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November 2008 Manufacturing ISM Report On Business®

FOR RELEASE: December 1, 2008


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


PMI at 36.2%

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 November 2008.


New Orders, Production, Employment and Inventories Contracting
Prices Falling
Supplier Deliveries Faster

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in November for the fourth consecutive month, and the overall economy contracted for the second 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. "When comparing November to October, the PMI indicates a continuing rapid rate of contraction in manufacturing. New orders have contracted for 12 consecutive months, and are at the lowest level since June 1980 when the index registered 24.2 percent. Order backlogs have fallen to the lowest level since ISM began tracking the Backlog of Orders Index in January 1993. The Prices Index at 25.5 percent indicates that commodity prices continue to decline at a rapid rate. This is the lowest reading for the index since May 1949 when it registered 20.1 percent."

PERFORMANCE BY INDUSTRY

The two industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; and Paper Products. The industries reporting contraction in November are: Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Wood Products.

WHAT RESPONDENTS ARE SAYING ...
  • "The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)
  • "Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)
  • "Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)
  • "We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)
  • "Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)
MANUFACTURING AT A GLANCE
NOVEMBER 2008


Index
Series
Index
November
Series
Index
October
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 36.2 38.9 -2.7 Contracting Faster 4
New Orders 27.9 32.2 -4.3 Contracting Faster 12
Production 31.5 34.1 -2.6 Contracting Faster 3
Employment 34.2 34.6 -0.4 Contracting Faster 4
Supplier Deliveries 48.4 49.2 -0.8 Faster Faster 2
Inventories 39.1 44.3 -5.2 Contracting Faster 5
Customers' Inventories 55.0 55.0 0 Too High Same 4
Prices 25.5 37.0 -11.5 Decreasing Faster 2
Backlog of Orders 27.0 29.5 -2.5 Contracting Faster 7
Exports 41.0 41.0 0 Contracting Same 2
Imports 37.5 41.0 -3.5 Contracting Faster 10
             
OVERALL ECONOMY Contracting Faster 2
Manufacturing Sector Contracting Faster 4

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda (9); Copper (2)*; and Natural Gas*.

Commodities Down in Price

Aluminum (2); Aluminum Based Products; Copper* (4); Diesel Fuel (4); #2 Fuel Oil; Gasoline; Natural Gas* (4); Nickel (2); Polyethylene; Polypropylene (2); Resin Based Products; Scrap Steel; Stainless Steel (2); Steel (3); Steel — Cold Rolled (2); Steel Products; Steel Scrap Surcharges; and Sulfuric Acid.

Commodities in Short Supply

Caustic Soda (9) is the only commodity reported in short supply.

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

*Reported as both up and down in price



NOVEMBER 2008 MANUFACTURING INDEX SUMMARIES


PMI

Manufacturing contracted in November as the PMI registered 36.2 percent, 2.7 percentage points lower than the 38.9 percent reported in October. This is the lowest reading since May 1982 when the PMI registered 35.5 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 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates contraction in both the overall economy and the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (46.8 percent) corresponds to a 1.8 percent increase in real gross domestic product (GDP). In addition, if the PMI for November (36.2 percent) is annualized, it corresponds to a 1.5 percent decrease in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Nov 2008 36.2   May 2008 49.6
Oct 2008 38.9   Apr 2008 48.6
Sep 2008 43.5   Mar 2008 48.6
Aug 2008 49.9   Feb 2008 48.3
Jul 2008 50.0   Jan 2008 50.7
Jun 2008 50.2   Dec 2007 48.4
Average for 12 months — 46.9
High — 50.7
Low — 36.2

New Orders

ISM's New Orders Index registered 27.9 percent in November, 4.3 percentage points lower than the 32.2 percent registered in October. This is the lowest reading for this index since June 1980 when the index was at 24.2 percent. 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).

Petroleum & Coal Products is the only industry reporting increased new orders during November. The industries failing to grow in November are: Nonmetallic Mineral Products; Printing & Related Support Activities; Textile Mills; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; Paper Products; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Computer & Electronic Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Nov 2008 12 29 59 -47 27.9
Oct 2008 13 35 52 -39 32.2
Sep 2008 18 43 39 -21 38.8
Aug 2008 23 48 29 -6 48.3

Production

ISM's Production Index decreased to 31.5 percent in November, a decrease of 2.6 percentage points from the 34.1 percent reported in October. 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 November, only one registered growth: Paper Products. The industries failing to grow in November are: Nonmetallic Mineral Products; Textile Mills; Furniture & Related Products; Primary Metals; Printing & Related Support Activities; Plastics & Rubber Products; Fabricated Metal Products; Transportation Equipment; Petroleum & Coal Products; Machinery; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; Miscellaneous Manufacturing; Computer & Electronic Products; and Wood Products.


Production
%
Better
%
Same
%
Worse

Net

Index
Nov 2008 12 38 50 -38 31.5
Oct 2008 11 43 46 -35 34.1
Sep 2008 20 47 33 -13 40.8
Aug 2008 21 61 18 +3 52.1

Employment

ISM's Employment Index registered 34.2 percent in November, which is a decrease of 0.4 percentage point when compared to the 34.6 percent reported in October. This is the lowest reading for the Employment Index since March 1991 when the index registered 33.6 percent. 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 two industries reporting growth in employment during November are: Apparel, Leather & Allied Products; and Miscellaneous Manufacturing. The industries that reported decreases in employment during November are: Nonmetallic Mineral Products; Printing & Related Support Activities; Fabricated Metal Products; Furniture & Related Products; Computer & Electronic Products; Textile Mills; Machinery; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Wood Products; Chemical Products; Primary Metals; Transportation Equipment; and Food, Beverage & Tobacco Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Nov 2008 8 51 41 -33 34.2
Oct 2008 7 53 40 -33 34.6
Sep 2008 8 65 27 -19 41.8
Aug 2008 17 63 20 -3 49.7

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was faster for the second consecutive month in November as the Supplier Deliveries Index registered 48.4 percent, which is 0.8 percentage point lower than the 49.2 percent registered in October. A reading above 50 percent indicates slower deliveries.

The five industries reporting slower supplier deliveries in November are: Wood Products; Plastics & Rubber Products; Primary Metals; Chemical Products; and Machinery. The industries reporting faster deliveries in November are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Transportation Equipment.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Nov 2008 6 84 10 -4 48.4
Oct 2008 9 80 11 -2 49.2
Sep 2008 11 84 5 +6 52.5
Aug 2008 9 84 7 +2 50.3

Inventories

Manufacturers' inventories contracted in November as the Inventories Index registered 39.1 percent, which is 5.2 percentage points lower than the 44.3 percent reported in October. 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 four industries reporting higher inventories in November are: Plastics & Rubber Products; Paper Products; Furniture & Related Products; and Food, Beverage & Tobacco Products. The industries that reported decreases in November are: Petroleum & Coal Products: Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Primary Metals; Machinery; and Transportation Equipment.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Nov 2008 13 51 36 -23 39.1
Oct 2008 16 55 29 -13 44.3
Sep 2008 13 60 27 -14 43.4
Aug 2008 18 65 17 +1 49.3

Customers' Inventories*

The ISM Customers' Inventories Index registered 55 percent in November, the same as reported in October. The index indicates that respondents believe their customers' inventories are too high at this time.

Eight industries reported higher customers' inventories during November: Textile Mills; Furniture & Related Products; Machinery; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Chemical Products. The industries that reported lower customers' inventories during November are: Wood Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Printing & Related Support Activities; and Transportation Equipment.

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

Net

Index
Nov 2008 70 31 48 21 +10 55.0
Oct 2008 77 28 54 18 +10 55.0
Sep 2008 77 23 61 16 +7 53.5
Aug 2008 66 22 65 13 +9 54.5

Prices*

The ISM Prices Index registered 25.5 percent in November compared to 37 percent in October, indicating manufacturers are paying lower prices on average when compared to October. This is the lowest reading for the index since May 1949 when it registered 20.1 percent. While 8 percent of respondents reported paying higher prices and 57 percent reported paying lower prices, 35 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 November, Apparel, Leather & Allied Products is the only industry reporting paying higher prices. The industries that reported paying lower prices during November are: Nonmetallic Mineral Products; Wood Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; Paper Products; Plastics & Rubber Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Chemical Products; Miscellaneous Manufacturing; and Computer & Electronic Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Nov 2008 8 35 57 -49 25.5
Oct 2008 14 46 40 -26 37.0
Sep 2008 30 47 23 +7 53.5
Aug 2008 60 34 6 +54 77.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 27 percent in November, 2.5 percentage points lower than the 29.5 percent reported in October. Of the 89 percent of respondents who reported their backlog of orders, 6 percent reported greater backlogs, 52 percent reported smaller backlogs, and 42 percent reported no change from October.

The only industry reporting an increase in order backlogs in November is Apparel, Leather & Allied Products. The industries that reported decreases in order backlogs during November are: Nonmetallic Mineral Products; Paper Products; Textile Mills; Printing & Related Support Activities; Machinery; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Primary Metals; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; Wood Products; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Nov 2008 89 6 42 52 -46 27.0
Oct 2008 87 9 41 50 -41 29.5
Sep 2008 83 10 50 40 -30 35.0
Aug 2008 87 15 57 28 -13 43.5

New Export Orders*

ISM's New Export Orders Index registered 41 percent in November, the same rate of contraction reported in October. This is the second month of contraction following 70 consecutive months of growth in the New Export Orders Index.

The two industries reporting growth in new export orders in November are: Apparel, Leather & Allied Products; and Plastics & Rubber Products. The industries that reported decreases in new export orders in November are: Nonmetallic Mineral Products; Printing & Related Support Activities; Paper Products; Machinery; Primary Metals; Miscellaneous Manufacturing; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Chemical Products.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Nov 2008 75 7 68 25 -18 41.0
Oct 2008 77 7 68 25 -18 41.0
Sep 2008 77 16 72 12 +4 52.0
Aug 2008 79 23 68 9 +14 57.0

Imports*

Imports of materials by manufacturers contracted during November as the Imports Index registered 37.5 percent, 3.5 percentage points lower than the 41 percent reported in October. This is the 10th consecutive month of contraction in imports.

The only industry reporting growth in import activity for November is Apparel, Leather & Allied Products. The industries that reported decreases in imports during November are: Nonmetallic Mineral Products; Petroleum & Coal Products; Paper Products; Fabricated Metal Products; Computer & Electronic Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; Primary Metals; Food, Beverage & Tobacco Products; Machinery; Chemical Products; and Miscellaneous Manufacturing.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Nov 2008 83 8 59 33 -25 37.5
Oct 2008 79 8 66 26 -18 41.0
Sep 2008 81 5 78 17 -12 44.0
Aug 2008 82 9 79 12 -3 48.5

* 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 lead time for Capital Expenditures decreased 8 days to 106 days. Average lead time for Production Materials is unchanged at 48 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased 4 days to 21 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Nov 2008 28 8 11 20 23 10 106
Oct 2008 23 12 12 17 24 12 114
Sep 2008 28 5 14 15 27 11 113
Aug 2008 25 6 16 16 24 13 117
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Nov 2008 24 40 23 7 4 2 48
Oct 2008 27 37 24 6 3 3 48
Sep 2008 26 39 18 10 4 3 51
Aug 2008 23 35 27 6 6 3 55
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Nov 2008 62 26 8 2 2 0 21
Oct 2008 52 36 8 2 1 1 25
Sep 2008 53 37 7 2 1 0 22
Aug 2008 53 34 9 4 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 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 December 2008 data will be released at 10:00 a.m. (ET) on Friday, January 2, 2009.


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