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FOR RELEASE: November 1, 2006

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

October 2006 Manufacturing ISM Report On Business®

PMI at 51.2%

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 October 2006.

New Orders, Production, Employment Growing
Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in October for the 41st consecutive month, while the overall economy grew for the 60th 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. "In October, the manufacturing sector fell to its lowest level of growth since June 2003. There was significant movement in most of the indexes as new orders and production continued to soften, while backlogs contracted for a second month. There was particularly good news on the pricing front as the Prices Index fell 14 points, signaling some relief for buyers for the first time in 15 months. A second positive signal is the improvement in new export orders as the weaker dollar continues to support a strong export market."

TOP PERFORMING INDUSTRIES

The eight industries reporting growth in October — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Furniture & Related Products; Chemical Products; and Paper Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Still receiving price increases on petroleum-based products." (Chemical Products)
  • "Business appears to be softening slightly — both volume and margin." (Fabricated Metal Products)
  • "Raw material leadtimes shortening, especially in wood and steel." (Furniture & Related Products)
  • "Raw material prices have not yet begun to decline in response to lower oil and natural gas prices." (Paper Products)
  • "Business is softening, particularly in Europe." (Machinery)
MANUFACTURING AT A GLANCE
OCTOBER 2006


Index		 Series
Index
October		 Series
Index
September		 Percentage
Point
Change

Direction		 Rate
of
Change
Trend*
(Months)
PMI 51.2 52.9 -1.7 Growing Slower 41
New Orders 52.1 54.2 -2.1 Growing Slower 42
Production 51.9 56.1 -4.2 Growing Slower 42
Employment 50.8 49.4 +1.4 Growing From Contracting 1
Supplier Deliveries 50.2 54.1 -3.9 Slowing Slower 40
Inventories 49.4 46.4 +3.0 Contracting Slower 2
Customers' Inventories 52.0 49.0 +3.0 Too High From Too Low 1
Prices 47.0 61.0 -14.0 Decreasing From Increasing 1
Backlog of Orders 44.5 46.5 -2.0 Contracting Faster 2
Exports 57.8 55.3 +2.5 Growing Faster 47
Imports 57.0 56.0 +1.0 Growing Faster 58
             
OVERALL ECONOMY Growing Slower 60
Manufacturing Sector Growing Slower 41

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Corrugated Containers (12); Methanol (2); and Stainless Steel (6).

Commodities Down in Price

Aluminum (2); Copper Products; Fuel; Gasoline (2); Natural Gas (2); Natural Rubber (2); Oil-Based Products; Polyethylene Resin; and Steel.

Commodities in Short Supply

Titanium.

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


OCTOBER 2006 MANUFACTURING INDEX SUMMARIES

PMI

The PMI indicates that the manufacturing economy grew in October for the 41st consecutive month as it registered 51.2 percent, a decrease of 1.7 percentage points when compared to September's reading of 52.9 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 October 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 October (54.6 percent) corresponds to a 4.3 percent increase in real gross domestic product (GDP). In addition, if the PMI for October (51.2 percent) is annualized, it corresponds to a 3.1 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Oct 2006 51.2   Apr 2006 57.3
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
Average for 12 months – 54.9
High – 57.3
Low – 51.2

New Orders

ISM's New Orders Index registered 52.1 percent in October. The index is 2.1 percentage points lower than the 54.2 percent reported in September. October is the 42nd 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). Seven industries reported increases during October: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Furniture & Related Products; Nonmetallic Mineral Products; Chemical Products; and Food, Beverage & Tobacco Products.

New
Orders		 %
Better		 %
Same		 %
Worse
Net
Index
Oct 2006 26 47 27 -1 52.1
Sep 2006 28 54 18 +10 54.2
Aug 2006 27 51 22 +5 54.2
Jul 2006 29 52 19 +10 56.1

Production

ISM's Production Index registered 51.9 percent in October, 4.2 percentage points lower than the 56.1 percent reported in September. October is the 42nd 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 October, 10 registered growth: Apparel, Leather & Allied Products; Computer & Electronic Products; Textile Mills; Miscellaneous Manufacturing; Paper Products; Nonmetallic Mineral Products; Primary Metals; Furniture & Related Products; Chemical Products; and Transportation Equipment.


Production		 %
Better		 %
Same		 %
Worse
Net
Index
Oct 2006 22 58 20 +2 51.9
Sep 2006 28 59 13 +15 56.1
Aug 2006 23 61 16 +7 56.6
Jul 2006 27 56 17 +10 57.6

Employment

ISM's Employment Index registered 50.8 percent in October, an increase of 1.4 percentage points when compared to September's reading of 49.4 percent. 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 October are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Primary Metals.


Employment		 %
Higher		 %
Same		 %
Lower
Net
Index
Oct 2006 17 63 20 -3 50.8
Sep 2006 12 72 16 -4 49.4
Aug 2006 19 66 15 +4 54.0
Jul 2006 16 70 14 +2 50.7

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 40th consecutive month in October. ISM's Supplier Deliveries Index for October registered 50.2 percent, a decrease of 3.9 percentage points when compared to September's reading of 54.1 percent. A reading above 50 percent indicates slower deliveries. The three industries reporting slower supplier deliveries in October are: Computer & Electronic Products; Nonmetallic Mineral Products; and Transportation Equipment.

Supplier
Deliveries		 %
Slower		 %
Same		 %
Faster
Net
Index
Oct 2006 9 83 8 +1 50.2
Sep 2006 13 82 5 +8 54.1
Aug 2006 16 80 4 +12 55.0
Jul 2006 16 80 4 +12 55.4

Inventories

Manufacturers' inventories contracted at a slower rate in October as ISM's Inventories Index registered 49.4 percent, a 3 percentage point increase when compared to September's reading of 46.4 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 October are: Food, Beverage & Tobacco Products; Furniture & Related Products; Paper Products; and Primary Metals.


Inventories		 %
Higher		 %
Same		 %
Lower
Net
Index
Oct 2006 17 61 22 -5 49.4
Sep 2006 14 66 20 -6 46.4
Aug 2006 20 62 18 +2 50.2
Jul 2006 13 70 17 -4 50.5

Customers' Inventories*

The ISM Customers' Inventories Index registered 52 percent in October, which is 3 percentage points higher than the 49 percent reported in September. The index indicates that respondents believe their customers have sufficient inventories on hand (inventories are too high) at this time. This reversal in the index concludes 64 consecutive months that the index registered below 50 percent. Eight industries reported higher customers' inventories during October: Textile Mills; Wood Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Furniture & Related Products; Fabricated Metal Products; and Chemical Products.

Customers'
Inventories		 %
Reporting		 %Too
High		 %About
Right		 %Too
Low
Net
Index
Oct 2006 74 19 66 15 +4 52.0
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

Prices*

In October, the ISM Prices Index registered 47 percent, indicating manufacturers are paying lower prices on average when compared to September. While 58 percent of supply executives reported paying the same prices and 24 percent reported paying lower prices, only 18 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 October, five industries reported paying higher prices: Food, Beverage & Tobacco Products; Computer & Electronic Products; Chemical Products; Machinery; and Primary Metals.


Prices		 %
Higher		 %
Same		 %
Lower
Net
Index
Oct 2006 18 58 24 -6 47.0
Sep 2006 36 50 14 +22 61.0
Aug 2006 50 46 4 +46 73.0
Jul 2006 59 39 2 +57 78.5

Backlog of Orders*

ISM's Backlog of Orders Index registered 44.5 percent, indicating manufacturers' backlogs in October are contracting for the second consecutive month. The index is 2 percentage points lower than the 46.5 percent reported in September. Of the 85 percent of respondents who reported their backlog of orders, 14 percent reported greater backlogs, 25 percent reported smaller backlogs, and 61 percent reported no change from September. The six industries reporting an increase in order backlogs in October are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Transportation Equipment; Chemical Products; and Miscellaneous Manufacturing.

Backlog of
Orders		 %
Reporting		 %
Greater		 %
Same		 %
Less
Net
Index
Oct 2006 85 14 61 25 -11 44.5
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

New Export Orders

ISM's New Export Orders Index registered 57.8 percent in October, an increase of 2.5 percentage points when compared to September's index of 55.3 percent. This is the 47th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in October are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Primary Metals; Miscellaneous Manufacturing; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; and Chemical Products.

New Export
Orders		 %
Reporting		 %
Higher		 %
Same		 %
Lower
Net
Index
Oct 2006 80 18 76 6 +12 57.8
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

Imports*

Imports of materials by manufacturers grew during October as the Imports Index registered 57 percent. The index is 1 percentage point higher when compared to September. The nine industries reporting growth in import activity for October are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Wood Products; Furniture & Related Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; Machinery; and Computer & Electronic Products.


Imports		 %
Reporting		 %
Higher		 %
Same		 %
Lower
Net
Index
Oct 2006 85 19 76 5 +14 57.0
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

* 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 10 days to 119 days. Average leadtime for Production Materials increased 8 days to 55 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 2 days to 24 days.

Percent Reporting
Percent Reporting

Capital
Expenditures		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Oct 2006 22 9 14 19 22 14 119
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
 

Production
Materials		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Oct 2006 21 36 23 13 4 3 55
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
 

MRO
Supplies		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Oct 2006 52 31 13 3 1 0 24
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

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


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