ISM May 2005 Report

The 15 industries reporting growth in May — listed in order — are: Petroleum; Leather; Wood & Wood Products; Chemicals; Food; Rubber & Plastic Products; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Furniture; Primary Metals; Textiles; Transportation & Equipment; and Fabricated Metals. The industries reporting decreased activity in May are: Apparel; Tobacco; Printing & Publishing; Paper; and Miscellaneous(a). WHAT RESPONDENTS ARE SAYING …

— “Adjusting inventory by reducing run schedules.” (Apparel)

— “Steady, but seems to be softening.” (Chemicals)

— “Record sales this month 6 percent higher than peak in Y2001.” (Electronics)

— “Automotive business is down; new orders and bookings are down.” (Fabricated Metals)

— “Price pressure continues, but seems to have plateaued. Despite warnings, we have not experienced any shortages or availability issues.” (Food)

 MANUFACTURING AT A GLANCE MAY 2005 Index Series Series Percentage Direction Rate of Trend(b) Index Index Point Change (Months) May April Change PMI 51.4 53.3 -1.9 Growing Slower 24 New Orders 51.7 53.7 -2.0 Growing Slower 25 Production 54.9 56.7 -1.8 Growing Slower 25 Employment 48.8 52.3 -3.5 Contracting From 1 Growing Supplier 50.5 51.5 -1.0 Slowing Slower 23 Deliveries Inventories 47.8 47.9 -0.1 Contracting Faster 2 Customers' 47.5 41.5 +6.0 Contracting Slower 48 Inventories Prices 58.0 71.0 -13.0 Increasing Slower 39 Backlog of 51.0 53.0 -2.0 Growing Slower 6 Orders Exports 54.9 57.2 -2.3 Growing Slower 41 Imports 53.9 56.7 -2.8 Growing Slower 42 OVERALL ECONOMY Growing Slower 43 Manufacturing Sector Growing Slower 24 

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

Aluminum (19); Aluminum Extrusions(c) (2); Caustic Soda (13); Chemicals (16); Corrugated Containers (16); Diesel Fuel (9); Energy (4); Fuel (4); Fuel Surcharges; Natural Gas(c) (34); Newsprint; Nickel; Oil; Petroleum-Based Products (3); Plastic Resin (4); Plastics (10); Resins (10); Stainless Steel; and Steel(c) (20). Commodities Down in Price

Aluminum Coils; Aluminum Extrusions(c); Ferrous Scrap; Natural Gas(c); Steel(c) (3); Steel, Cold-Rolled; Steel, Hot-Rolled; and Steel Scrap. Commodities in Short Supply

Caustic Soda (4); Stainless Steel; and Steel (17).

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

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

The PMI indicates that the manufacturing economy grew in May for the 24th consecutive month. The PMI for May registered 51.4 percent, a decrease of 1.9 percentage points when compared to April’s reading of 53.3 percent. This is the lowest reading since June 2003. 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 May 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 May (54.3 percent) corresponds to a 4.2 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for May (51.4 percent) is annualized, it corresponds to a 3.2 percent increase in GDP annually. THE LAST 12 MONTHS

Month PMI Month PMI 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 Jan 2005 56.4 Jul 2004 61.6 Dec 2004 57.3 Jun 2004 61.2 Average for 12 months - 57.1 High - 61.6 Low - 51.4 

New Orders

ISM’s New Orders Index grew in May with a reading of 51.7 percent. The index is 2 percentage points lower than the 53.7 percent registered in April, and May is the 25th 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). Eleven industries reported increases during May: Leather; Food; Wood & Wood Products; Instruments & Photographic Equipment; Furniture; Chemicals; Electronic Components & Equipment; Rubber & Plastic Products; Primary Metals; Industrial & Commercial Equipment & Computers; and Transportation & Equipment.

New Orders %Better %Same %Worse Net Index May 2005 32 44 24 +8 51.7 Apr 2005 34 49 17 +17 53.7 Mar 2005 37 49 14 +23 57.1 Feb 2005 34 48 18 +16 55.8 

Production

ISM’s Production Index is 54.9 percent in May, 1.8 percentage points lower than the 56.7 percent reported in April. May is the 25th 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 May, 13 registered growth: Petroleum; Leather; Food; Chemicals; Wood & Wood Products; Glass, Stone & Aggregate; Rubber & Plastic Products; Electronic Components & Equipment; Textiles; Fabricated Metals; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; and Transportation & Equipment.

Production %Better %Same %Worse Net Index May 2005 28 58 14 +14 54.9 Apr 2005 35 50 15 +20 56.7 Mar 2005 34 51 15 +19 56.5 Feb 2005 32 54 14 +18 56.7 

Employment

ISM’s Employment Index declined in May, following an 18-month trend of expansion. The index registered 48.8 percent in May compared to 52.3 percent in April, a decrease of 3.5 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 May are: Petroleum; Furniture; Wood & Wood Products; Apparel; Industrial & Commercial Equipment & Computers; Miscellaneous(a); Chemicals; Rubber & Plastic Products; Primary Metals; and Food.

Employment %Higher %Same %Lower Net Index May 2005 19 66 15 +4 48.8 Apr 2005 20 67 13 +7 52.3 Mar 2005 21 67 12 +9 53.3 Feb 2005 22 69 9 +13 57.4 

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 23rd consecutive month in May. ISM’s Supplier Deliveries Index for May registered 50.5 percent, a decrease of 1 percentage point compared to April’s reading of 51.5 percent. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in May are: Primary Metals; Electronic Components & Equipment; Instruments & Photographic Equipment; Transportation & Equipment; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Supplier Deliveries %Slower %Same %Faster Net Index May 2005 11 82 7 +4 50.5 Apr 2005 14 76 10 +4 51.5 Mar 2005 13 81 6 +7 52.5 Feb 2005 14 80 6 +8 53.9 

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

Manufacturers’ inventories declined in May for the second consecutive month as ISM’s Inventories Index registered 47.8 percent, down 0.1 percentage point when compared to April’s 47.9 percent. 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 May are: Glass, Stone & Aggregate; Rubber & Plastic Products; Textiles; Furniture; Chemicals; and Printing & Publishing.

 Inventories %Higher %Same %Lower Net Index May 2005 17 63 20 -3 47.8 Apr 2005 17 63 20 -3 47.9 Mar 2005 26 58 16 +10 54.1 Feb 2005 19 64 17 +2 48.6 

Customers’ Inventories(d)

The May Customers’ Inventories Index is at 47.5 percent, 6 percentage points higher compared to the 41.5 percent reported in April. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 48th consecutive month that the index has registered below 50 percent. Four industries reported higher customers’ inventories during May and they are: Rubber & Plastic Products; Chemicals; Textiles; and Instruments & Photographic Equipment.

Customers' % % Too % About %Too Net Index Inventories Reporting High Right Low May 2005 73 14 67 19 -5 47.5 Apr 2005 68 10 63 27 -17 41.5 Mar 2005 77 11 70 19 -8 46.0 Feb 2005 69 8 69 23 -15 42.5 

Prices(d)

ISM’s Prices Index indicates manufacturers continue to pay higher prices in May; however, the rate of increase slowed significantly during the month. This is the 39th consecutive month the index has registered higher prices. The last monthly change of this magnitude occurred between July 1975 (53 percent) and August 1975 (68.8 percent). May’s index is at 58 percent, 13 percentage points lower than April’s reading of 71 percent. In May, 32 percent of supply executives reported paying higher prices and 16 percent reported paying lower prices, while 52 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 May, 13 industries reported paying higher prices: Petroleum; Printing & Publishing; Electronic Components & Equipment; Miscellaneous(a); Wood & Wood Products; Glass, Stone & Aggregate; Food; Instruments & Photographic Equipment; Chemicals; Primary Metals; Transportation & Equipment; Paper; and Industrial & Commercial Equipment & Computers.

Prices %Higher %Same %Lower Net Index May 2005 32 52 16 +16 58.0 Apr 2005 52 38 10 +42 71.0 Mar 2005 51 44 5 +46 73.0 Feb 2005 38 55 7 +31 65.5 

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 51 percent, indicating manufacturers’ backlogs in May are growing at a slower rate when compared to April. Of the 86 percent of respondents who report their backlog of orders, 25 percent reported greater backlogs, 23 percent reported smaller backlogs, and 52 percent reported no change from April. The seven industries reporting an increase in order backlogs during the month are: Textiles; Furniture; Glass, Stone & Aggregate; Chemicals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; and Electronic Components & Equipment.

Backlog of Orders % %Greater %Same %Less Net Index Reporting May 2005 86 25 52 23 +2 51.0 Apr 2005 87 25 56 19 +6 53.0 Mar 2005 86 29 54 17 +12 56.0 Feb 2005 84 21 59 20 +1 50.5 

New Export Orders

ISM’s New Export Orders Index for May registered 54.9 percent, a decrease of 2.3 percentage points when compared to April’s index of 57.2 percent. This is the 41st consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in May are: Instruments & Photographic Equipment; Glass, Stone & Aggregate; Printing & Publishing; Rubber & Plastic Products; Industrial & Commercial Equipment & Computers; Primary Metals; Food; Transportation & Equipment; Fabricated Metals; Electronic Components & Equipment; and Chemicals.

New Export Orders % %Higher %Same %Lower Net Index Reporting May 2005 75 18 76 6 +12 54.9 Apr 2005 76 23 71 6 +17 57.2 Mar 2005 77 19 76 5 +14 55.4 Feb 2005 76 19 74 7 +12 57.4 

Imports

Imports of materials by manufacturers grew during May as the Imports Index registered 53.9 percent. The index decreased 2.8 percentage points when compared to April’s index of 56.7 percent, indicating a slower rate of growth. The 11 industries reporting growth in import activity for May are: Furniture; Textiles; Printing & Publishing; Wood & Wood Products; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Miscellaneous(a); Paper; Rubber & Plastic Products; Transportation & Equipment; and Electronic Components & Equipment.

Imports % %Higher %Same %Lower Net Index Reporting May 2005 78 17 76 7 +10 53.9 Apr 2005 79 22 72 6 +16 56.7 Mar 2005 81 21 76 3 +18 58.9 Feb 2005 77 25 69 6 +19 60.7 

(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 rose 7 days to 117 days. Average leadtime for Production Materials declined 2 days to 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies rose 1 day to 23 days. Percent Reporting

Capital Hand-to- 30 60 90 6 1 Average Expenditures Mouth Days Days Days Months Year+ Days May 2005 24 8 9 20 28 11 117 Apr 2005 26 7 13 20 23 11 110 Mar 2005 25 10 13 21 22 9 103 Feb 2005 23 10 13 19 24 11 112 

Production Hand-to- 30 60 90 6 1 Average Materials Mouth Days Days Days Months Year+ Days May 2005 25 37 23 10 3 2 48 Apr 2005 23 36 24 12 3 2 50 Mar 2005 20 43 23 10 3 1 46 Feb 2005 21 40 22 12 4 1 48 

MRO Hand-to- 30 60 90 6 1 Average Supplies Mouth Days Days Days Months Year+ Days May 2005 49 37 10 4 0 0 23 Apr 2005 52 36 9 3 0 0 22 Mar 2005 54 34 10 2 0 0 21 Feb 2005 53 34 10 2 1 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 June 2005 data will be released at 10:00 a.m. (ET) on July 1, 2005.