ISM Manufacturing Report on Business – July 2008

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Manufacturing Report At a Glance

Purchasing Managers Index (PMI): 50
50+ represents growing economic conditions
Monthly Change: down 0.2
Inventories: 45
Monthly Change: down 6.2
New Orders: 45
Monthly Change: down 4.6

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

July 2008 Manufacturing ISM Report On Business®
PMI at 50%
Production and Employment Growing
New Orders and Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector was unchanged in July, while the overall economy grew for the 81st 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. “In this month’s report, manufacturers indicate no change in overall business activity when comparing July to June. This continues a trend biased toward relatively minor contraction established more than 12 months ago. Manufacturing has maintained a reasonable level of activity during a period in which other sectors of the economy have been in recession. While the PMI indicates little to no change has occurred during this period, it would be hard to convince manufacturers who are faced with higher costs and uncertain demand that there is little change taking place.”
PERFORMANCE BY INDUSTRY
The six industries reporting growth in July — listed in order — are: Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; Paper Products; and Chemical Products. The industries reporting contraction in July are: Plastics & Rubber Products; Wood Products; Transportation Equipment; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Machinery; Miscellaneous Manufacturing; and Fabricated Metal Products.
WHAT RESPONDENTS ARE SAYING …
“Our company has gone to a four-day/10-hour week in an effort to curtail energy costs for the company and for employees.” (Transportation Equipment)
“Competitive market forces are preventing companies from boosting prices high enough to recover raw material input costs.” (Plastics & Rubber Products)
“All automotive manufacturers (especially trucks) are down significantly.” (Fabricated Metal Products)
“It is almost impossible to keep up with the complexity of never-ending price movement.” (Chemical Products)
“We have had two large projects cancelled that we believe are solely due to the uncertain economy.” (Machinery)

MANUFACTURING AT A GLANCE JULY 2008
Index	Series Index July	Series Index June	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	50.0	50.2	-0.2	Unchanged	From Growing	1
New Orders	45.0	49.6	-4.6	Contracting	Faster	8
Production	52.9	51.5	+1.4	Growing	Faster	3
Employment	51.9	43.7	+8.2	Growing	From Contracting	1
Supplier Deliveries	55.1	55.1	0	Slowing	Same	13
Inventories	45.0	51.2	-6.2	Contracting	From Growing	1
Customers’ Inventories	47.0	55.0	-8.0	Too Low	From Too High	1
Prices	88.5	91.5	-3.0	Increasing	Slower	19
Backlog of Orders	43.0	47.5	-4.5	Contracting	Faster	3
Exports	54.0	58.5	-4.5	Growing	Slower	68
Imports	46.5	46.0	+0.5	Contracting	Slower	6

OVERALL ECONOMY				Growing	Faster	81
Manufacturing Sector				Unchanged	From Growing	1

*Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (6); Aluminum Extrusions (5); Butadiene; Carbon Black; Castings — Cast Iron; Caustic Soda (5); Chemicals (3); Copper; Copper Based Products; Corn (4); Corn Based Products; Corrugated Containers (3) Diesel Fuel (5); Freight (3); Fuel Oil — #2 (3); Fuel Surcharges (5); Gasoline (4); Natural Gas (9); Paperboard; Petroleum Based Products (3); Plastics (2); Poly Bags; PVC; Resin Based Products; Resins (4); Steel (7); Steel — Alloys, Cold Finished, Hot Rolled, Specialty (2); and Sulfuric Acid.

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

Caustic Soda (5) and Sulfuric Acid are the only commodities reported in short supply.

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

JULY 2008 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing was unchanged in July as the PMI registered 50 percent, 0.2 percentage point lower than the 50.2 percent reported in June. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A reading of 50 percent indicates no change from the previous month.

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 unchanged from June. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (49.4 percent) corresponds to a 2.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for July (50 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually.”

THE LAST 12 MONTHS

Month	PMI	Month	PMI
Jul 2008	50.0	Jan 2008	50.7
Jun 2008	50.2	Dec 2007	48.4
May 2008	49.6	Nov 2007	50.0
Apr 2008	48.6	Oct 2007	50.4
Mar 2008	48.6	Sep 2007	50.5
Feb 2008	48.3	Aug 2007	51.2
Average for 12 months — 49.7 High — 51.2 Low — 48.3

New Orders

ISM’s New Orders Index registered 45 percent in July, 4.6 percentage points lower than the 49.6 percent registered in June. 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).

Five industries reported increases during July: Paper Products; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; and Primary Metals. The industries failing to grow in July are: Plastics & Rubber Products; Printing & Related Support Activities; Wood Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; and Machinery.

New Orders	% Better	% Same	% Worse	Net	Index
Jul 2008	18	54	28	-10	45.0
Jun 2008	29	46	25	+4	49.6
May 2008	25	52	23	+2	49.7
Apr 2008	26	48	26	0	46.5

Production

ISM’s Production Index increased to 52.9 percent in July, an increase of 1.4 percentage points from the 51.5 percent reported in June. 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 July, seven registered growth: Food, Beverage & Tobacco Products; Paper Products; Nonmetallic Mineral Products; Computer & Electronic Products; Primary Metals; Chemical Products; and Machinery. The industries failing to grow in July are: Wood Products; Transportation Equipment; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products.

Production	% Better	% Same	% Worse	Net	Index
Jul 2008	21	62	17	+4	52.9
Jun 2008	25	54	21	+4	51.5
May 2008	24	59	17	+7	51.2
Apr 2008	28	50	22	+6	49.1

Employment

ISM’s Employment Index registered 51.9 percent in July, which is an increase of 8.2 percentage points when compared to the 43.7 percent reported in June. 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 nine industries reporting growth in employment during July are: Petroleum & Coal Products; Printing & Related Support Activities; Computer & Electronic Products; Miscellaneous Manufacturing; Primary Metals; Food, Beverage & Tobacco Products; Chemical Products; Machinery; and Electrical Equipment, Appliances & Components. The industries that reported decreases in employment during July are: Plastics & Rubber Products; Wood Products; Nonmetallic Mineral Products; Transportation Equipment; and Fabricated Metal Products.

Employment	% Higher	% Same	% Lower	Net	Index
Jul 2008	19	65	16	+3	51.9
Jun 2008	11	69	20	-9	43.7
May 2008	17	63	20	-3	45.5
Apr 2008	12	72	16	-4	45.4

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations continued to slow in July, as the Supplier Deliveries Index registered 55.1 percent, which is the same rate as was recorded for the month of June. A reading above 50 percent indicates slower deliveries.

The nine industries reporting slower supplier deliveries in July are: Nonmetallic Mineral Products; Chemical Products; Furniture & Related Products; Computer & Electronic Products; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Fabricated Metal Products. There were no reports of faster deliveries in July.

Supplier Deliveries	% Slower	% Same	% Faster	Net	Index
Jul 2008	15	82	3	+12	55.1
Jun 2008	16	79	5	+11	55.1
May 2008	14	81	5	+9	53.7
Apr 2008	10	88	2	+8	54.0

Inventories

Manufacturers’ inventories decreased in July as the Inventories Index registered 45 percent, which is 6.2 percentage points lower than the 51.2 percent reported in June. This reverses the one-month occurrence of inventory growth reported in June. 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 three industries reporting higher inventories in July are: Fabricated Metal Products; Computer & Electronic Products; and Plastics & Rubber Products. The industries that reported decreases in July are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Machinery; Transportation Equipment; Furniture & Related Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

Inventories	% Higher	% Same	% Lower	Net	Index
Jul 2008	12	64	24	-12	45.0
Jun 2008	21	58	21	0	51.2
May 2008	19	58	23	-4	48.0
Apr 2008	16	66	18	-2	48.1

Customers’ Inventories*

The ISM Customers’ Inventories Index registered 47 percent in July, a decrease of 8 percentage points when compared to June’s reading of 55 percent. The index indicates that respondents believe their customers’ inventories are too low at this time.

Four industries reported higher customers’ inventories during July: Furniture & Related Products; Transportation Equipment; Chemical Products; and Fabricated Metal Products. The industries that reported lower customers’ inventories during July are: Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Paper Products; Primary Metals; Machinery; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

Customers’ Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index
Jul 2008	74	17	60	23	-6	47.0
Jun 2008	72	25	60	15	+10	55.0
May 2008	67	14	66	20	-6	47.0
Apr 2008	72	12	66	22	-10	45.0

Prices*

The ISM Prices Index registered 88.5 percent in July, indicating manufacturers are paying higher prices on average when compared to June. While 80 percent of respondents reported paying higher prices and 3 percent reported paying lower prices, 17 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 July, all 18 industries reported paying higher prices: Textile Mills; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Nonmetallic Mineral Products; Primary Metals; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Paper Products; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Computer & Electronic Products.

Prices	% Higher	% Same	% Lower	Net	Index
Jul 2008	80	17	3	+77	88.5
Jun 2008	84	15	1	+83	91.5
May 2008	78	18	4	+74	87.0
Apr 2008	71	27	2	+69	84.5

Backlog of Orders*

ISM’s Backlog of Orders Index registered 43 percent in July, 4.5 percentage points lower than the 47.5 percent reported in June. Of the 85 percent of respondents who reported their backlog of orders, 15 percent reported greater backlogs, 29 percent reported smaller backlogs, and 56 percent reported no change from June.

The five industries reporting an increase in order backlogs in July are: Apparel, Leather & Allied Products; Paper Products; Primary Metals; Computer & Electronic Products; and Food, Beverage & Tobacco Products. The industries that reported decreases in order backlogs during July are: Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Wood Products; Electrical Equipment, Appliances & Components; Machinery; Fabricated Metal Products; and Chemical Products.

Backlog of Orders	% Reporting	% Greater	% Same	% Less	Net	Index
Jul 2008	85	15	56	29	-14	43.0
Jun 2008	86	19	57	24	-5	47.5
May 2008	87	18	56	26	-8	46.0
Apr 2008	85	23	57	20	+3	51.5

New Export Orders*

ISM’s New Export Orders Index registered 54 percent in July, a decrease of 4.5 percentage points when compared to June’s index of 58.5 percent. This is the 68th consecutive month of growth in the New Export Orders Index.

The seven industries reporting growth in new export orders in July are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Furniture & Related Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products. The two industries reporting a decrease in new export orders in July are: Electrical Equipment, Appliances & Components; and Machinery.

New Export Orders	% Reporting	% Higher	% Same	% Lower	Net	Index
Jul 2008	75	17	74	9	+8	54.0
Jun 2008	79	22	73	5	+17	58.5
May 2008	78	26	67	7	+19	59.5
Apr 2008	79	23	69	8	+15	57.5

Imports*

Imports of materials by manufacturers contracted during July as the Imports Index registered 46.5 percent, 0.5 percentage point higher than the 46 percent reported in June. This is the sixth consecutive month of contraction in imports.

The three industries reporting growth in import activity for July are: Apparel, Leather & Allied Products; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components. The industries that reported decreases in imports during July are: Wood Products; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment.

Imports	% Reporting	% Higher	% Same	% Lower	Net	Index
Jul 2008	80	8	77	15	-7	46.5
Jun 2008	82	9	74	17	-8	46.0
May 2008	82	12	75	13	-1	49.5
Apr 2008	85	11	74	15	-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 6 days to 117 days. Average lead time for Production Materials decreased 6 days to 48 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased 5 days to 20 days.

Percent Reporting
Capital Expenditures	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Jul 2008	27	6	9	19	27	12	117
Jun 2008	23	7	11	20	25	14	123
May 2008	22	12	10	19	25	12	116
Apr 2008	28	6	13	18	23	12	112

Production Materials	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Jul 2008	21	42	25	6	4	2	48
Jun 2008	18	41	24	9	6	2	54
May 2008	22	37	25	10	4	2	51
Apr 2008	21	38	27	9	3	2	49

MRO Supplies	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Jul 2008	56	32	10	2	0	0	20
Jun 2008	50	38	8	3	0	1	25
May 2008	51	35	8	4	1	1	27
Apr 2008	50	34	11	3	2	0	26