April 2006 Manufacturing ISM Report On Business®

FOR RELEASE: May 1, 2006

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

PMI at 57.3%

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 April 2006.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in April for the 35th consecutive month, while the overall economy grew for the 54th 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 at a faster rate during April as production and employment showed significant strength. The level of activity is driving some inventory growth as the Inventory Index moved above 50 percent, reversing a 12-month trend. April's Index of 57.3 percent is the highest since November 2005. While many members indicate that business is good, they still have major concerns about the impact of higher prices for energy and industrial commodities."

TOP PERFORMING INDUSTRIES

The 15 industries reporting growth in April — listed in order — are: Miscellaneous*; Primary Metals; Transportation & Equipment; Electronic Components & Equipment; Fabricated Metals; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Glass, Stone & Aggregate; Apparel; Food; Printing & Publishing; Instruments & Photographic Equipment; Chemicals; Furniture; and Rubber & Plastic Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Gasoline and diesel price hikes in the Northeast continue to cause concern as freight costs escalate." (Chemicals)
  • "Seasonal ramp-up is starting 45 to 60 days earlier than prior years." (Electronic Components & Equipment)
  • "We continue to stay busy, but there's great concern about [auto] plant closing." (Fabricated Metals)
  • "It is difficult to find experienced people at all levels for employment." (Glass, Stone & Aggregate)
  • "New orders for Q1 2006 were stronger than expected." (Printing & Publishing)
MANUFACTURING AT A GLANCE
APRIL 2006


Index
Series
Index
April
Series
Index
March
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 57.3 55.2 +2.1 Growing Faster 35
New Orders 57.6 58.4 -0.8 Growing Slower 36
Production 60.4 57.5 +2.9 Growing Faster 36
Employment 55.8 52.5 +3.3 Growing Faster 11
Supplier Deliveries 57.7 53.1 +4.6 Slowing Faster 34
Inventories 51.3 48.7 +2.6 Growing From Contracting 1
Customers' Inventories 46.5 48.0 -1.5 Too Low Faster 59
Prices 71.5 66.5 +5.0 Increasing Faster 9
Backlog of Orders 57.0 59.5 -2.5 Growing Slower 4
Exports 53.4 57.3 -3.9 Growing Slower 41
Imports 59.0 57.0 +2.0 Growing Faster 52
             
OVERALL ECONOMY Growing Faster 54
Manufacturing Sector Growing Faster 35

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (9); Aluminum Products (5); Brass; Chemicals; Copper (11); Copper Products (5); Corrugated Containers (6); Crude Oil; Diesel Fuel; Electronic Components (2); Energy; Flour (2); Freight (2); Gasoline; Natural Gas*; Nickel; Paper (4); Particle Board (2); Petroleum Products; Plastics; Plastic Resins; Resins; Silver; Steel (2); Titanium; and Zinc.

Commodities Down in Price

Caustic Soda (2); High Density Polyethylene Resins; and Natural Gas* (4).

Commodities in Short Supply

Steel 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.


APRIL 2006 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in April for the 35th consecutive month as it registered 57.3 percent, an increase of 2.1 percentage points when compared to March's reading of 55.2 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 April 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 April (56 percent) corresponds to a 4.8 percent increase in real gross domestic product (GDP). In addition, if the PMI for April (57.3 percent) is annualized, it corresponds to a 5.3 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
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
Nov 2005 57.3   May 2005 51.8
Average for 12 months – 55.7
High – 58.1
Low – 51.8

New Orders

ISM's New Orders Index registered 57.6 percent in April. The index is 0.8 percentage point lower than the 58.4 percent registered in March. April is the 36th 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). Fourteen industries reported increases during April: Miscellaneous*; Primary Metals; Transportation & Equipment; Electronic Components & Equipment; Wood & Wood Products; Printing & Publishing; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Paper; Glass, Stone & Aggregate; Fabricated Metals; Furniture; Instruments & Photographic Equipment; and Food.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Apr 2006 35 53 12 +23 57.6
Mar 2006 37 51 12 +25 58.4
Feb 2006 38 51 11 +27 61.9
Jan 2006 30 54 16 +14 58.0

Production

ISM's Production Index registered 60.4 percent in April, 2.9 percentage points higher than the 57.5 percent reported in March. April is the 36th 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 April, 14 registered growth: Miscellaneous*; Fabricated Metals; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Transportation & Equipment; Apparel; Primary Metals; Chemicals; Electronic Components & Equipment; Food; Furniture; Instruments & Photographic Equipment; Printing & Publishing; and Rubber & Plastic Products.


Production
%
Better
%
Same
%
Worse

Net

Index
Apr 2006 35 57 8 +27 60.4
Mar 2006 34 52 14 +20 57.5
Feb 2006 34 50 16 +18 57.4
Jan 2006 29 55 16 +13 56.6

Employment

ISM's Employment Index expanded for the 11th consecutive month in April. The index registered 55.8 percent in April compared to 52.5 percent in March, an increase of 3.3 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 12 industries reporting growth in employment during April are: Miscellaneous*; Glass, Stone & Aggregate; Apparel; Food; Transportation & Equipment; Primary Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Printing & Publishing; Fabricated Metals; Chemicals; and Furniture.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Apr 2006 24 66 10 +14 55.8
Mar 2006 19 70 11 +8 52.5
Feb 2006 22 65 13 +9 55.0
Jan 2006 13 76 11 +2 51.3

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 34th consecutive month in April. ISM's Supplier Deliveries Index for April registered 57.7 percent, an increase of 4.6 percentage points when compared to March's reading of 53.1 percent. A reading above 50 percent indicates slower deliveries. The 12 industries reporting slower supplier deliveries in April are: Primary Metals; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Miscellaneous*; Textiles; Electronic Components & Equipment; Printing & Publishing; Fabricated Metals; Furniture; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Chemicals.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Apr 2006 19 77 4 +15 57.7
Mar 2006 14 80 6 +8 53.1
Feb 2006 11 82 7 +4 52.2
Jan 2006 11 85 4 +7 55.3

Inventories

Manufacturers' inventories reversed a 12-month trend in April as ISM's Inventories Index registered 51.3 percent, a 2.6 percentage point increase when compared to March's reading of 48.7 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 nine industries reporting higher inventories in April are: Textiles; Apparel; Miscellaneous*; Wood & Wood Products; Fabricated Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Chemicals.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Apr 2006 19 65 16 +3 51.3
Mar 2006 18 64 18 0 48.7
Feb 2006 16 72 12 +4 49.6
Jan 2006 13 69 18 -5 46.5

Customers' Inventories**

The ISM Customers' Inventories Index is at 46.5 percent in April, 1.5 percentage points lower than the 48 percent reported in March. 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 59th consecutive month that the index has registered below 50 percent. Four industries reported higher customers' inventories during April: Textiles; Instruments & Photographic Equipment; Miscellaneous*; and Food.

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

Net

Index
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
Jan 2006 75 9 74 17 -8 46.0

Prices**

In April, the ISM Prices Index was 71.5 percent, indicating manufacturers are paying higher prices on average when compared to March. While 37 percent of supply executives reported paying the same prices and 10 percent reported paying lower prices, the majority of respondents (53 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 April, 14 industries reported paying higher prices: Furniture; Primary Metals; Wood & Wood Products; Fabricated Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Instruments & Photographic Equipment; Paper; Glass, Stone & Aggregate; Printing & Publishing; Chemicals; Miscellaneous*; and Food.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Apr 2006 53 37 10 +43 71.5
Mar 2006 42 49 9 +33 66.5
Feb 2006 36 53 11 +25 62.5
Jan 2006 38 54 8 +30 65.0

Backlog of Orders**

ISM's Backlog of Orders Index registered 57 percent, indicating manufacturers' backlogs in April are expanding when compared to March. The index is 2.5 percentage points lower than the 59.5 percent reported in March. Of the 86 percent of respondents who report their backlog of orders, 28 percent reported greater backlogs, 14 percent reported smaller backlogs, and 58 percent reported no change from March. The 11 industries reporting an increase in order backlogs in April are: Apparel; Primary Metals; Transportation & Equipment; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Miscellaneous*; Food; Fabricated Metals; Wood & Wood Products; Electronic Components & Equipment; and Printing & Publishing.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
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
Jan 2006 85 23 61 16 +7 53.5

New Export Orders

ISM's New Export Orders Index registered 53.4 percent in April, a decrease of 3.9 percentage points when compared to March's index of 57.3 percent. This is the 41st consecutive month of growth in export orders. The eight industries reporting growth in new export orders in April are: Primary Metals; Printing & Publishing; Transportation & Equipment; Miscellaneous*; Food; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Chemicals.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
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
Jan 2006 77 19 79 2 +17 58.5

Imports**

Imports of materials by manufacturers grew during April as the Imports Index registered 59 percent. The index increased 2 percentage points when compared to March's index of 57 percent, indicating a faster rate of growth. The 11 industries reporting growth in import activity for April are: Miscellaneous*; Transportation & Equipment; Apparel; Fabricated Metals; Instruments & Photographic Equipment; Paper; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Food; and Chemicals.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
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
Jan 2006 81 20 74 6 +14 57.0

*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 4 days to 114 days. Average leadtime for Production Materials decreased 3 days to 52 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 6 days to 23 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
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
Jan 2006 22 9 16 15 29 9 112
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
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
Jan 2006 18 39 25 12 4 2 53
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
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
Jan 2006 53 33 11 3 0 0 22

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 May 2006 data will be released at 10:00 a.m. (ET) on June 1, 2006.


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