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July 2008 Manufacturing ISM Report On Business®

FOR RELEASE: August 1, 2008


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


PMI at 50%

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 July 2008.


Production and Employment Growing
New Orders and Inventories Contracting
Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector was unchanged in July, while the overall economy grew for the 81st 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 this month's report, manufacturers indicate no change in overall business activity when comparing July to June. This continues a trend biased toward relatively minor contraction established more than 12 months ago. Manufacturing has maintained a reasonable level of activity during a period in which other sectors of the economy have been in recession. While the PMI indicates little to no change has occurred during this period, it would be hard to convince manufacturers who are faced with higher costs and uncertain demand that there is little change taking place."

PERFORMANCE BY INDUSTRY

The six industries reporting growth in July — listed in order — are: Computer & Electronic Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; Paper Products; and Chemical Products. The industries reporting contraction in July are: Plastics & Rubber Products; Wood Products; Transportation Equipment; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Machinery; Miscellaneous Manufacturing; and Fabricated Metal Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Our company has gone to a four-day/10-hour week in an effort to curtail energy costs for the company and for employees." (Transportation Equipment)
  • "Competitive market forces are preventing companies from boosting prices high enough to recover raw material input costs." (Plastics & Rubber Products)
  • "All automotive manufacturers (especially trucks) are down significantly." (Fabricated Metal Products)
  • "It is almost impossible to keep up with the complexity of never-ending price movement." (Chemical Products)
  • "We have had two large projects cancelled that we believe are solely due to the uncertain economy." (Machinery)
MANUFACTURING AT A GLANCE
JULY 2008


Index
Series
Index
July
Series
Index
June
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 50.0 50.2 -0.2 Unchanged From Growing 1
New Orders 45.0 49.6 -4.6 Contracting Faster 8
Production 52.9 51.5 +1.4 Growing Faster 3
Employment 51.9 43.7 +8.2 Growing From Contracting 1
Supplier Deliveries 55.1 55.1 0 Slowing Same 13
Inventories 45.0 51.2 -6.2 Contracting From Growing 1
Customers' Inventories 47.0 55.0 -8.0 Too Low From Too High 1
Prices 88.5 91.5 -3.0 Increasing Slower 19
Backlog of Orders 43.0 47.5 -4.5 Contracting Faster 3
Exports 54.0 58.5 -4.5 Growing Slower 68
Imports 46.5 46.0 +0.5 Contracting Slower 6
             
OVERALL ECONOMY Growing Faster 81
Manufacturing Sector Unchanged From Growing 1

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (6); Aluminum Extrusions (5); Butadiene; Carbon Black; Castings — Cast Iron; Caustic Soda (5); Chemicals (3); Copper; Copper Based Products; Corn (4); Corn Based Products; Corrugated Containers (3) Diesel Fuel (5); Freight (3); Fuel Oil — #2 (3); Fuel Surcharges (5); Gasoline (4); Natural Gas (9); Paperboard; Petroleum Based Products (3); Plastics (2); Poly Bags; PVC; Resin Based Products; Resins (4); Steel (7); Steel — Alloys, Cold Finished, Hot Rolled, Specialty (2); and Sulfuric Acid.

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

Caustic Soda (5) and Sulfuric Acid are the only commodities reported in short supply.

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



JULY 2008 MANUFACTURING INDEX SUMMARIES


PMI

Manufacturing was unchanged in July as the PMI registered 50 percent, 0.2 percentage point lower than the 50.2 percent reported in June. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A reading of 50 percent indicates no change from the previous month.

A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates the overall economy is growing and the manufacturing sector is unchanged from June. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (49.4 percent) corresponds to a 2.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for July (50 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Jul 2008 50.0   Jan 2008 50.7
Jun 2008 50.2   Dec 2007 48.4
May 2008 49.6   Nov 2007 50.0
Apr 2008 48.6   Oct 2007 50.4
Mar 2008 48.6   Sep 2007 50.5
Feb 2008 48.3   Aug 2007 51.2
Average for 12 months — 49.7
High — 51.2
Low — 48.3

New Orders

ISM's New Orders Index registered 45 percent in July, 4.6 percentage points lower than the 49.6 percent registered in June. A New Orders Index above 51.6 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Five industries reported increases during July: Paper Products; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; and Primary Metals. The industries failing to grow in July are: Plastics & Rubber Products; Printing & Related Support Activities; Wood Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; and Machinery.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Jul 2008 18 54 28 -10 45.0
Jun 2008 29 46 25 +4 49.6
May 2008 25 52 23 +2 49.7
Apr 2008 26 48 26 0 46.5

Production

ISM's Production Index increased to 52.9 percent in July, an increase of 1.4 percentage points from the 51.5 percent reported in June. An index above 49.9 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Of the industries reporting in July, seven registered growth: Food, Beverage & Tobacco Products; Paper Products; Nonmetallic Mineral Products; Computer & Electronic Products; Primary Metals; Chemical Products; and Machinery. The industries failing to grow in July are: Wood Products; Transportation Equipment; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products.


Production
%
Better
%
Same
%
Worse

Net

Index
Jul 2008 21 62 17 +4 52.9
Jun 2008 25 54 21 +4 51.5
May 2008 24 59 17 +7 51.2
Apr 2008 28 50 22 +6 49.1

Employment

ISM's Employment Index registered 51.9 percent in July, which is an increase of 8.2 percentage points when compared to the 43.7 percent reported in June. An Employment Index above 49.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The nine industries reporting growth in employment during July are: Petroleum & Coal Products; Printing & Related Support Activities; Computer & Electronic Products; Miscellaneous Manufacturing; Primary Metals; Food, Beverage & Tobacco Products; Chemical Products; Machinery; and Electrical Equipment, Appliances & Components. The industries that reported decreases in employment during July are: Plastics & Rubber Products; Wood Products; Nonmetallic Mineral Products; Transportation Equipment; and Fabricated Metal Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Jul 2008 19 65 16 +3 51.9
Jun 2008 11 69 20 -9 43.7
May 2008 17 63 20 -3 45.5
Apr 2008 12 72 16 -4 45.4

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations continued to slow in July, as the Supplier Deliveries Index registered 55.1 percent, which is the same rate as was recorded for the month of June. A reading above 50 percent indicates slower deliveries.

The nine industries reporting slower supplier deliveries in July are: Nonmetallic Mineral Products; Chemical Products; Furniture & Related Products; Computer & Electronic Products; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Fabricated Metal Products. There were no reports of faster deliveries in July.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Jul 2008 15 82 3 +12 55.1
Jun 2008 16 79 5 +11 55.1
May 2008 14 81 5 +9 53.7
Apr 2008 10 88 2 +8 54.0

Inventories

Manufacturers' inventories decreased in July as the Inventories Index registered 45 percent, which is 6.2 percentage points lower than the 51.2 percent reported in June. This reverses the one-month occurrence of inventory growth reported in June. 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 three industries reporting higher inventories in July are: Fabricated Metal Products; Computer & Electronic Products; and Plastics & Rubber Products. The industries that reported decreases in July are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Machinery; Transportation Equipment; Furniture & Related Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Jul 2008 12 64 24 -12 45.0
Jun 2008 21 58 21 0 51.2
May 2008 19 58 23 -4 48.0
Apr 2008 16 66 18 -2 48.1

Customers' Inventories*

The ISM Customers' Inventories Index registered 47 percent in July, a decrease of 8 percentage points when compared to June's reading of 55 percent. The index indicates that respondents believe their customers' inventories are too low at this time.

Four industries reported higher customers' inventories during July: Furniture & Related Products; Transportation Equipment; Chemical Products; and Fabricated Metal Products. The industries that reported lower customers' inventories during July are: Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Paper Products; Primary Metals; Machinery; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

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

Net

Index
Jul 2008 74 17 60 23 -6 47.0
Jun 2008 72 25 60 15 +10 55.0
May 2008 67 14 66 20 -6 47.0
Apr 2008 72 12 66 22 -10 45.0

Prices*

The ISM Prices Index registered 88.5 percent in July, indicating manufacturers are paying higher prices on average when compared to June. While 80 percent of respondents reported paying higher prices and 3 percent reported paying lower prices, 17 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

In July, all 18 industries reported paying higher prices: Textile Mills; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Nonmetallic Mineral Products; Primary Metals; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Paper Products; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Computer & Electronic Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Jul 2008 80 17 3 +77 88.5
Jun 2008 84 15 1 +83 91.5
May 2008 78 18 4 +74 87.0
Apr 2008 71 27 2 +69 84.5

Backlog of Orders*

ISM's Backlog of Orders Index registered 43 percent in July, 4.5 percentage points lower than the 47.5 percent reported in June. Of the 85 percent of respondents who reported their backlog of orders, 15 percent reported greater backlogs, 29 percent reported smaller backlogs, and 56 percent reported no change from June.

The five industries reporting an increase in order backlogs in July are: Apparel, Leather & Allied Products; Paper Products; Primary Metals; Computer & Electronic Products; and Food, Beverage & Tobacco Products. The industries that reported decreases in order backlogs during July are: Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Wood Products; Electrical Equipment, Appliances & Components; Machinery; Fabricated Metal Products; and Chemical Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Jul 2008 85 15 56 29 -14 43.0
Jun 2008 86 19 57 24 -5 47.5
May 2008 87 18 56 26 -8 46.0
Apr 2008 85 23 57 20 +3 51.5

New Export Orders*

ISM's New Export Orders Index registered 54 percent in July, a decrease of 4.5 percentage points when compared to June's index of 58.5 percent. This is the 68th consecutive month of growth in the New Export Orders Index.

The seven industries reporting growth in new export orders in July are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Furniture & Related Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products. The two industries reporting a decrease in new export orders in July are: Electrical Equipment, Appliances & Components; and Machinery.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jul 2008 75 17 74 9 +8 54.0
Jun 2008 79 22 73 5 +17 58.5
May 2008 78 26 67 7 +19 59.5
Apr 2008 79 23 69 8 +15 57.5

Imports*

Imports of materials by manufacturers contracted during July as the Imports Index registered 46.5 percent, 0.5 percentage point higher than the 46 percent reported in June. This is the sixth consecutive month of contraction in imports.

The three industries reporting growth in import activity for July are: Apparel, Leather & Allied Products; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components. The industries that reported decreases in imports during July are: Wood Products; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jul 2008 80 8 77 15 -7 46.5
Jun 2008 82 9 74 17 -8 46.0
May 2008 82 12 75 13 -1 49.5
Apr 2008 85 11 74 15 -4 48.0

* 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 lead time for Capital Expenditures decreased 6 days to 117 days. Average lead time for Production Materials decreased 6 days to 48 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased 5 days to 20 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jul 2008 27 6 9 19 27 12 117
Jun 2008 23 7 11 20 25 14 123
May 2008 22 12 10 19 25 12 116
Apr 2008 28 6 13 18 23 12 112
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jul 2008 21 42 25 6 4 2 48
Jun 2008 18 41 24 9 6 2 54
May 2008 22 37 25 10 4 2 51
Apr 2008 21 38 27 9 3 2 49
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jul 2008 56 32 10 2 0 0 20
Jun 2008 50 38 8 3 0 1 25
May 2008 51 35 8 4 1 1 27
Apr 2008 50 34 11 3 2 0 26

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 equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.

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 41.1 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.1 percent, it is generally declining. The distance from 50 percent or 41.1 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 lead time, 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 August 2008 data will be released at 10:00 a.m. (ET) on Tuesday, September 2, 2008.


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