better	% Same	% Worse	Net	Index
Mar 2008	20	60	20	0	48.7
Feb 2008	25	52	23	+2	50.7
Jan 2008	26	51	23	+3	55.2
Dec 2007	16	58	26	-10	48.6

Employment

ISM’s Employment Index registered 49.2 percent in March, which is an increase of 3.2 percentage points when compared to February’s seasonally adjusted reading of 46 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 eight industries reporting growth in employment during March are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Furniture & Related Products; Computer & Electronic Products; Transportation Equipment; and Food, Beverage & Tobacco Products. The industries that reported decreases in employment during March are: Textile Mills; Fabricated Metal Products; Chemical Products; Machinery; and Plastics & Rubber Products.

Employment	% Higher	% Same	% Lower	Net	Index
Mar 2008	15	70	15	0	49.2
Feb 2008	10	74	16	-6	46.0
Jan 2008	11	68	21	-10	47.1
Dec 2007	11	71	18	-7	48.7

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations continued to slow in March as the Supplier Deliveries Index increased 3.5 percentage points to 53.6 percent from the seasonally adjusted 50.1 percent registered in February. A reading above 50 percent indicates slower deliveries.

The five industries reporting slower supplier deliveries in March are: Printing & Related Support Activities; Fabricated Metal Products; Machinery; Transportation Equipment; and Food, Beverage & Tobacco Products. The industries reporting faster deliveries during March are: Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.

Supplier Deliveries	% Slower	% Same	% Faster	Net	Index
Mar 2008	11	85	4	+7	53.6
Feb 2008	6	87	7	-1	50.1
Jan 2008	6	91	3	+3	52.8
Dec 2007	8	88	4	+4	52.6

Inventories

Manufacturers’ inventories contracted in March as the Inventories Index registered 44.9 percent, which is 0.5 percentage point lower than February’s seasonally adjusted reading of 45.4 percent. This is the 23rd 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 five industries reporting higher inventories in March are: Apparel, Leather & Allied Products; Textile Mills; Plastics & Rubber Products; Machinery; and Chemical Products. The industries that reported decreases during March are: Furniture & Related Products; Petroleum & Coal Products; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Nonmetallic Mineral Products.

Inventories	% Higher	% Same	% Lower	Net	Index
Mar 2008	15	63	22	-7	44.9
Feb 2008	13	68	19	-6	45.4
Jan 2008	17	64	19	-2	49.1
Dec 2007	16	57	27	-11	45.4

Customers’ Inventories*

The ISM Customers’ Inventories Index registered 51 percent in March, an increase of 2 percentage points when compared to February’s reading of 49 percent. The index indicates that respondents believe their customers’ inventories are too high at this time.

Five industries reported higher customers’ inventories during March: Plastics & Rubber Products; Furniture & Related Products; Wood Products; Fabricated Metal Products; and Chemical Products. The industries that reported lower customers’ inventories during March are: Printing & Related Support Activities; Textile Mills; Electrical Equipment, Appliances & Components; Primary Metals; Miscellaneous Manufacturing; Transportation Equipment; and Machinery.

Customers’ Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index
Mar 2008	78	16	70	14	+2	51.0
Feb 2008	70	13	72	15	-2	49.0
Jan 2008	70	13	73	14	-1	49.5
Dec 2007	75	20	63	17	+3	51.5

Prices*

The ISM Prices Index registered 83.5 percent in March, indicating manufacturers are paying higher prices on average when compared to February. This is the highest reading for the index since it registered 84.0 percent in October 2005. While 69 percent of respondents reported paying higher prices and 2 percent reported paying lower prices, 29 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 March, 17 industries reported paying higher prices: Textile Mills; Printing & Related Support Activities; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Chemical Products; Transportation Equipment; Fabricated Metal Products; Machinery; Nonmetallic Mineral Products; Wood Products; Paper Products; Petroleum & Coal Products; Computer & Electronic Products; and Miscellaneous Manufacturing.

Prices	% Higher	% Same	% Lower	Net	Index
Mar 2008	69	29	2	+67	83.5
Feb 2008	55	41	4	+51	75.5
Jan 2008	55	42	3	+52	76.0
Dec 2007	43	50	7	+36	68.0

Backlog of Orders*

ISM’s Backlog of Orders Index registered 47.5 percent in March, 2.5 percentage points higher than the 45 percent reported in February. This is the sixth consecutive month of contraction in the Backlog of Orders Index. Of the 85 percent of respondents who reported their backlog of orders, 18 percent reported greater backlogs, 23 percent reported smaller backlogs, and 59 percent reported no change from February.

The six industries reporting an increase in order backlogs in March are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Primary Metals; and Machinery. The industries that reported decreases in order backlogs during March are: Nonmetallic Mineral Products; Printing & Related Support Activities; Wood Products; Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; and Chemical Products.

Backlog of Orders	% Reporting	% Greater	% Same	% Less	Net	Index
Mar 2008	85	18	59	23	-5	47.5
Feb 2008	87	22	46	32	-10	45.0
Jan 2008	85	19	50	31	-12	44.0
Dec 2007	85	14	58	28	-14	43.0

New Export Orders*

ISM’s New Export Orders Index registered 56.5 percent in March, an increase of 0.5 percentage point when compared to February’s index of 56 percent. This is the 64th consecutive month of growth in export orders.

The nine industries reporting growth in new export orders in March are: Electrical Equipment, Appliances & Components; Paper Products; Primary Metals; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Chemical Products; and Machinery. The industries that reported decreases in new export orders during March are: Wood Products and Fabricated Metal Products.

New Export Orders	% Reporting	% Higher	% Same	% Lower	Net	Index
Mar 2008	76	22	69	9	+13	56.5
Feb 2008	75	22	68	10	+12	56.0
Jan 2008	78	24	69	7	+17	58.5
Dec 2007	75	17	71	12	+5	52.5

Imports*

Imports of materials by manufacturers contracted during March as the Imports Index registered 45 percent, 2.5 percentage points lower than the 47.5 percent reported in February.

The five industries reporting growth in import activity for March are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Textile Mills; Miscellaneous Manufacturing; and Transportation Equipment. The industries that reported decreases in imports during March are: Nonmetallic Mineral Products; Petroleum & Coal Products; Paper Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Primary Metals; Fabricated Metal Products; Machinery; Chemical Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

Imports	% Reporting	% Higher	% Same	% Lower	Net	Index
Mar 2008	83	9	72	19	-10	45.0
Feb 2008	83	13	69	18	-5	47.5
Jan 2008	82	16	73	11	+5	52.5
Dec 2007	80	13	70	17	-4	48.0

* 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 118 days. Average lead-time for Production Materials decreased 1 day to 46 days. Average lead-time for Maintenance, Repair and Operating (MRO) Supplies decreased 1 day to 21 days.

Percent Reporting
Capital Expenditures	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Mar 2008	24	6	13	19	26	12	118
Feb 2008	21	10	10	21	26	12	119
Jan 2008	22	9	12	17	27	13	122
Dec 2007	22	9	12	18	25	14	123

Production Materials	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Mar 2008	23	35	30	8	3	1	46
Feb 2008	20	40	28	7	4	1	47
Jan 2008	23	36	27	8	4	2	50
Dec 2007	19	37	28	10	5	1	50

MRO Supplies	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Mar 2008	56	32	9	3	0	0	21
Feb 2008	55	31	10	4	0	0	22
Jan 2008	50	34	10	5	1	0	25
Dec 2007	53	35	9	3	0	0	21