FOR RELEASE: June 1, 2006

Contact:	Rose Marie Goupil
	ISM, Media Relations
	Tempe, Arizona
	800/888-6276, Ext. 3015
	E-mail: rgoupil@ism.ws

PMI at 54.4%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of May 2006.

New Orders, Production, Employment Expanding
Deliveries Slowing, Inventories Contracting

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in May for the 36th consecutive month, while the overall economy grew for the 55th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

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 grew once again in May, but the rate of growth as measured by the PMI slowed somewhat during the month. The slower growth is evidenced by a significant loss of momentum in the last four months as the New Orders Index has slipped from 61.9 percent in February to 53.7 percent in May. Prices, driven by raw materials costs, are a concern."

TOP PERFORMING INDUSTRIES

The 13 industries reporting growth in May — listed in order — are: Miscellaneous*; Industrial & Commercial Equipment & Computers; Primary Metals; Tobacco; Apparel; Instruments & Photographic Equipment; Paper; Food; Chemicals; Wood & Wood Products; Transportation & Equipment; Electronic Components & Equipment; and Furniture.

WHAT RESPONDENTS ARE SAYING ...

• "Continued concerns regarding inflation, centered around the extreme high price of crude oil and related energy products." (Chemicals)
• "April was a 19-day work month, so monthly figures were not records, but on a per day basis, many production records were set." (Electronic Components & Equipment)
• "Commodity prices are at record high levels and many are going on allocation." (Fabricated Metals)
• "Current estimates are that the Yuan will appreciate 5 - 15%, thus increasing prices for products supplied out of China." (Rubber & Plastic Products)
• "Fuel surcharges now up to 19.8%." (Transportation & Equipment)

MANUFACTURING AT A GLANCE MAY 2006
Index	Series Index May	Series Index April	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	54.4	57.3	-2.9	Growing	Slower	36
New Orders	53.7	57.6	-3.9	Growing	Slower	37
Production	57.2	60.4	-3.2	Growing	Slower	37
Employment	52.9	55.8	-2.9	Growing	Slower	12
Supplier Deliveries	57.6	57.7	-0.1	Slowing	Slower	35
Inventories	48.0	51.3	-3.3	Contracting	From Growing	1
Customers' Inventories	44.0	46.5	-2.5	Too Low	Faster	60
Prices	77.0	71.5	+5.5	Increasing	Faster	10
Backlog of Orders	53.0	57.0	-4.0	Growing	Slower	5
Exports	55.7	53.4	+2.3	Growing	Faster	42
Imports	56.5	59.0	-2.5	Growing	Slower	53
OVERALL ECONOMY				Growing	Slower	55
Manufacturing Sector				Growing	Slower	36

*Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (10); Aluminum Products (6); Brass (2); Chemicals (2); Copper (12); Copper Products (6); Corrugated Containers (7); Diesel Fuel (2); Ferrous Scrap; Flour; Freight (3); Gasoline (2); Linerboard; Nickel (2); Paper (5); Particle Board (3); Plastics (2); Plastic Resins (2); Silver (2); Stainless Steel; Steel (3); Steel (Hot Rolled); and Zinc (2).

Commodities Down in Price

Caustic Soda (3) and Natural Gas (5).

Commodities in Short Supply

Particle Board; Stainless Steel; and Steel (2).

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

---

MAY 2006 MANUFACTURING INDEX SUMMARIES

---

PMI

The PMI indicates that the manufacturing economy grew in May for the 36th consecutive month as it registered 54.4 percent, a decrease of 2.9 percentage points when compared to April's reading of 57.3 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 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 (55.7 percent) corresponds to a 4.7 percent increase in real gross domestic product (GDP). In addition, if the PMI for May (54.4 percent) is annualized, it corresponds to a 4.2 percent increase in real GDP annually."

THE LAST 12 MONTHS

Month	PMI		Month	PMI
May 2006	54.4		Nov 2005	57.3
Apr 2006	57.3		Oct 2005	58.1
Mar 2006	55.2		Sep 2005	58.0
Feb 2006	56.7		Aug 2005	53.5
Jan 2006	54.8		Jul 2005	56.4
Dec 2005	55.6		Jun 2005	54.0
Average for 12 months – 55.9 High – 58.1 Low – 53.5

New Orders

ISM's New Orders Index registered 53.7 percent in May. The index is 3.9 percentage points lower than the 57.6 percent registered in April. May is the 37th 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). Nine industries reported increases during May: Miscellaneous*; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Paper; Transportation & Equipment; Food; Primary Metals; Wood & Wood Products; and Chemicals.

New Orders	% Better	% Same	% Worse	Net	Index
May 2006	31	49	20	+11	53.7
Apr 2006	35	53	12	+23	57.6
Mar 2006	37	51	12	+25	58.4
Feb 2006	38	51	11	+27	61.9

Production

ISM's Production Index registered 57.2 percent in May, 3.2 percentage points lower than the 60.4 percent reported in April. May is the 37th 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: Tobacco; Miscellaneous*; Apparel; Primary Metals; Industrial & Commercial Equipment & Computers; Chemicals; Food; Furniture; Paper; Transportation & Equipment; Electronic Components & Equipment; Instruments & Photographic Equipment; and Wood & Wood Products.

Production	% Better	% Same	% Worse	Net	Index
May 2006	32	53	15	+17	57.2
Apr 2006	35	57	8	+27	60.4
Mar 2006	34	52	14	+20	57.5
Feb 2006	34	50	16	+18	57.4

Employment

ISM's Employment Index expanded for the 12th consecutive month in May. The index registered 52.9 percent in May compared to 55.8 percent in April, a decrease of 2.9 percentage points. An Employment Index above 48.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The 11 industries reporting growth in employment during May are: Apparel; Rubber & Plastic Products; Electronic Components & Equipment; Printing & Publishing; Industrial & Commercial Equipment & Computers; Chemicals; Food; Paper; Furniture; Primary Metals; and Instruments & Photographic Equipment.

Employment	% Higher	% Same	% Lower	Net	Index
May 2006	20	72	8	+12	52.9
Apr 2006	24	66	10	+14	55.8
Mar 2006	19	70	11	+8	52.5
Feb 2006	22	65	13	+9	55.0

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 35th consecutive month in May. ISM's Supplier Deliveries Index for May registered 57.6 percent, a decrease of 0.1 percentage point when compared to April's reading of 57.7 percent. A reading above 50 percent indicates slower deliveries. The 12 industries reporting slower supplier deliveries in May are: Miscellaneous*; Primary Metals; Wood & Wood Products; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Transportation & Equipment; Fabricated Metals; Furniture; Paper; and Printing & Publishing.

Supplier Deliveries	% Slower	% Same	% Faster	Net	Index
May 2006	20	77	3	+17	57.6
Apr 2006	19	77	4	+15	57.7
Mar 2006	14	80	6	+8	53.1
Feb 2006	11	82	7	+4	52.2

Inventories

After one month of growth (index above 50), manufacturers' inventories contracted in May as ISM's Inventories Index registered 48 percent, a 3.3 percentage point decrease when compared to April's reading of 51.3 percent. An Inventories Index greater than 42.2 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 five industries reporting higher inventories in May are: Textiles; Glass, Stone & Aggregate; Food; Industrial & Commercial Equipment & Computers; and Furniture.

Inventories	% Higher	% Same	% Lower	Net	Index
May 2006	13	71	16	-3	48.0
Apr 2006	19	65	16	+3	51.3
Mar 2006	18	64	18	0	48.7
Feb 2006	16	72	12	+4	49.6

Customers' Inventories**

The ISM Customers' Inventories Index is at 44 percent in May, 2.5 percentage points lower than the 46.5 percent reported in April. The index indicates that respondents believe their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 60th consecutive month that the index has registered below 50 percent. Five industries reported higher customers' inventories during May: Textiles; Furniture; Paper; Chemicals; and Instruments & Photographic Equipment.

Customers' Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index
May 2006	74	11	66	23	-12	44.0
Apr 2006	72	13	67	20	-7	46.5
Mar 2006	68	14	68	18	-4	48.0
Feb 2006	75	15	67	18	-3	48.5

Prices**

In May, the ISM Prices Index was 77 percent, indicating manufacturers are paying higher prices on average when compared to April. While 42 percent of supply executives reported paying the same prices and 2 percent reported paying lower prices, the majority of respondents (56 percent) reported that prices were higher than 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, 17 industries reported paying higher prices: Tobacco; Primary Metals; Furniture; Miscellaneous*; Fabricated Metals; Electronic Components & Equipment; Paper; Transportation & Equipment; Food; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Textiles; Wood & Wood Products; Glass, Stone & Aggregate; Printing & Publishing; Chemicals; and Rubber & Plastic Products.

Prices	% Higher	% Same	% Lower	Net	Index
May 2006	56	42	2	+54	77.0
Apr 2006	53	37	10	+43	71.5
Mar 2006	42	49	9	+33	66.5
Feb 2006	36	53	11	+25	62.5

Backlog of Orders**

ISM's Backlog of Orders Index registered 53 percent, indicating manufacturers' backlogs in May are expanding at a slower rate when compared to April. The index is 4 percentage points lower than the 57 percent reported in April. Of the 84 percent of respondents who report their backlog of orders, 23 percent reported greater backlogs, 17 percent reported smaller backlogs, and 60 percent reported no change from April. The seven industries reporting an increase in order backlogs in May are: Apparel; Miscellaneous*; Primary Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Paper; and Furniture.

Backlog of Orders	% Reporting	% Greater	% Same	% Less	Net	Index
May 2006	84	23	60	17	+6	53.0
Apr 2006	86	28	58	14	+14	57.0
Mar 2006	85	34	51	15	+19	59.5
Feb 2006	88	29	51	20	+9	54.5

New Export Orders

ISM's New Export Orders Index registered 55.7 percent in May, an increase of 2.3 percentage points when compared to April's index of 53.4 percent. This is the 42nd consecutive month of growth in export orders. The nine industries reporting growth in new export orders in May are: Miscellaneous*; Furniture; Paper; Primary Metals; Food; Industrial & Commercial Equipment & Computers; Chemicals; Instruments & Photographic Equipment; and Fabricated Metals.

New Export Orders	% Reporting	% Higher	% Same	% Lower	Net	Index
May 2006	79	18	77	5	+13	55.7
Apr 2006	79	16	78	6	+10	53.4
Mar 2006	79	21	77	2	+19	57.3
Feb 2006	79	19	75	6	+13	57.0

Imports**

Imports of materials by manufacturers grew during May as the Imports Index registered 56.5 percent. The index decreased 2.5 percentage points when compared to April's index of 59 percent, indicating a slower rate of growth. The 11 industries reporting growth in import activity for May are: Miscellaneous*; Glass, Stone & Aggregate; Furniture; Paper; Instruments & Photographic Equipment; Electronic Components & Equipment; Fabricated Metals; Food; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; and Chemicals.

Imports	% Reporting	% Higher	% Same	% Lower	Net	Index
May 2006	82	17	79	4	+13	56.5
Apr 2006	82	21	76	3	+18	59.0
Mar 2006	82	19	76	5	+14	57.0
Feb 2006	80	21	73	6	+15	57.5

*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.
**The Backlog of Orders, Prices, Customers' Inventories and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures increased 6 days to 120 days. Average leadtime for Production Materials decreased 3 days to 49 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 2 days to 25 days.

Percent Reporting
Capital Expenditures	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
May 2006	23	8	12	21	22	14	120
Apr 2006	23	9	16	14	27	11	114
Mar 2006	24	9	11	15	30	11	118
Feb 2006	21	9	14	18	26	12	118
Production Materials	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
May 2006	23	35	27	10	3	2	49
Apr 2006	18	39	27	10	4	2	52
Mar 2006	19	39	23	12	4	3	55
Feb 2006	19	40	27	9	3	2	50
MRO Supplies	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
May 2006	50	33	12	4	1	0	25
Apr 2006	50	35	11	4	0	0	23
Mar 2006	48	34	11	5	1	1	29
Feb 2006	52	34	9	4	1	0	24

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® is based on data compiled from monthly replies to questions asked of purchasing and supply executives in approximately 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 for those meeting the criteria for seasonal adjustments (PMI, New Orders, Production, Employment, Supplier Deliveries, Inventories and New Export Orders) 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 42.0 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.0 percent, it is generally declining. The distance from 50 percent or 42.0 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® 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 Manufacturing ISM 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 Manufacturing ISM Report On Business® featuring the June 2006 data will be released at 10:00 a.m. (ET) on Monday, July 3, 2006.

Back to Top