ISM July 2008 Report

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®.

“Our company has gone to a four-day/10-hour week in an effort to curtail energy costs for the company and for employees.”Tweet this

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(a)
(Months)
 
PMI50.050.2-0.2UnchangedFrom
Growing
1
New Orders45.049.6-4.6ContractingFaster8
Production52.951.5+1.4GrowingFaster3
Employment51.943.7+8.2GrowingFrom
Contracting
1
Supplier Deliveries55.155.10SlowingSame13
Inventories45.051.2-6.2ContractingFrom
Growing
1
Customers’ Inventories47.055.0-8.0Too LowFrom
Too High
1
Prices88.591.5-3.0IncreasingSlower19
Backlog of Orders43.047.5-4.5ContractingFaster3
Exports54.058.5-4.5GrowingSlower68
Imports46.546.0+0.5ContractingSlower6
OVERALL ECONOMY Manufacturing SectorGrowingFaster81
UnchangedFrom
Growing
1

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(a) 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 economyindicates 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 200850.0Jan 200850.7
Jun 200850.2Dec 200748.4
May 200849.6Nov 200750.0
Apr 200848.6Oct 200750.4
Mar 200848.6Sep 200750.5
Feb 200848.3Aug 200751.2
Average for 12 months – 49.7High – 51.2Low – 48.3

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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 2008185428-1045.0
Jun 2008294625+449.6
May 2008255223+249.7
Apr 2008264826046.5

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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 2008216217+452.9
Jun 2008255421+451.5
May 2008245917+751.2
Apr 2008285022+649.1

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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 2008196516+351.9
Jun 2008116920-943.7
May 2008176320-345.5
Apr 2008127216-445.4

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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 200815823+1255.1
Jun 200816795+1155.1
May 200814815+953.7
Apr 200810882+854.0

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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 2008126424-1245.0
Jun 2008215821051.2
May 2008195823-448.0
Apr 2008166618-248.1

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Customers’ Inventories(b)

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 200874176023-647.0
Jun 200872256015+1055.0
May 200867146620-647.0
Apr 200872126622-1045.0

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Prices(b)

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 200880173+7788.5
Jun 200884151+8391.5
May 200878184+7487.0
Apr 200871272+6984.5

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Backlog of Orders(b)

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 200885155629-1443.0
Jun 200886195724-547.5
May 200887185626-846.0
Apr 200885235720+351.5

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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 20087517749+854.0
Jun 20087922735+1758.5
May 20087826677+1959.5
Apr 20087923698+1557.5

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Imports(b)

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 20088087715-746.5
Jun 20088297417-846.0
May 200882127513-149.5
Apr 200885117415-448.0

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(b) 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 20082769192712117
Jun 200823711202514123
May 2008221210192512116
Apr 200828613182312112

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Production
Materials
  Hand-to-
Mouth
  30
Days
  60
Days
  90
Days
  6
Months
  1
Year+
  Average
Days
 
Jul 200821422564248
Jun 200818412496254
May 2008223725104251
Apr 200821382793249

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MRO Supplies  Hand-to-
Mouth
  30
Days
  60
Days
  90
Days
  6
Months
  1
Year+
  Average
Days
 
Jul 200856321020020
June 20085038830125
May 20085135841127
Apr 200850341132026

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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 ManufacturingISM Report On Business® is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

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 for those meeting the criteria for seasonal adjustments (PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories) 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 equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.

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 41.1 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.1 percent, it is generally declining. The distance from 50 percent or 41.1 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 lead time, 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® is published monthly by the Institute for Supply Management™. The Institute for Supply Management™, 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 ManufacturingISM Report On Business®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 ManufacturingISM Report On Business® featuring the August 2008 data will be released at 10:00 a.m. (ET) on Tuesday, September 2, 2008

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