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December 2008 Manufacturing ISM Report On Business®

FOR RELEASE: January 2, 2009


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


PMI at 32.4%

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 December 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 December for the fifth consecutive month, and the overall economy contracted for the third 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 activity continued to decline at a rapid rate during the month of December. The decline covers the full breadth of manufacturing industries, as none of the industries in the sector report growth at this time. New orders have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948. Order backlogs have fallen to the lowest level since ISM began tracking the Backlog of Orders Index in January 1993. Manufacturers are reducing inventories and shutting down capacity to offset the slower rate of activity."

PERFORMANCE BY INDUSTRY

In December, none of the manufacturing industries reported growth. The industries reporting contraction in December — listed in order — are: Nonmetallic Mineral Products; Wood Products; Fabricated Metal Products; Printing & Related Support Activities; Textile Mills; Plastics & Rubber Products; Paper Products; Transportation Equipment; Machinery; Primary Metals; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Furniture & Related Products. Two industries reported no change in activity compared to last month: Apparel, Leather & Allied Products; and Petroleum & Coal Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Slowest month in years." (Chemical Products)
  • "Soft economy continues to decrease sales volume and price." (Fabricated Metal Products)
  • "Business remains steady and sales are good." (Computer & Electronic Products)
  • "North and South America are slow but not off substantially from plans. Europe has slowed down dramatically, while Asia — particularly China — has virtually shut down." (Machinery)
  • "Power generation industry is still strong, but there is an unsettled feeling because of the general economy." (Transportation Equipment)
MANUFACTURING AT A GLANCE
DECEMBER 2008


Index
Series
Index
December
Series
Index
November
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 32.4 36.2 -3.8 Contracting Faster 5
New Orders 22.7 27.9 -5.2 Contracting Faster 13
Production 25.5 31.5 -6.0 Contracting Faster 4
Employment 29.9 34.2 -4.3 Contracting Faster 5
Supplier Deliveries 44.9 48.4 -3.5 Faster Faster 3
Inventories 38.8 39.1 -0.3 Contracting Faster 6
Customers' Inventories 57.0 55.0 +2.0 Too High Faster 5
Prices 18.0 25.5 -7.5 Decreasing Faster 3
Backlog of Orders 23.0 27.0 -4.0 Contracting Faster 8
Exports 35.5 41.0 -5.5 Contracting Faster 3
Imports 39.0 37.5 +1.5 Contracting Slower 11
             
OVERALL ECONOMY Contracting Faster 3
Manufacturing Sector Contracting Faster 5

*Number of months moving in current direction.


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum*; Caustic Soda (10); Copper* (3); and Steel*.

Commodities Down in Price

Aluminum* (3); Aluminum Based Products (2); Beef; Chemicals; Copper* (5); Corn; Corn Products; Diesel Fuel (5); Fuel Surcharges; Gasoline (2); High Density Polyethylene; Natural Gas (5); Nickel (3); Oil; Plastics; Plastic Resin; Polyethylene (2); Polypropylene (3); PVC; Resin Based Products (2); Scrap Metal; Scrap Steel (2); Stainless Steel (3); Stainless Steel Products; Steel* (4); and Sulfuric Acid (2).

Commodities in Short Supply

No commodities 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.



DECEMBER 2008 MANUFACTURING INDEX SUMMARIES


PMI

Manufacturing contracted in December as the PMI registered 32.4 percent, 3.8 percentage points lower than the 36.2 percent reported in November. This is the lowest reading since June 1980 when the PMI registered 30.3 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 41.1 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 December (45.6 percent) corresponds to a 1.4 percent increase in real gross domestic product (GDP). In addition, if the PMI for December (32.4 percent) is annualized, it corresponds to a 2.7 percent decrease in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Dec 2008 32.4   Jun 2008 50.2
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
Average for 12 months — 45.6
High — 50.7
Low — 32.4

New Orders

ISM's New Orders Index registered 22.7 percent in December, 5.2 percentage points lower than the 27.9 percent registered in November. This is the lowest reading on record for this index going back to January 1948. 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).

In December, none of the 18 manufacturing industries reported growth in new orders. The industries failing to grow in December are: Nonmetallic Mineral Products; Printing & Related Support Activities; Wood Products; Machinery; Primary Metals; Paper Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Dec 2008 5 31 64 -59 22.7
Nov 2008 12 29 59 -47 27.9
Oct 2008 13 35 52 -39 32.2
Sep 2008 18 43 39 -21 38.8

Production

ISM's Production Index decreased to 25.5 percent in December, a decrease of 6 percentage points from the 31.5 percent reported in November. An index above 49.9 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

None of the industries reported growth in production during the month of December. The industries failing to grow in December are: Nonmetallic Mineral Products; Wood Products; Textile Mills; Transportation Equipment; Fabricated Metal Products; Paper Products; Chemical Products; Machinery; Miscellaneous Manufacturing; Primary Metals; Plastics & Rubber Products; Printing & Related Support Activities; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.


Production
%
Better
%
Same
%
Worse

Net

Index
Dec 2008 7 33 60 -53 25.5
Nov 2008 12 38 50 -38 31.5
Oct 2008 11 43 46 -35 34.1
Sep 2008 20 47 33 -13 40.8

Employment

ISM's Employment Index registered 29.9 percent in December, which is a decrease of 4.3 percentage points when compared to the 34.2 percent reported in November. This is the lowest reading for the Employment Index since November 1982 when the index registered 28.2 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.

There were no industries reporting growth in employment during December. The industries that reported decreases in employment during December are: Nonmetallic Mineral Products; Printing & Related Support Activities; Wood Products; Fabricated Metal Products; Miscellaneous Manufacturing; Furniture & Related Products; Electrical Equipment, Appliances & Components; Primary Metals; Plastics & Rubber Products; Paper Products; Textile Mills; Transportation Equipment; Machinery; Computer & Electronic Products; Chemical Products; and Food, Beverage & Tobacco Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Dec 2008 7 43 50 -43 29.9
Nov 2008 8 51 41 -33 34.2
Oct 2008 7 53 40 -33 34.6
Sep 2008 8 65 27 -19 41.8

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was faster for the third consecutive month in December as the Supplier Deliveries Index registered 44.9 percent, which is 3.5 percentage points lower than the 48.4 percent registered in November. A reading above 50 percent indicates slower deliveries.

The three industries reporting slower supplier deliveries in December are: Primary Metals; Transportation Equipment; and Machinery. The industries reporting faster deliveries in December are: Nonmetallic Mineral Products; Computer & Electronic Products; Printing & Related Support Activities; Wood Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Paper Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Dec 2008 5 79 16 -11 44.9
Nov 2008 6 84 10 -4 48.4
Oct 2008 9 80 11 -2 49.2
Sep 2008 11 84 5 +6 52.5

Inventories

Manufacturers' inventories contracted in December as the Inventories Index registered 38.8 percent, which is 0.3 percentage point lower than the 39.1 percent reported in November. 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 two industries reporting higher inventories in December are: Furniture & Related Products; and Wood Products. The industries that reported decreases in December are: Primary Metals; Nonmetallic Mineral Products; Plastics & Rubber Products; Textile Mills; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Machinery; Chemical Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Dec 2008 18 40 42 -24 38.8
Nov 2008 13 51 36 -23 39.1
Oct 2008 16 55 29 -13 44.3
Sep 2008 13 60 27 -14 43.4

Customers' Inventories*

The ISM Customers' Inventories Index registered 57 percent in December, 2 percentage points higher than the 55 percent reported in November. The index indicates that respondents believe their customers' inventories are too high at this time.

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

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

Net

Index
Dec 2008 73 30 54 16 +14 57.0
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

Prices*

The ISM Prices Index registered 18 percent in December compared to 25.5 percent in November, indicating manufacturers are paying lower prices on average when compared to November. This is the lowest reading for the index since June 1949 when it registered 10.6 percent. While 2 percent of respondents reported paying higher prices and 66 percent reported paying lower prices, 32 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 December, none of the 18 manufacturing industries reported paying higher prices. The industries that reported paying lower prices during December are: Petroleum & Coal Products; Machinery; Fabricated Metal Products; Primary Metals; Nonmetallic Mineral Products; Paper Products; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; Printing & Related Support Activities; Wood Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Textile Mills; Furniture & Related Products; and Computer & Electronic Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Dec 2008 2 32 66 -64 18.0
Nov 2008 8 35 57 -49 25.5
Oct 2008 14 46 40 -26 37.0
Sep 2008 30 47 23 +7 53.5

Backlog of Orders*

ISM's Backlog of Orders Index registered 23 percent in December, 4 percentage points lower than the 27 percent reported in November. Of the 86 percent of respondents who reported their backlog of orders, 5 percent reported greater backlogs, 59 percent reported smaller backlogs, and 36 percent reported no change from November.

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

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Dec 2008 86 5 36 59 -54 23.0
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

New Export Orders*

ISM's New Export Orders Index registered 35.5 percent in December, 5.5 percentage points lower than the 41 percent reported in November. This is the third month of contraction following 70 consecutive months of growth in the New Export Orders Index.

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

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Dec 2008 75 7 57 36 -29 35.5
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

Imports*

Imports of materials by manufacturers contracted during December as the Imports Index registered 39 percent, 1.5 percentage points higher than the 37.5 percent reported in November. This is the 11th consecutive month of contraction in imports.

The industries reporting growth in import activity for December are: Apparel, Leather & Allied Products; Paper Products; and Electrical Equipment, Appliances & Components. The industries that reported decreases in imports during December are: Nonmetallic Mineral Products; Plastics & Rubber Products; Transportation Equipment; Printing & Related Support Activities; Textile Mills; Fabricated Metal Products; Machinery; Chemical Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Dec 2008 84 11 56 33 -22 39.0
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

* 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 5 days to 101 days. Average lead time for Production Materials decreased 1 day to 47 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased 2 days to 23 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Dec 2008 33 6 11 17 24 9 101
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
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Dec 2008 31 37 22 5 1 4 47
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
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Dec 2008 57 31 9 2 0 1 23
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

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 January 2009 data will be released at 10:00 a.m. (ET) on Monday, February 2, 2009.


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