ISM May 2008 Report

Economic activity in the manufacturing sector failed to grow in May, while the overall economy grew for the 79th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

“Higher prices, tighter supply, longer lead times, shrinking inventory (same as last month).”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. “The manufacturing sector failed to grow in May as the PMI fell below 50 percent for the fourth consecutive month. In relative terms, May was down slightly from April as the rate of contraction in manufacturing slowed. The Production Index was a bright spot as it moved above 50 percent after declining for two months. Manufacturers find themselves caught between rising costs and weakening demand in many industries. Exports continue strong due to the weak dollar — without the weak dollar the story would be much more negative in manufacturing.”

PERFORMANCE BY INDUSTRY

The seven industries reporting growth in May — listed in order — are: Computer & Electronic Products; Miscellaneous Manufacturing; Primary Metals; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The industries reporting contraction in May are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Wood Products; Machinery; Plastics & Rubber Products; Transportation Equipment; Nonmetallic Mineral Products; Printing & Related Support Activities; and Furniture & Related Products.

WHAT RESPONDENTS ARE SAYING …

  • “Higher prices, tighter supply, longer lead times, shrinking inventory (same as last month).” (Transportation Equipment)
  • “Just two months ago we were cautiously optimistic, but now sales inquiries are coming in at a snail’s pace.” (Machinery)
  • “Ethanol-driven agricultural commodity increases continue to pose major hurdles.” (Food, Beverage & Tobacco Products)
  • “Pricing is skyrocketing for chemicals.” (Chemical Products)
  • “Current forecast flat for Q2 through Q4 after dip in Q1.” (Computer & Electronic Products)
MANUFACTURING AT A GLANCEMAY 2008
      
IndexSeries
Index
May
Series
Index
April
Percentage
Point
Change
DirectionRate of
Change
Trend(a)
(Months)
 
PMI49.648.6+1.0ContractingSlower4
New Orders49.746.5+3.2ContractingSlower6
Production51.249.1+2.1GrowingFrom
Contracting
1
Employment45.545.4+0.1ContractingSlower7
Supplier Deliveries53.754.0-0.3SlowingSlower11
Inventories48.048.1-0.1ContractingFaster25
Customers’ Inventories47.045.0+2.0Too LowSlower2
Prices87.084.5+2.5IncreasingFaster17
Backlog of Orders46.051.5-5.5ContractingFrom
Growing
1
Exports59.557.5+2.0GrowingFaster66
Imports49.548.0+1.5ContractingSlower4
OVERALL ECONOMY Manufacturing SectorGrowingFaster79
ContractingSlower4

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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

Acrylics; Additives; Adhesives; Aluminum (4); Aluminum Castings; Aluminum Extrusions (3); Caustic Soda (3); Chemicals; Copper Laden Products (3); Copper Wire; Corn (2); Corn Based Products; Corrugated Containers; Crude Oil; Diesel Fuel (3); Freight; Fuel Oil — #2; Fuel Surcharges (3); Gasoline (2); High Density Polyethylene (2); Natural Gas (7); Petroleum Based Products; Phosphoric Acid; Plastic — Molded Products; Polypropylene (2); Resins (2); Scrap Metal; Soybean Oil (2); Stainless Steel; Steel (5); Steel — Structural; and Sulfuric Acid (7).

Commodities Down in Price

Methanol (2) and Zinc are the only commodities reported down in price.

Commodities in Short Supply

Caustic Soda (3); Steel (2); and Sulfuric Acid.

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

MAY 2008 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing failed to grow for the fourth consecutive month in May as the PMI registered 49.6 percent, 1 percentage point higher than the 48.6 percent reported in April. 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 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 contracting at this time. Ore stated, “The past relationship between the PMI and the overall economyindicates that the average PMI for January through May (49.2 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for May (49.6 percent) is annualized, it corresponds to a 2.7 percent increase in real GDP annually.”

THE LAST 12 MONTHS

     Month          PMI               Month          PMI
 
May 200849.6Nov 200750.0
Apr 200848.6Oct 200750.4
Mar 200848.6Sep 200750.5
Feb 200848.3Aug 200751.2
Jan 200850.7Jul 200752.3
Dec 200748.4Jun 200753.4
Average for 12 months – 50.2High – 53.4Low – 48.3

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New Orders

ISM’s New Orders Index registered 49.7 percent in May, 3.2 percentage points higher than the 46.5 percentage points registered in April. 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).

Eight industries reported increases during May: Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Paper Products; Chemical Products; Fabricated Metal Products; and Transportation Equipment. The industries that reported decreases in May are: Textile Mills; Wood Products; Apparel, Leather & Allied Products; Machinery; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Petroleum & Coal Products; and Printing & Related Support Activities.

New Orders     %Better    %Same    %Worse    Net    Index
 
May 2008255223+249.7
Apr 2008264826046.5
Mar 2008255025046.5
Feb 2008274825+249.1

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Production

ISM’s Production Index increased to 51.2 percent in May, an increase of 2.1 percentage points from the 49.1 percent reported in April. 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 May, nine registered growth: Computer & Electronic Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Furniture & Related Products; Paper Products; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The industries that reported decreased production in May are: Apparel, Leather & Allied Products; Transportation Equipment; Nonmetallic Mineral Products; and Printing & Related Support Activities.

Production     %Better    %Same    %Worse    Net    Index
 
May 2008245917+751.2
Apr 2008285022+649.1
Mar 2008206020048.7
Feb 2008255223+250.7

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Employment

ISM’s Employment Index registered 45.5 percent in May, which is an increase of 0.1 percentage point when compared to the 45.4 percent reported in April. 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 five industries reporting growth in employment during May are: Primary Metals; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Paper Products. The industries that reported decreases in employment during May are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Wood Products; Printing & Related Support Activities; Plastics & Rubber Products; Machinery; Fabricated Metal Products; Chemical Products; Furniture & Related Products; and Computer & Electronic Products.

Employment     %Higher    %Same    %Lower    Net    Index
 
May 2008176320-345.5
Apr 2008127216-445.4
Mar 2008157015049.2
Feb 2008107416-646.0

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Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations continued to slow in May, as the Supplier Deliveries Index decreased 0.3 percentage point to 53.7 percent from the 54 percent registered in April. A reading above 50 percent indicates slower deliveries.

The six industries reporting slower supplier deliveries in May are: Textile Mills; Chemical Products; Transportation Equipment; Fabricated Metal Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The industries reporting faster deliveries in May are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

Supplier Deliveries     %Slower    %Same    %Faster    Net    Index
 
May 200814815+953.7
Apr 200810882+854.0
Mar 200811854+753.6
Feb 20086877-150.1

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Inventories

Manufacturers’ inventories contracted in May as the Inventories Index registered 48 percent, which is 0.1 percentage point lower than the 48.1 percent reported in April. This is the 25th consecutive month of inventory liquidation. 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 six industries reporting higher inventories in May are: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; and Fabricated Metal Products. The industries that reported decreases in May are: Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Transportation Equipment; Machinery; Furniture & Related Products; Food Beverage & Tobacco Products; Paper Products; and Miscellaneous Manufacturing.

Inventories     %Higher    %Same    %Lower    Net    Index
 
May 2008195823-448.0
Apr 2008166618-248.1
Mar 2008156322-744.9
Feb 2008136819-645.4

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Customers’ Inventories(b)

The ISM Customers’ Inventories Index registered 47 percent in May, an increase of 2 percentage points when compared to April’s reading of 45 percent. The index indicates that respondents believe their customers’ inventories are too low at this time.

Five industries reported higher customers’ inventories during May: Wood Products; Plastics & Rubber Products; Furniture & Related Products; Chemical Products; and Transportation Equipment. The industries that reported lower customers’ inventories during May are: Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Primary Metals; Fabricated Metal Products; and Machinery.

Customers’ Inventories  %
Reporting
  %Too
High
  %About
Right
  %Too
Low
  Net  Index
 
May 200867146620-647.0
Apr 200872126622-1045.0
Mar 200878167014+251.0
Feb 200870137215-249.0

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Prices(b)

The ISM Prices Index registered 87 percent in May, indicating manufacturers are paying higher prices on average when compared to April. This is the highest reading for the index since it registered 88 percent in April 2004. While 78 percent of respondents reported paying higher prices and 4 percent reported paying lower prices, 18 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 May, 17 industries reported paying higher prices: Wood Products; Petroleum & Coal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; Chemical Products; Food, Beverage & Tobacco Products; Paper Products; Primary Metals; Furniture & Related Products; Transportation Equipment; Apparel, Leather & Allied Products; Computer & Electronic Products; Miscellaneous Manufacturing; and Printing & Related Support Activities.

Prices     %Higher    %Same    %Lower    Net    Index
 
May 200878184+7487.0
Apr 200871272+6984.5
Mar 200869292+6783.5
Feb 200855414+5175.5

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Backlog of Orders(b)

ISM’s Backlog of Orders Index registered 46 percent in May, 5.5 percentage points lower than the 51.5 percent reported in April. Of the 87 percent of respondents who reported their backlog of orders, 18 percent reported greater backlogs, 26 percent reported smaller backlogs, and 56 percent reported no change from April.

The seven industries reporting an increase in order backlogs in May are: Primary Metals; Printing & Related Support Activities; Nonmetallic Mineral Products; Paper Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The industries that reported decreases in order backlogs during May are: Textile Mills; Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Plastics & Rubber Products; Machinery; Fabricated Metal Products; and Transportation Equipment.

Backlog of Orders  %
Reporting
  %Greater  %Same  %Less  Net  Index
 
May 200887185626-846.0
Apr 200885235720+351.5
Mar 200885185923-547.5
Feb 200887224632-1045.0

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New Export Orders(b)

ISM’s New Export Orders Index registered 59.5 percent in May, an increase of 2 percentage points when compared to April’s index of 57.5 percent. This is the 66th consecutive month of growth in the New Export Orders Index.

The 12 industries reporting growth in new export orders in May are: Nonmetallic Mineral Products; Paper Products; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Machinery; Food, Beverage & Tobacco Products; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; Transportation Equipment; and Miscellaneous Manufacturing. Apparel, Leather & Allied Products is the only industry that reported a decrease in new export orders in May.

New Export Orders  %
Reporting
  %Higher  %Same  %Lower  Net  Index
 
May 20087826677+1959.5
Apr 20087923698+1557.5
Mar 20087622699+1356.5
Feb 200875226810+1256.0

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Imports(b)

Imports of materials by manufacturers contracted during May as the Imports Index registered 49.5 percent, 1.5 percentage points higher than the 48 percent reported in April. This is the fourth consecutive month of contraction in imports.

The five industries reporting growth in import activity for May are: Food, Beverage & Tobacco Products; Fabricated Metal Products; Miscellaneous Manufacturing; Chemical Products; and Transportation Equipment. The industries that reported decreases in imports during May are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; Furniture & Related Products; Plastics & Related Products; Machinery; and Computer & Electronic Products.

Imports  %
Reporting
  %Higher  %Same  %Lower  Net  Index
 
May 200882127513-149.5
Apr 200885117415-448.0
Mar 20088397219-1045.0
Feb 200883136918-547.5

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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 increased 4 days to 116 days. Average lead time for Production Materials increased 2 days to 51 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased 1 day to 27 days.

Percent Reporting
              
Capital
Expenditures
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
 
May 2008221210192512116
Apr 200828613182312112
Mar 200824613192612118
Feb 2008211010212612119

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Production
Materials
  Hand-to-
Mouth
  30
Days
  60
Days
  90
Days
  6
Months
  1
Year+
  Average
Days
 
May 2008223725104251
Apr 200821382793249
Mar 200823353083146
Feb 200820402874147

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MRO
Supplies
  Hand-to-
Mouth
  30
Days
  60
Days
  90
Days
  6
Months
  1
Year+
  Average
Days
 
May 20085135841127
Apr 200850341132026
Mar 20085632930021
Feb 200855311040022

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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 June 2008 data will be released at 10:00 a.m. (ET) on Tuesday, July 1, 2008.

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