March 2007 Manufacturing ISM Report On Business®

FOR RELEASE: April 2, 2007


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

PMI at 50.9%

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 March 2007.


New Orders and Production Growing
Employment and Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in March for the second consecutive month, while the overall economy grew for the 65th 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. "Manufacturing improved slightly in March as the PMI reflected growth for the second consecutive month. The New Orders and Production Indexes advanced while the Employment and Inventories Indexes declined. A positive for March is the Customers' Inventories Index (falling below 50 percent after five consecutive months above the breakeven line), which is a possible indication that manufacturers' inventories are nearing satisfactory levels. On the negative side, prices appear to be surging for certain commodities in the face of slower growth."

TOP PERFORMING INDUSTRIES

The 10 industries reporting growth in March — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Wood Products; Transportation Equipment; Plastics & Rubber Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; and Textile Mills.

WHAT RESPONDENTS ARE SAYING ...
  • "Slowdown evident, could be based on inventory in the channel." (Computer & Electronic Products)
  • "Industry preparing customers for price increases related to corn/grain cost increases." (Food, Beverage & Tobacco Products)
  • "Raw material cost soared due to the largest one-month price increase for ferrous scrap since September of 2005." (Primary Metals)
  • "General business conditions show significant signs of slowing in the manufacturing sector." (Transportation Equipment)
  • "Business is slowing, but we are slightly ahead of last year's sales. We are projecting a flat year in sales for 2007." (Furniture & Related Products)
MANUFACTURING AT A GLANCE
MARCH 2007


Index
Series
Index
March
Series
Index
February
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 50.9 52.3 -1.4 Growing Slower 2
New Orders 51.6 54.9 -3.3 Growing Slower 4
Production 53.0 54.1 -1.1 Growing Slower 2
Employment 48.7 51.1 -2.4 Contracting From Growing 1
Supplier Deliveries 51.3 50.8 +0.5 Slowing Faster 45
Inventories 47.5 44.6 +2.9 Contracting Slower 8
Customers' Inventories 48.0 53.0 -5.0 Too Low From Too High 1
Prices 65.5 59.0 +6.5 Increasing Faster 3
Backlog of Orders 47.0 51.5 -4.5 Contracting From Growing 1
Exports 55.5 54.0 +1.5 Growing Faster 52
Imports 57.5 61.5 -4.0 Growing Slower 63
             
OVERALL ECONOMY Growing Slower 65
Manufacturing Sector Growing Slower 2

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (4); Cobalt; Cobalt Powder; Copper; Corn; Corrugated Containers; Diesel Fuel; Fuel; Natural Gas (2); Nickel (5); Plastic Resins; Stainless Steel (3); and Steel.

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

No commodities are reported in short supply.

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



MARCH 2007 MANUFACTURING INDEX SUMMARIES


PMI

The manufacturing economy continued to grow in March as the PMI registered 50.9 percent, a decrease of 1.4 percentage points when compared to February's seasonally adjusted reading of 52.3 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 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the 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 average for January through March (50.8 percent) corresponds to a 2.8 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for March (50.9) is annualized, it also corresponds to a 2.8 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Mar 2007 50.9   Sep 2006 52.7
Feb 2007 52.3   Aug 2006 54.3
Jan 2007 49.3   Jul 2006 54.4
Dec 2006 51.4   Jun 2006 54.0
Nov 2006 49.9   May 2006 54.7
Oct 2006 51.5   Apr 2006 56.9
Average for 12 months – 52.7
High – 56.9
Low – 49.3

New Orders

ISM's New Orders Index registered 51.6 percent in March. The index is 3.3 percentage points lower than the seasonally adjusted 54.9 percent reported in February. A New Orders Index above 49.1 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 March: Apparel, Leather & Allied Products; Wood Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Transportation Equipment; Food, Beverage & Tobacco Products; Paper Products; Fabricated Metal Products; Chemical Products; Primary Metals; and Furniture & Related Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Mar 2007 30 51 19 +11 51.6
Feb 2007 36 43 21 +15 54.9
Jan 2007 27 45 28 -1 50.3
Dec 2006 30 37 33 -3 51.9

Production

ISM's Production Index registered 53 percent in March, 1.1 percentage points lower than the seasonally adjusted 54.1 percent reported in February. March is the second consecutive month of production growth for manufacturers. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the industries reporting in March, 11 registered growth: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Wood Products; Textile Mills; Plastics & Rubber Products; Nonmetallic Mineral Products; Chemical Products; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Machinery.


Production
%
Better
%
Same
%
Worse

Net

Index
Mar 2007 29 53 18 +11 53.0
Feb 2007 28 54 18 +10 54.1
Jan 2007 22 53 25 -3 49.6
Dec 2006 27 46 27 0 52.4

Employment

ISM's Employment Index registered 48.7 percent in March, a decrease of 2.4 percentage points when compared to February's seasonally adjusted reading of 51.1 percent. The Employment Index has failed to grow in four of the last five months. An Employment Index above 49.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The four industries reporting growth in employment during March are: Apparel, Leather & Allied Products; Transportation Equipment; Chemical Products; and Miscellaneous Manufacturing.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Mar 2007 14 72 14 0 48.7
Feb 2007 21 62 17 +4 51.1
Jan 2007 14 68 18 -4 49.5
Dec 2006 14 68 18 -4 49.4

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 45th consecutive month in March. ISM's Supplier Deliveries Index registered 51.3 percent in March, an increase of 0.5 percentage point when compared to February's seasonally adjusted reading of 50.8 percent. A reading above 50 percent indicates slower deliveries. The five industries reporting slower supplier deliveries in March are: Nonmetallic Mineral Products; Computer & Electronic Products; Transportation Equipment; Chemical Products; and Fabricated Metal Products.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Mar 2007 5 93 2 +3 51.3
Feb 2007 7 87 6 +1 50.8
Jan 2007 7 88 5 +2 52.7
Dec 2006 8 88 4 +4 53.3

Inventories

Manufacturers' inventories contracted for the eighth consecutive month in March as ISM's Inventories Index registered 47.5 percent, a 2.9 percentage point increase when compared to February's reading of 44.6 percent (seasonally adjusted). An Inventories Index greater than 42.4 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 six industries reporting higher inventories in March are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; and Chemical Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Mar 2007 17 64 19 -2 47.5
Feb 2007 16 62 22 -6 44.6
Jan 2007 12 57 31 -19 39.9
Dec 2006 20 55 25 -5 48.5

Customers' Inventories*

The ISM Customers' Inventories Index registered 48 percent in March, 5 percentage points lower than the 53 percent reported in February. The index indicates that respondents believe their customers have less than sufficient inventories on hand (inventories are too low) at this time. This is the first month of decline in this index following five consecutive months in which the index registered above 50 percent. Three industries reported higher customers' inventories during March: Furniture & Related Products; Computer & Electronic Products; and Fabricated Metal Products.

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

Net

Index
Mar 2007 75 11 74 15 -4 48.0
Feb 2007 74 17 72 11 +6 53.0
Jan 2007 75 19 66 15 +4 52.0
Dec 2006 79 18 65 17 +1 50.5

Prices*

In March, the ISM Prices Index registered 65.5 percent, indicating manufacturers are paying higher prices on average when compared to February. While 36 percent of respondents reported paying higher prices and 5 percent reported paying lower prices, 59 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In March, 12 industries reported paying higher prices: Plastics & Rubber Products; Textile Mills; Fabricated Metal Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Chemical Products; Machinery; Transportation Equipment; Furniture & Related Products; and Computer & Electronic Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Mar 2007 36 59 5 +31 65.5
Feb 2007 32 54 14 +18 59.0
Jan 2007 24 58 18 +6 53.0
Dec 2006 19 57 24 -5 47.5

Backlog of Orders*

ISM's Backlog of Orders Index registered 47 percent in March, 4.5 percentage points lower than the 51.5 percent reported in February. Of the 89 percent of respondents who reported their backlog of orders, 20 percent reported greater backlogs, 26 percent reported smaller backlogs, and 54 percent reported no change from February. The eight industries reporting an increase in order backlogs in March are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Wood Products; Plastics & Rubber Products; Transportation Equipment; Fabricated Metal Products; and Primary Metals.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Mar 2007 89 20 54 26 -6 47.0
Feb 2007 85 26 51 23 +3 51.5
Jan 2007 87 17 53 30 -13 43.5
Dec 2006 86 21 48 31 -10 45.0

New Export Orders*

ISM's New Export Orders Index registered 55.5 percent in March, an increase of 1.5 percentage points when compared to February's index of 54 percent. This is the 52nd consecutive month of growth in export orders. The nine industries reporting growth in new export orders in March are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Fabricated Metal Products. (Beginning with the January 2007 report, the New Export Orders Index no longer meets the criteria for seasonal adjustment.)

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Mar 2007 77 18 75 7 +11 55.5
Feb 2007 78 19 70 11 +8 54.0
Jan 2007 79 15 75 10 +5 52.5
Dec 2006 78 16 75 9 +7 54.3

Imports*

Imports of materials by manufacturers grew during March as the Imports Index registered 57.5 percent. The index is 4 percentage points lower when compared to February. This is the 63rd consecutive month of growth in import orders. The nine industries reporting growth in import activity for March are: Apparel, Leather & Allied Products; Transportation Equipment; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; Chemical Products; Machinery; Fabricated Metal Products; and Computer & Electronic Products.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Mar 2007 82 24 67 9 +15 57.5
Feb 2007 78 29 65 6 +23 61.5
Jan 2007 84 18 73 9 +9 54.5
Dec 2006 84 20 71 9 +11 55.5

* The Backlog of Orders, Prices, Customers' Inventories, Imports and New Export Orders Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures decreased 5 days to 110 days. Average leadtime for Production Materials decreased 3 days to 45 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 2 days to 22 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Mar 2007 19 10 17 22 22 10 110
Feb 2007 15 11 17 22 25 10 115
Jan 2007 21 10 16 21 22 10 108
Dec 2006 20 10 17 20 23 10 110
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Mar 2007 21 35 29 12 3 0 45
Feb 2007 21 36 29 9 4 1 48
Jan 2007 19 39 26 10 5 1 50
Dec 2006 19 37 27 11 5 1 51
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Mar 2007 52 34 10 4 0 0 22
Feb 2007 49 34 13 4 0 0 24
Jan 2007 49 36 12 3 0 0 23
Dec 2006 50 33 12 4 1 0 25

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 and Inventories) 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 41.9 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.9 percent, it is generally declining. The distance from 50 percent or 41.9 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 April 2007 data will be released at 10:00 a.m. (ET) on Tuesday, May 1, 2007.


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