ISM March 2005 Report
The 16 industries reporting growth in March — listed in order — are: Primary Metals; Textiles; Glass, Stone & Aggregate; Wood & Wood Products; Instruments & Photographic Equipment; Electronic Components & Equipment; Rubber & Plastic Products; Furniture; Miscellaneous(c); Industrial & Commercial Equipment & Computers; Chemicals; Fabricated Metals; Transportation & Equipment; Printing & Publishing; Apparel; and Food. The industries reporting the same level of activity as last month are: Tobacco and Petroleum. Paper is the only industry reporting decreased activity during March. WHAT RESPONDENTS ARE SAYING …
— “The construction sector continues to expand. Business is slowly growing. The only significant concern is rising interest rates, which could restrain capital expenditures.”
— “Business has increased significantly over the past two months. We may be overbooked within four to six weeks and will have to add staff and shop employees.”
— “Steel suppliers are grudgingly giving back some price, but not without tough talk.”
— “The wet weather has kept shipments at a below-average level for this time of the year. However, we expect a very healthy year once we get through this current period.”
— “Business continues very strong in all product categories for the markets we serve. Our open order status is 2-1/2 times what it was last year for the same timeframe.”
MANUFACTURING AT A GLANCE MARCH 2005 Index Series Series Percentage Direction Rate of Trend(a) Index Index Point Change (Months) March February Change PMI 55.2 55.3 -0.1 Growing Slower 22 New Orders 57.1 55.8 +1.3 Growing Faster 23 Production 56.5 56.7 -0.2 Growing Slower 23 Employment 53.3 57.4 -4.1 Growing Slower 17 Supplier Slowing Slower Deliver- ies 52.5 53.9 -1.4 21 Inventor- Growing From ies 54.1 48.6 +5.5 Contracting 1 Customers' Contracting Slower Inven- tories 46.0 42.5 +3.5 46 Prices 73.0 65.5 +7.5 Increasing Faster 37 Backlog of Growing Faster Orders 56.0 50.5 +5.5 4 Exports 55.4 57.4 -2.0 Growing Slower 39 Imports 58.9 60.7 -1.8 Growing Slower 40 OVERALL ECONOMY Growing Slower 41 Growing Slower Manufacturing Sector 22
(a) Number of months moving in current direction COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY Commodities Up in Price
ABS Plastic; Aluminum (17); Caustic Soda (11); Chemicals (14); Copper (6); Corrugated Containers (14); Diesel Fuel (7); Energy (2); Freight (13); Fuel (2); Fuel Oil; Gasoline (2); HDPE; Machined Components; MRO Items; Natural Gas (32); Oil (2); Oil-Based Products; Paper (13); Petroleum-Based Products; Plastic Products (various forms) (14); Plastic Resin (2); Plastics (8); Polyethylene; Polypropylene; Propylene; Resins (8); Solvents; Stainless Steel (7); Steel(b) (18); Titanium; and Wood. Commodities Down in Price
Steel(b). Commodities in Short Supply
Caustic Soda (2); Steel (15); and Steel Products (various forms).
(b) Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item. MARCH 2005 MANUFACTURING INDEX SUMMARIES PMI
The PMI indicates that the manufacturing economy grew in March for the 22nd consecutive month. The PMI for March registered 55.2 percent, a decrease of 0.1 percentage point when compared to February’s seasonally adjusted reading of 55.3 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 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. The March 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 March (55.6 percent) corresponds to a 4.7 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for March (55.2 percent) is annualized, it corresponds to a 4.5 percent increase in GDP annually. THE LAST 12 MONTHS
Month PMI Month PMI Mar 2005 55.2 Sep 2004 59.1 Feb 2005 55.3 Aug 2004 59.6 Jan 2005 56.4 Jul 2004 61.6 Dec 2004 57.3 Jun 2004 61.2 Nov 2004 57.6 May 2004 62.6 Oct 2004 57.5 Apr 2004 62.3 Average for 12 months - 58.8 High - 62.6 Low - 55.2
New Orders
ISM’s New Orders Index grew in March with a reading of 57.1 percent. The index is 1.3 percentage points higher than the seasonally adjusted 55.8 percent registered in February, and it is the 23rd 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). Fifteen industries reported increases for the month of March: Primary Metals; Textiles; Miscellaneous(c); Electronic Components & Equipment; Glass, Stone & Aggregate; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Wood & Wood Products; Chemicals; Transportation & Equipment; Furniture; Fabricated Metals; Food; and Printing & Publishing.
New Orders %Better %Same %Worse Net Index Mar 2005 37 49 14 +23 57.1 Feb 2005 34 48 18 +16 55.8 Jan 2005 34 44 22 +12 56.5 Dec 2004 39 45 16 +23 62.6
Production
ISM’s Production Index is 56.5 percent in March, 0.2 percentage point lower than the seasonally adjusted 56.7 percent reported in February. March is the 23rd 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 March, 14 registered growth: Glass, Stone & Aggregate; Textiles; Wood & Wood Products; Instruments & Photographic Equipment; Furniture; Electronic Components & Equipment; Chemicals; Miscellaneous(c); Transportation & Equipment; Fabricated Metals; Rubber & Plastic Products; Primary Metals; Industrial & Commercial Equipment & Computers; and Printing & Publishing.
Production %Better %Same %Worse Net Index Mar 2005 34 51 15 +19 56.5 Feb 2005 32 54 14 +18 56.7 Jan 2005 30 54 16 +14 57.8 Dec 2004 30 51 19 +11 56.7
Employment
ISM’s Employment Index grew for the 17th consecutive month, following a 37-month trend of contraction. The index registered 53.3 percent in March compared to 57.4 percent in February, a decrease of 4.1 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 12 industries reporting growth in employment during March are: Apparel; Wood & Wood Products; Paper; Electronic Components & Equipment; Printing & Publishing; Furniture; Transportation & Equipment; Rubber & Plastic Products; Primary Metals; Fabricated Metals; Industrial & Commercial Equipment & Computers; and Food.
Employment %Higher %Same %Lower Net Index Mar 2005 21 67 12 +9 53.3 Feb 2005 22 69 9 +13 57.4 Jan 2005 23 67 10 +13 58.1 Dec 2004 19 67 14 +5 53.3
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower for the 21st consecutive month in March. ISM’s Supplier Deliveries Index for March registered 52.5 percent, a decrease of 1.4 percentage points compared to February’s seasonally adjusted reading of 53.9 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in March are: Instruments & Photographic Equipment; Rubber & Plastic Products; Miscellaneous(c); Chemicals; Primary Metals; Industrial & Commercial Equipment & Computers; Paper; and Food.
Supplier Deliveries %Slower %Same %Faster Net Index Mar 2005 13 81 6 +7 52.5 Feb 2005 14 80 6 +8 53.9 Jan 2005 13 79 8 +5 53.7 Dec 2004 16 76 8 +8 56.1
NOTE: A list of commodities in short supply is available on page 2 of this report. Inventories
Manufacturers’ inventories rose in March following a one-month decline as ISM’s Inventories Index registered 54.1 percent (seasonally adjusted), up 5.5 percentage points when compared to February’s 48.6 percentage points. 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 11 industries reporting higher inventories in March are: Furniture; Fabricated Metals; Printing & Publishing; Primary Metals; Wood & Wood Products; Electronic Components & Equipment; Food; Rubber & Plastic Products; Chemicals; Paper; and Industrial & Commercial Equipment & Computers.
Inventories %Higher %Same %Lower Net Index Mar 2005 26 58 16 +10 54.1 Feb 2005 19 64 17 +2 48.6 Jan 2005 20 67 13 +7 52.8 Dec 2004 24 56 20 +4 52.8
Customers’ Inventories(d)
The March Customers’ Inventories Index is at 46 percent, 3.5 percentage points higher compared to 42.5 percent reported in February. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 46th consecutive month that the index has registered below 50 percent. Five industries reported higher customer inventories during March and they are: Paper; Furniture; Food; Electronic Components & Equipment; and Primary Metals.
Customers' Inventories % Reporting %Too %About %Too Net Index High Right Low Mar 2005 77 11 70 19 -8 46.0 Feb 2005 69 8 69 23 -15 42.5 Jan 2005 71 8 73 19 -11 44.5 Dec 2004 75 10 68 22 -12 44.0
Prices(d)
ISM’s Prices Index indicates manufacturers continue to pay higher prices in March. This is the 37th consecutive month the index has registered higher prices. March’s index is at 73 percent, 7.5 percentage points higher than February’s reading of 65.5 percent. In March, 51 percent of supply executives reported paying higher prices and 5 percent reported paying lower prices, while 44 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 March, 18 industries reported paying higher prices: Petroleum; Rubber & Plastic Products; Instruments & Photographic Equipment; Paper; Chemicals; Miscellaneous(c); Printing & Publishing; Food; Apparel; Furniture; Industrial & Commercial Equipment & Computers; Primary Metals; Electronic Components & Equipment; Transportation & Equipment; Glass, Stone & Aggregate; Textiles; Fabricated Metals; and Wood & Wood Products.
Prices %Higher %Same %Lower Net Index Mar 2005 51 44 5 +46 73.0 Feb 2005 38 55 7 +31 65.5 Jan 2005 45 48 7 +38 69.0 Dec 2004 52 40 8 +44 72.0
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 56 percent, indicating manufacturers’ backlogs in March are growing at a faster rate when compared to February. Of the 86 percent of respondents who report their backlog of orders, 29 percent reported greater backlogs, 17 percent reported smaller backlogs, and 54 percent reported no change from February. The 11 industries reporting an increase in order backlogs during the month are: Electronic Components & Equipment; Miscellaneous(c); Apparel; Primary Metals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Instruments & Photographic Equipment; Chemicals; Transportation & Equipment; and Food.
Backlog of Orders % Reporting %Greater %Same %Less Net Index Mar 2005 86 29 54 17 +12 56.0 Feb 2005 84 21 59 20 +1 50.5 Jan 2005 84 26 49 25 +1 50.5 Dec 2004 86 28 52 20 +8 54.0
New Export Orders
ISM’s New Export Orders Index for March registered 55.4 percent, a decrease of 2 percentage points when compared to February’s seasonally adjusted index of 57.4 percent. This is the 39th consecutive month of growth in export orders. The nine industries reporting growth in new export orders in March are: Miscellaneous(c); Textiles; Rubber & Plastic Products; Instruments & Photographic Equipment; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Primary Metals; Food; and Fabricated Metals.
New Export Orders % Reporting %Higher %Same %Lower Net Index Mar 2005 77 19 76 5 +14 55.4 Feb 2005 76 19 74 7 +12 57.4 Jan 2005 78 18 77 5 +13 56.9 Dec 2004 75 23 70 7 +16 59.1
Imports
Imports of materials by manufacturers grew during March as the Imports Index registered 58.9 percent. The index decreased 1.8 percentage points when compared to February’s seasonally adjusted index of 60.7 percent, indicating a slightly slower rate of growth. The 14 industries reporting growth in import activity for March are: Textiles; Apparel; Furniture; Miscellaneous(c); Printing & Publishing; Fabricated Metals; Food; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Electronic Components & Equipment; Transportation & Equipment; Rubber & Plastic Products; Chemicals; and Instruments & Photographic Equipment.
Imports % Reporting %Higher %Same %Lower Net Index Mar 2005 81 21 76 3 +18 58.9 Feb 2005 77 25 69 6 +19 60.7 Jan 2005 79 23 74 3 +20 61.1 Dec 2004 79 27 67 6 +21 60.8
(c) 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 declined 9 days to 103 days. Average leadtime for Production Materials declined 2 days to 46 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies declined 1 day to 21 days. Percent Reporting
Capital Expenditures Hand 30 60 90 6 1 Average to Days Days Days Months Year+ Days Mouth March 2005 25 10 13 21 22 9 103 February 2005 23 10 13 19 24 11 112 January 2005 23 11 12 21 24 9 106 December 2004 22 13 15 17 24 9 105
Production Materials Hand 30 60 90 6 1 Average to Days Days Days Months Year+ Days Mouth March 2005 20 43 23 10 3 1 46 February 2005 21 40 22 12 4 1 48 January 2005 22 42 21 11 3 1 45 December 2004 23 39 24 11 2 1 44
MRO Hand 30 60 90 6 1 Average Supplies to Days Days Days Months Year+ Days Mouth March 2005 54 34 10 2 0 0 21 February 2005 53 34 10 2 1 0 22 January 2005 56 31 11 2 0 0 21 December 2004 54 35 9 2 0 0 20
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, 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 indices for five of the indicators with varying weights: New Orders – 30%; Production – 25%; Employment – 20%; Supplier Deliveries – 15%; and Inventories – 10%.
Diffusion indices 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 that it is generally declining. A PMI over 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 April 2005 data will be released at 10:00 a.m. (ET) on May 2, 2005. Index of the month
The Inventories Index is an indication of manufacturers’ current inventory positions relative to the preceding month. Knowing if the change is voluntary or involuntary helps to understand the implications of an inventory build or decline. Voluntary changes are generally driven by demand, while involuntary changes are driven by economic factors beyond the control of the inventory manager. Quote of the month
The Inventories Index once again reversed itself this month. In the past 12 months, we have seen a great deal of inventory build in response to higher sales levels. This month, new orders increased and it appears that inventories rose in response to the demand. Since recessions are generally caused by involuntary inventory build, this indicator is always worth watching.