EconoIndicators

Manufacturing Report At a Glance

• Purchasing Managers Index (PMI): 50.2
• 50+ represents growing economic conditions
• Monthly Change: Up 0.6
• Inventories: 51.2
• Monthly Change: Up 3.2
• New Orders: 49.6
• Monthly Change: Down 0.1

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

June 2008 Manufacturing ISM Report On Business
PMI at 50.2%
Production and Inventories Growing
New Orders and Employment Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — 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®.

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 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)

*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

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.

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.

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.

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.

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.

Customers’ Inventories*

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.

Prices*

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.

Backlog of Orders*

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.

New Export Orders*

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.

Imports*

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.

* 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.

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