ISM July 2005 Report

The 12 industries reporting growth in July — listed in order — are: Instruments & Photographic Equipment; Food; Wood & Wood Products; Electronic Components & Equipment; Leather; Miscellaneous(a); Industrial & Commercial Equipment & Computers; Transportation & Equipment; Furniture; Chemicals; Fabricated Metals; and Textiles.

The industries reporting decreased activity in July are: Printing & Publishing; Glass, Stone & Aggregate; Primary Metals; Apparel; Rubber & Plastic Products; and Paper. The only industry reporting activity unchanged from June is Petroleum.

WHAT RESPONDENTS ARE SAYING …

— “High oil prices continue to play havoc on business projections.” (Chemicals)

— “Pricing pressure from offshore producers is having increasing pressure on our ability to sell our product.” (Electronic Components & Equipment)

— “Ninety percent capacity, record ship volume for June, and we look to surpass in July.” (Fabricated Metals)

— “Steel prices continue to fall and incoming order rates are highest of the year.” (Furniture)

— “Business remains strong due to high truck and trailer build schedule.” (Primary Metals)

 MANUFACTURING AT A GLANCE JULY 2005 Index Series Series Percentage Index Index Point Rate of Trend(b) July June Change Direction Change (Months) PMI 56.6 53.8 +2.8 Growing Faster 26 New Orders 60.6 57.2 +3.4 Growing Faster 27 Production 61.2 55.6 +5.6 Growing Faster 27 Employment 53.2 49.9 +3.3 Growing From 1 Contracting Supplier 51.8 53.1 -1.3 Slowing Slower 25 Deliveries Inventories 47.5 47.8 -0.3 Contracting Faster 4 Customers' 44.5 44.0 +0.5 Too Low Slower 50 Inventories Prices 48.5 50.5 -2.0 Decreasing From 1 Increasing Backlog of 49.0 51.0 -2.0 Contracting From 1 Orders Growing Exports 55.9 50.4 +5.5 Growing Faster 43 Imports 54.7 54.2 +0.5 Growing Faster 44 OVERALL ECONOMY Growing Faster 45 Manufacturing Sector Growing Faster 26 

(b) Number of months moving in current direction COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY Commodities Up in Price

Caustic Soda (15); Chemicals (18); Copper (2); Corrugated Containers(c); Diesel Fuel (11); Energy (6); Freight; Fuel Oils; Fuel Surcharges; Gasoline; Natural Gas (36); Natural Rubber; Oil (3); Plastic Resins (6); Plastics (12); Resins; and Steel(c) (22). Commodities Down in Price

Aluminum Products (3); Corrugated Containers(c) (2); High Density Polyethylene; Low Density Polyethylene; Polypropylene; and Steel(c) (5). Commodities in Short Supply

Bearings. (c) Reported as both up and down in price.

Note: The number of consecutive months the commodity is listed is indicated after each item. JULY 2005 MANUFACTURING INDEX SUMMARIES PMI

The PMI indicates that the manufacturing economy grew in July for the 26th consecutive month. The PMI for July registered 56.6 percent, an increase of 2.8 percentage points when compared to June’s reading of 53.8 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 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. The July 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 average PMI for January through July (54.6 percent) corresponds to a 4.3 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for July (56.6 percent) is annualized, it corresponds to a 5 percent increase in GDP annually. THE LAST 12 MONTHS

Month PMI Month PMI Jul 2005 56.6 Jan 2005 56.4 Jun 2005 53.8 Dec 2004 57.3 May 2005 51.4 Nov 2004 57.6 Apr 2005 53.3 Oct 2004 57.5 Mar 2005 55.2 Sep 2004 59.1 Feb 2005 55.3 Aug 2004 59.6 Average for 12 months - 56.1 High - 59.6 Low - 51.4 

New Orders

ISM’s New Orders Index grew in July with a reading of 60.6 percent. The index is 3.4 percentage points higher than the 57.2 percent registered in June, and July is the 27th consecutive month the index has exceeded 50 percent. A New Orders Index above 51.1 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars). Fourteen industries reported increases during July: Leather; Instruments & Photographic Equipment; Wood & Wood Products; Food; Electronic Components & Equipment; Miscellaneous(a); Furniture; Chemicals; Rubber & Plastic Products; Transportation & Equipment; Paper; Fabricated Metals; Industrial & Commercial Equipment & Computers; and Textiles.

New Orders %Better %Same %Worse Net Index Jul 2005 32 53 15 +17 60.6 Jun 2005 33 49 18 +15 57.2 May 2005 32 44 24 +8 51.7 Apr 2005 34 49 17 +17 53.7 

Production

ISM’s Production Index is 61.2 percent in July, 5.6 percentage points higher than the 55.6 percent reported in June. July is the 27th consecutive month of growth in the index. An index above 50 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. Of the industries reporting in July, nine registered growth: Instruments & Photographic Equipment; Food; Miscellaneous(a); Wood & Wood Products; Electronic Components & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Textiles; and Transportation & Equipment.

Production %Better %Same %Worse Net Index Jul 2005 28 59 13 +15 61.2 Jun 2005 30 53 17 +13 55.6 May 2005 28 58 14 +14 54.9 Apr 2005 35 50 15 +20 56.7 

Employment

ISM’s Employment Index registered growth in July following two consecutive months of contraction. The index registered 53.2 percent in July compared to 49.9 percent in June, an increase of 3.3 percentage points. An Employment Index above 48.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The 10 industries reporting growth in employment during July are: Furniture; Instruments & Photographic Equipment; Electronic Components & Equipment; Food; Miscellaneous(a); Industrial & Commercial Equipment & Computers; Wood & Wood Products; Transportation & Equipment; Paper; and Chemicals.

Employment %Higher %Same %Lower Net Index Jul 2005 18 71 11 +7 53.2 Jun 2005 20 67 13 +7 49.9 May 2005 19 66 15 +4 48.8 Apr 2005 20 67 13 +7 52.3 

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 25th consecutive month in July. ISM’s Supplier Deliveries Index for July registered 51.8 percent, a decrease of 1.3 percentage points when compared to June’s reading of 53.1 percent. A reading above 50 percent indicates slower deliveries. The nine industries reporting slower supplier deliveries in July are: Glass, Stone & Aggregate; Electronic Components & Equipment; Primary Metals; Instruments & Photographic Equipment; Textiles; Fabricated Metals; Rubber & Plastic Products; Transportation & Equipment; and Food.

Supplier Deliveries %Slower %Same %Faster Net Index Jul 2005 10 86 4 +6 51.8 Jun 2005 12 84 4 +8 53.1 May 2005 11 82 7 +4 50.5 Apr 2005 14 76 10 +4 51.5 

NOTE: A list of commodities in short supply is available on page 2 of this report. Inventories

Manufacturers’ inventories declined in July for the fourth consecutive month as ISM’s Inventories Index registered 47.5 percent, indicating a slightly faster rate of liquidation when compared to June. An Inventories Index greater than 42.3 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 July are: Apparel; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Food; Transportation & Equipment; and Furniture.

Inventories %Higher %Same %Lower Net Index Jul 2005 14 63 23 -9 47.5 Jun 2005 19 58 23 -4 47.8 May 2005 17 63 20 -3 47.8 Apr 2005 17 63 20 -3 47.9 

Customers’ Inventories(d)

The July Customers’ Inventories Index is at 44.5 percent, 0.5 percentage point higher than the 44 percent reported in June. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 50th consecutive month that the index has registered below 50 percent. Three industries reported higher customers’ inventories during July and they are: Furniture; Miscellaneous(a); and Chemicals.

Customers' % % Too % About % Too Inventories Reporting High Right Low Net Index Jul 2005 72 11 67 22 -11 44.5 Jun 2005 73 10 68 22 -12 44.0 May 2005 73 14 67 19 -5 47.5 Apr 2005 68 10 63 27 -17 41.5 

Prices(d)

ISM’s Prices Index indicates manufacturers finally saw some price relief in July as the Prices Index fell to 48.5 percent. This brings an end to 40 consecutive months of higher prices as the index is 2 percentage points lower than June’s 50.5 percent. In July, 24 percent of supply executives reported paying higher prices and 27 percent reported paying lower prices, while 49 percent reported that prices were unchanged from the preceding month.

A Prices Index above 47.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In July, nine industries reported paying higher prices: Glass, Stone & Aggregate; Printing & Publishing; Paper; Chemicals; Instruments & Photographic Equipment; Food; Rubber & Plastic Products; Electronic Components & Equipment; and Transportation & Equipment.

Prices %Higher %Same %Lower Net Index Jul 2005 24 49 27 -3 48.5 Jun 2005 22 57 21 +1 50.5 May 2005 32 52 16 +16 58.0 Apr 2005 52 38 10 +42 71.0 

NOTE: A list of commodities up in price and down in price is available on page 2 of this report. Backlog of Orders(d)

ISM’s Backlog of Orders Index registered 49 percent, indicating manufacturers’ backlogs in July are contracting when compared to June. This ends a period of seven consecutive months of growth in this index. Of the 86 percent of respondents who report their backlog of orders, 21 percent reported greater backlogs, 23 percent reported smaller backlogs, and 56 percent reported no change from June. The five industries reporting an increase in order backlogs during the month are: Wood & Wood Products; Furniture; Electronic Components & Equipment; Fabricated Metals; and Paper.

Backlog of % %Greater %Same %Less Net Index Orders Reporting Jul 2005 86 21 56 23 -2 49.0 Jun 2005 87 22 58 20 +2 51.0 May 2005 86 25 52 23 +2 51.0 Apr 2005 87 25 56 19 +6 53.0 

New Export Orders

ISM’s New Export Orders Index for July registered 55.9 percent, an increase of 5.5 percentage points when compared to June’s index of 50.4 percent. This is the 43rd consecutive month of growth in export orders. The 10 industries reporting growth in new export orders in July are: Miscellaneous(a); Instruments & Photographic Equipment; Food; Textiles; Electronic Components & Equipment; Transportation & Equipment; Paper; Industrial & Commercial Equipment & Computers; Furniture; and Chemicals.

New Export % Orders Reporting %Higher %Same %Lower Net Index Jul 2005 76 16 79 5 +11 55.9 Jun 2005 76 12 81 7 +5 50.4 May 2005 75 18 76 6 +12 54.9 Apr 2005 76 23 71 6 +17 57.2 

Imports

Imports of materials by manufacturers grew during July as the Imports Index registered 54.7 percent. The index increased 0.5 percentage point when compared to June’s index of 54.2 percent, indicating a slightly faster rate of growth. The nine industries reporting growth in import activity for July are: Furniture; Wood & Wood Products; Apparel; Miscellaneous(a); Electronic Components & Equipment; Transportation & Equipment; Chemicals; Instruments & Photographic Equipment; and Industrial & Commercial Equipment & Computers.

Imports % Reporting %Higher %Same %Lower Net Index Jul 2005 77 17 76 7 +10 54.7 Jun 2005 76 15 81 4 +11 54.2 May 2005 78 17 76 7 +10 53.9 Apr 2005 79 22 72 6 +16 56.7 

(a) Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments. (d) The Backlog of Orders, Prices and Customers’ Inventories Indexes do not meet the accepted criteria for seasonal adjustments. Buying Policy

Average commitment leadtime for Capital Expenditures decreased 4 days to 109 days. Average leadtime for Production Materials remained unchanged at 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 1 day to 22 days. Percent Reporting

Capital Hand-to- 30 60 90 6 1 Average Expenditures Mouth Days Days Days Months Year+ Days Jul 2005 24 9 12 19 27 9 109 Jun 2005 22 9 17 16 25 11 113 May 2005 24 8 9 20 28 11 117 Apr 2005 26 7 13 20 23 11 110 

Production Hand-to 30 60 90 6 1 Average Materials Mouth Days Days Days Months Year+ Days Jul 2005 22 40 20 13 4 1 48 Jun 2005 24 36 23 13 2 2 48 May 2005 25 37 23 10 3 2 48 Apr 2005 23 36 24 12 3 2 50 

MRO Hand-to- 30 60 90 6 1 Average Supplies Mouth Days Days Days Months Year+ Days Jul 2005 53 33 11 3 0 0 22 Jun 2005 55 33 9 3 0 0 21 May 2005 49 37 10 4 0 0 23 Apr 2005 52 36 9 3 0 0 22 

About this Report

The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making. Data and Method of Presentation

The Manufacturing ISM Report On Business(R) is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry’s contribution to gross domestic product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee. The 20 manufacturing Standard Industry Classification codes are: Food; Tobacco; Textiles; Apparel; Wood & Wood Products; Furniture; Paper; Printing & Publishing; Chemicals; Petroleum; Rubber & Plastic Products; Leather; Glass, Stone & Aggregate; Primary Metals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Transportation & Equipment; Instruments & Photographic Equipment; and Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers’ Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse, and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators with varying weights: New Orders – 30%; Production – 25%; Employment – 20%; Supplier Deliveries – 15%; and Inventories – 10%.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI in excess of 42.7 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.7 percent, it is generally declining. The distance from 50 percent or 42.7 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

Responses to Buying Policy reflect the percent reporting the current month’s leadtime, the approximate weighted number of days ahead for which commitments are made for Production Materials, Capital Expenditures, and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing ISM Report On Business(R) is published monthly by the Institute for Supply Management(TM). The Institute for Supply Management(TM), established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM’s mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The full text version of the Manufacturing ISM Report On Business(R) is posted on ISM’s Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).

The next Manufacturing ISM Report On Business(R) featuring the August 2005 data will be released at 10:00 a.m. (ET) on September 1, 2005.