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FOR RELEASE: October 2, 2006

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

September 2006 Manufacturing ISM Report On Business®

PMI at 52.9%

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 September 2006.

New Orders, Production Growing
Employment, Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in September for the 40th consecutive month, while the overall economy grew for the 59th 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 continues on a trend of slowing growth in September. While there was little change in new orders and production when compared to August, significant slowing took place in employment and inventories. It's apparent that manufacturing is losing momentum and feeling the effects of higher interest rates and a weaker housing market."

TOP PERFORMING INDUSTRIES

The 12 industries reporting growth in September — listed in order — are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Primary Metals; Furniture & Related Products; Nonmetallic Mineral Products; Paper Products; Chemical Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Plastics & Rubber Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Lower energy prices should have a beneficial effect, but none has been seen so far." (Chemical Products)
  • "Business remains sluggish — new order rate and size of orders is low." (Computer & Electronic Products)
  • "Business is steady, even working some overtime." (Primary Metals)
  • "Freight charges remain high even with falling oil prices. Contractors are in short supply." (Paper Products)
  • "Within the past two weeks, seeing serious downturn in customer orders related to the housing market downturn." (Wood Products)
MANUFACTURING AT A GLANCE
SEPTEMBER 2006


Index		 Series
Index
September		 Series
Index
August		 Percentage
Point
Change

Direction		 Rate
of
Change
Trend*
(Months)
PMI 52.9 54.5 -1.6 Growing Slower 40
New Orders 54.2 54.2 0 Growing Same 41
Production 56.1 56.6 -0.5 Growing Slower 41
Employment 49.4 54.0 -4.6 Contracting From Growing 1
Supplier Deliveries 54.1 55.0 -0.9 Slowing Slower 39
Inventories 46.4 50.2 -3.8 Contracting From Growing 1
Customers' Inventories 49.0 46.0 +3.0 Too Low Slower 64
Prices 61.0 73.0 -12.0 Increasing Slower 14
Backlog of Orders 46.5 51.5 -5.0 Contracting From Growing 1
Exports 55.3 55.7 -0.4 Growing Slower 46
Imports 56.0 54.0 +2.0 Growing Faster 57
             
OVERALL ECONOMY Growing Slower 59
Manufacturing Sector Growing Slower 40

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum*; Brass; Copper Products (10); Corrugated Containers (11); Chemicals; Electrical Components; Freight (7); High Density Polyethylene; Methanol; Plastics; Polyethylene; Polypropylene; Stainless Steel (5); and Steel (7).

Commodities Down in Price

Aluminum*; Caustic Soda (2); Crude Oil; Gasoline; Lumber; Natural Gas; and Natural Rubber.

Commodities in Short Supply

Electronic Components; Methanol; and Stainless Steel (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price.


SEPTEMBER 2006 MANUFACTURING INDEX SUMMARIES

PMI

The PMI indicates that the manufacturing economy grew in September for the 40th consecutive month as it registered 52.9 percent, a decrease of 1.6 percentage points when compared to August's reading of 54.5 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 September PMI indicates that both the overall economy and the manufacturing sector are growing at a slower rate. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (54.9 percent) corresponds to a 4.4 percent increase in real gross domestic product (GDP). In addition, if the PMI for September (52.9 percent) is annualized, it corresponds to a 3.7 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Sep 2006 52.9   Mar 2006 55.2
Aug 2006 54.5   Feb 2006 56.7
Jul 2006 54.7   Jan 2006 54.8
Jun 2006 53.8   Dec 2005 55.6
May 2006 54.4   Nov 2005 57.3
Apr 2006 57.3   Oct 2005 58.1
Average for 12 months – 55.4
High – 58.1
Low – 52.9

New Orders

ISM's New Orders Index registered 54.2 percent in September. The index is the same as reported in August. September is the 41st 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 September: Apparel, Leather & Allied Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Computer & Electronic Products; Paper Products; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; Plastics & Rubber Products; and Furniture & Related Products.

New
Orders		 %
Better		 %
Same		 %
Worse
Net
Index
Sep 2006 28 54 18 +10 54.2
Aug 2006 27 51 22 +5 54.2
Jul 2006 29 52 19 +10 56.1
Jun 2006 34 48 18 +16 57.9

Production

ISM's Production Index registered 56.1 percent in September, 0.5 percentage point lower than the 56.6 percent reported in August. September is the 41st 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 September, 10 registered growth: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Furniture & Related Products; Primary Metals; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; Paper Products; and Nonmetallic Mineral Products.


Production		 %
Better		 %
Same		 %
Worse
Net
Index
Sep 2006 28 59 13 +15 56.1
Aug 2006 23 61 16 +7 56.6
Jul 2006 27 56 17 +10 57.6
Jun 2006 27 56 17 +10 55.1

Employment

ISM's Employment Index registered 49.4 percent in September, a decrease of 4.6 percentage points when compared to August's reading of 54 percent. This contraction follows two consecutive months of growth in employment. 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 five industries reporting growth in employment during September are: Petroleum & Coal Products; Nonmetallic Mineral Products; Paper Products; Furniture & Related Products; and Miscellaneous Manufacturing.


Employment		 %
Higher		 %
Same		 %
Lower
Net
Index
Sep 2006 12 72 16 -4 49.4
Aug 2006 19 66 15 +4 54.0
Jul 2006 16 70 14 +2 50.7
Jun 2006 17 69 14 +3 48.7

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 39th consecutive month in September. ISM's Supplier Deliveries Index for September registered 54.1 percent, a decrease of 0.9 percentage point when compared to August's reading of 55 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in September are: Petroleum & Coal Products; Computer & Electronic Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Plastics & Rubber Products; Machinery; and Chemical Products.

Supplier
Deliveries		 %
Slower		 %
Same		 %
Faster
Net
Index
Sep 2006 13 82 5 +8 54.1
Aug 2006 16 80 4 +12 55.0
Jul 2006 16 80 4 +12 55.4
Jun 2006 15 82 3 +12 55.0

Inventories

Manufacturers' inventories contracted in September following two consecutive months of growth as ISM's Inventories Index registered 46.4 percent, a 3.8 percentage point decrease when compared to August's reading of 50.2 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 four industries reporting higher inventories in September are: Primary Metals; Textile Mills; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.


Inventories		 %
Higher		 %
Same		 %
Lower
Net
Index
Sep 2006 14 66 20 -6 46.4
Aug 2006 20 62 18 +2 50.2
Jul 2006 13 70 17 -4 50.5
Jun 2006 15 65 20 -5 46.9

Customers' Inventories*

The ISM Customers' Inventories Index registered 49 percent in September, which is 3 percentage points higher than the 46 percent reported in August. 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 64th consecutive month that the index has registered below 50 percent. Three industries reported higher customers' inventories during September: Textile Mills; Paper Products; and Food, Beverage & Tobacco Products.

Customers'
Inventories		 %
Reporting		 %Too
High		 %About
Right		 %Too
Low
Net
Index
Sep 2006 71 15 68 17 -2 49.0
Aug 2006 75 10 72 18 -8 46.0
Jul 2006 73 12 65 23 -11 44.5
Jun 2006 75 12 67 21 -9 45.5

Prices*

In September, the ISM Prices Index registered 61 percent, indicating manufacturers are paying higher prices on average when compared to August. While 50 percent of supply executives reported paying the same prices and 14 percent reported paying lower prices, 36 percent of respondents 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 September, 10 industries reported paying higher prices: Electrical Equipment, Appliances & Components; Paper Products; Computer & Electronic Products; Transportation Equipment; Primary Metals; Chemical Products; Miscellaneous Manufacturing; Machinery; Furniture & Related Products; and Fabricated Metal Products.


Prices		 %
Higher		 %
Same		 %
Lower
Net
Index
Sep 2006 36 50 14 +22 61.0
Aug 2006 50 46 4 +46 73.0
Jul 2006 59 39 2 +57 78.5
Jun 2006 57 39 4 +53 76.5

Backlog of Orders*

ISM's Backlog of Orders Index registered 46.5 percent, indicating manufacturers' backlogs in September are contracting following eight months of growth. The index is 5 percentage points lower than the 51.5 percent reported in August. Of the 83 percent of respondents who report their backlog of orders, 14 percent reported greater backlogs, 21 percent reported smaller backlogs, and 65 percent reported no change from August. The four industries reporting an increase in order backlogs in September are: Nonmetallic Mineral Products; Paper Products; Plastics & Rubber Products; and Furniture & Related Products.

Backlog of
Orders		 %
Reporting		 %
Greater		 %
Same		 %
Less
Net
Index
Sep 2006 83 14 65 21 -7 46.5
Aug 2006 83 19 65 16 +3 51.5
Jul 2006 88 19 63 18 +1 50.5
Jun 2006 84 28 52 20 +8 54.0

New Export Orders

ISM's New Export Orders Index registered 55.3 percent in September, a decrease of 0.4 percentage point when compared to August's index of 55.7 percent. This is the 46th consecutive month of growth in export orders. The six industries reporting growth in new export orders in September are: Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; and Fabricated Metal Products.

New Export
Orders		 %
Reporting		 %
Higher		 %
Same		 %
Lower
Net
Index
Sep 2006 77 14 80 6 +8 55.3
Aug 2006 77 14 81 5 +9 55.7
Jul 2006 79 10 83 7 +3 51.9
Jun 2006 75 17 79 4 +13 55.4

Imports*

Imports of materials by manufacturers grew during September as the Imports Index registered 56 percent. The index is 2 percentage points higher when compared to August. The nine industries reporting growth in import activity for September are: Nonmetallic Mineral Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; and Fabricated Metal Products.


Imports		 %
Reporting		 %
Higher		 %
Same		 %
Lower
Net
Index
Sep 2006 81 18 76 6 +12 56.0
Aug 2006 81 15 78 7 +8 54.0
Jul 2006 83 22 71 7 +15 57.5
Jun 2006 81 19 75 6 +13 56.5

* 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 decreased 7 days to 109 days. Average leadtime for Production Materials decreased 1 day to 47 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 1 day to 22 days.

Percent Reporting

Capital
Expenditures		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Sep 2006 26 8 14 18 23 11 109
Aug 2006 25 7 11 22 22 13 116
Jul 2006 19 12 13 21 23 12 116
Jun 2006 22 11 11 20 23 13 117
 

Production
Materials		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Sep 2006 19 43 22 12 3 1 47
Aug 2006 19 40 25 10 6 0 48
Jul 2006 18 38 28 8 6 2 54
Jun 2006 21 33 29 12 4 1 50
 

MRO
Supplies		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Sep 2006 50 37 10 3 0 0 22
Aug 2006 49 35 14 2 0 0 23
Jul 2006 48 36 12 3 0 1 27
Jun 2006 55 26 14 5 0 0 23

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 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, 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 October 2006 data will be released at 10:00 a.m. (ET) on Wednesday, November 1, 2006.