January 2006 Manufacturing ISM Report On Business®

FOR RELEASE: February 1, 2006

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
PMI at 54.8%

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 January 2006.

This report reflects the U.S. Department of Commerce's recently completed annual adjustment to the seasonal factors used to calculate the indexes.


New Orders, Production Expanding
Employment Growing, Deliveries Slowing
Prices Increasing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in January for the 32nd consecutive month, while the overall economy grew for the 51st 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 had another good month during January as measured by the ISM data. Both New Orders and Production remain relatively strong, and the panel of respondents is generally upbeat about their business. It appears that the sector has recovered from the disruptions and dislocations caused by the hurricanes in the Gulf Coast. The Prices Index rose slightly during the month; however, the list of commodities reported 'Up in Price' is significantly reduced from December."

TOP PERFORMING INDUSTRIES

The 13 industries reporting growth in January — listed in order — are: Apparel; Primary Metals; Miscellaneous*; Textiles; Food; Transportation & Equipment; Fabricated Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Furniture; Instruments & Photographic Equipment; Rubber & Plastic Products; and Chemicals.

WHAT RESPONDENTS ARE SAYING …
  • "Sales are still strong." (Chemicals)
  • "Business was very steady last quarter of 2005, and first quarter of 2006 is also strong." (Electronic Components & Equipment)
  • "November and December sales were robust, which helped in reducing inventory for the year end." (Fabricated Metals)
  • "We experienced some softness in December sales. Reason unknown at this time." (Food)
  • "The machine tool industry as a whole remains sluggish although there is more quoting activity and there are a few bright spots on the horizon." (Industrial & Commercial Equipment & Computers)
MANUFACTURING AT A GLANCE
JANUARY 2006


Index
Series
Index
January
Series
Index
December
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 54.8 55.6 -0.8 Growing Slower 32
New Orders 58.0 59.1 -1.1 Growing Slower 33
Production 56.6 57.8 -1.2 Growing Slower 33
Employment 51.3 53.6 -2.3 Growing Slower 8
Supplier Deliveries 55.3 52.9 +2.4 Slowing Faster 31
Inventories 46.5 47.3 -0.8 Contracting Faster 10
Customers' Inventories 46.0 48.0 -2.0 Too Low Faster 56
Prices 65.0 63.0 +2.0 Increasing Faster 6
Backlog of Orders 53.5 49.5 +4.0 Growing From Contracting 1
Exports 58.5 54.3 +4.2 Growing Faster 38
Imports 57.0 52.8 +4.2 Growing Faster 49
             
OVERALL ECONOMY Growing Slower 51
Manufacturing Sector Growing Slower 32

*Number of months moving in current direction
Indexes reflect newly released seasonal adjustment factors.

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (6); Aluminum Products (2); Caustic Soda (21); Chemicals (24); Copper (8); Copper Products (2); Corrugated Containers (3)*; Energy (12); Natural Gas (42)*; Nickel; Oil Products; Paper; Plastics (18); Resins (7)*; Rubber (3); Steel (28); and Titanium.

Commodities Down in Price

Corrugated Containers*; Natural Gas*; Propylene; and Resins (2)*.

Commodities in Short Supply

Titanium is the only commodity reported in short supply.

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


JANUARY 2006 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in January for the 32nd consecutive month. The PMI for January registered 54.8 percent, a decrease of 0.8 percentage point when compared to December's seasonally adjusted reading of 55.6 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 January 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 PMI for January (54.8 percent) corresponds to a 4.4 percent increase in real gross domestic product (GDP) on an annual basis.

THE LAST 12 MONTHS
Month PMI   Month PMI
Jan 2006 54.8   Jul 2005 56.4
Dec 2005 55.6   Jun 2005 54.0
Nov 2005 57.3   May 2005 51.8
Oct 2005 58.1   Apr 2005 53.8
Sep 2005 58.0   Mar 2005 55.3
Aug 2005 53.5   Feb 2005 55.6
Average for 12 months – 55.4
High – 58.1
Low – 51.8

New Orders

ISM's New Orders Index grew in January with a reading of 58 percent. The index is 1.1 percentage points lower than the seasonally adjusted 59.1 percent registered in December, and January is the 33rd 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). Thirteen industries reported increases during January: Apparel; Primary Metals; Miscellaneous*; Transportation & Equipment; Textiles; Food; Furniture; Rubber & Plastic Products; Industrial & Commercial Equipment & Computers; Fabricated Metals; Electronic Components & Equipment; Chemicals; and Paper.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Jan 2006 30 54 16 +14 58.0
Dec 2005 30 50 20 +10 59.1
Nov 2005 30 54 16 +14 58.5
Oct 2005 30 54 16 +14 59.9

Production

ISM's Production Index registered 56.6 percent in January, 1.2 percentage points lower than the seasonally adjusted 57.8 percent reported in December. January is the 33rd 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 January, 12 registered growth: Apparel; Textiles; Primary Metals; Food; Miscellaneous*; Paper; Electronic Components & Equipment; Fabricated Metals; Transportation & Equipment; Instruments & Photographic Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.


Production
%
Better
%
Same
%
Worse

Net

Index
Jan 2006 29 55 16 +13 56.6
Dec 2005 27 58 15 +12 57.8
Nov 2005 30 59 11 +19 60.2
Oct 2005 31 57 12 +19 60.8

Employment

ISM's Employment Index expanded for the eighth consecutive month in January. The index registered 51.3 percent in January compared to the seasonally adjusted 53.6 percent in December, a decrease of 2.3 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 eight industries reporting growth in employment during January are: Apparel; Glass, Stone & Aggregate; Primary Metals; Miscellaneous*; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Fabricated Metals; and Electronic Components & Equipment.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Jan 2006 13 76 11 +2 51.3
Dec 2005 12 80 8 +4 53.6
Nov 2005 19 72 9 +10 56.0
Oct 2005 18 69 13 +5 54.9

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 31st consecutive month in January. ISM's Supplier Deliveries Index for January registered 55.3 percent, an increase of 2.4 percentage points when compared to December's seasonally adjusted reading of 52.9 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in January are: Miscellaneous*; Apparel; Glass, Stone & Aggregate; Electronic Components & Equipment; Fabricated Metals; Transportation & Equipment; Primary Metals; and Instruments & Photographic Equipment.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Jan 2006 11 85 4 +7 55.3
Dec 2005 12 79 9 +3 52.9
Nov 2005 19 74 7 +12 56.9
Oct 2005 26 70 4 +22 60.8

Inventories

Manufacturers' inventories declined in January for the 10th consecutive month as ISM's Inventories Index registered 46.5 percent, indicating a faster rate of liquidation when compared to December's reading of 47.3 (seasonally adjusted). January's index represents a 0.8 percentage point decrease from December's index. 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 seven industries reporting higher inventories in January are: Textiles; Apparel; Instruments & Photographic Equipment; Wood & Wood Products; Furniture; Printing & Publishing; and Food.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Jan 2006 13 69 18 -5 46.5
Dec 2005 12 69 19 -7 47.3
Nov 2005 15 64 21 -6 49.3
Oct 2005 13 67 20 -7 48.4

Customers' Inventories**

The January Customers' Inventories Index is at 46 percent, 2 percentage points lower than the 48 percent reported in December. While the index indicates that respondents believe their customers do not have sufficient inventories on hand (inventories are too low) at this time, it is important to note that 74 percent indicate that inventories are "about right." This is the 56th consecutive month that the index has registered below 50 percent. Three industries reported higher customers' inventories during January: Instruments & Photographic Equipment; Paper; and Food.

Customers'
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low

Net

Index
Jan 2006 75 9 74 17 -8 46.0
Dec 2005 76 13 70 17 -4 48.0
Nov 2005 72 9 69 22 -13 43.5
Oct 2005 79 8 66 26 -18 41.0

Prices**

In January, the ISM Prices Index was 65 percent, indicating an increase in pricing activity compared to December. While 38 percent of supply executives reported paying higher prices and 8 percent reported paying lower prices, the majority of respondents (54 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 January, 14 industries reported paying higher prices: Printing & Publishing; Furniture; Transportation & Equipment; Chemicals; Rubber & Plastic Products; Miscellaneous*; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Fabricated Metals; Food; Wood & Wood Products; Primary Metals; Electronic Components & Equipment; and Instruments & Photographic Equipment.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Jan 2006 38 54 8 +30 65.0
Dec 2005 37 52 11 +26 63.0
Nov 2005 53 42 5 +48 74.0
Oct 2005 70 28 2 +68 84.0

Backlog of Orders**

ISM's Backlog of Orders Index registered 53.5 percent, indicating manufacturers' backlogs in January are expanding when compared to December. This 4 percentage point increase from the 49.5 percent reported in December is a reversal from contraction to growth. Of the 85 percent of respondents who report their backlog of orders, 23 percent reported greater backlogs, 16 percent reported smaller backlogs, and 61 percent reported no change from December. The nine industries reporting an increase in order backlogs during the month are: Miscellaneous*; Transportation & Equipment; Apparel; Primary Metals; Furniture; Instruments & Photographic Equipment; Food; Fabricated Metals; and Chemicals.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Jan 2006 85 23 61 16 +7 53.5
Dec 2005 86 22 55 23 -1 49.5
Nov 2005 83 24 58 18 +6 53.0
Oct 2005 85 29 53 18 +11 55.5

New Export Orders

ISM's New Export Orders Index for January registered 58.5 percent, an increase of 4.2 percentage points when compared to December's seasonally adjusted index of 54.3 percent. This is the 38th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in January are: Primary Metals; Apparel; Printing & Publishing; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Chemicals; Food; Electronic Components & Equipment; Transportation & Equipment; Rubber & Plastic Products; and Fabricated Metals.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jan 2006 77 19 79 2 +17 58.5
Dec 2005 76 12 83 5 +7 54.3
Nov 2005 74 19 78 3 +16 57.9
Oct 2005 76 15 77 8 +7 55.2

Imports**

Imports of materials by manufacturers grew during January as the Imports Index registered 57.0 percent. The index increased 4.2 percentage points when compared to December's index of 52.8 percent, indicating a faster rate of growth. The 12 industries reporting growth in import activity for January are: Textiles; Apparel; Furniture; Primary Metals; Miscellaneous*; Transportation & Equipment; Food; Electronic Components & Equipment; Fabricated Metals; Instruments & Photographic Equipment; Chemicals; and Industrial & Commercial Equipment & Computers. Beginning with the January 2006 report, the Imports Index no longer meets the criteria for seasonal adjustments.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jan 2006 81 20 74 6 +14 57.0
Dec 2005 80 13 79 8 +5 52.8
Nov 2005 78 15 77 8 +7 54.1
Oct 2005 78 20 72 8 +12 58.2

*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 decreased 1 day to 112 days. Average leadtime for Production Materials increased 2 days to 53 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 5 days to 22 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jan 2006 22 9 16 15 29 9 112
Dec 2005 22 11 13 18 25 11 113
Nov 2005 24 9 16 17 24 10 108
Oct 2005 25 8 13 18 26 10 110
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jan 2006 18 39 25 12 4 2 53
Dec 2005 20 36 27 11 5 1 51
Nov 2005 16 41 27 11 4 1 50
Oct 2005 22 36 25 12 3 2 50
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jan 2006 53 33 11 3 0 0 22
Dec 2005 51 31 12 5 0 1 27
Nov 2005 55 30 12 3 0 0 22
Oct 2005 51 32 13 3 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 February 2006 data will be released at 10:00 a.m. (ET) on March 1, 2006.


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