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July 2009 Manufacturing ISM Report On Business®

FOR RELEASE: August 3, 2009


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


PMI at 48.9%

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 July 2009.


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

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in July for the 18th consecutive month, while the overall economy grew 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, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI — the New Orders and Production Indexes — rose significantly above 50 percent, thus setting an expectation for future growth in the sector. The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction. It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering. Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue."

PERFORMANCE BY INDUSTRY

Six of the 18 manufacturing industries reported growth in July. These industries — listed in order — are: Nonmetallic Mineral Products; Paper Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products. The 10 industries reporting contraction in July — listed in order — are: Machinery; Plastics & Rubber Products; Wood Products; Textile Mills; Miscellaneous Manufacturing; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Primary Metals.

WHAT RESPONDENTS ARE SAYING ...
  • "[There is concern about] overall health of strategic suppliers — continue to see new suppliers filing Chapter 7 or 11, posing significant risk to supply chain." (Machinery)
  • "We believe our inventories are now at the bottom of this cycle, driving stronger demand for raw materials." (Paper Products)
  • "While our aftermarket business has improved slightly, we are still awaiting an increase in OEM demand." (Transportation Equipment)
  • "No stimulus for manufacturing." (Fabricated Metal Products)
  • "Looking at another round of shutdowns to align supply with projected demands." (Nonmetallic Mineral Products)
MANUFACTURING AT A GLANCE
JULY 2009


Index
Series
Index
July
Series
Index
June
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 48.9 44.8 +4.1 Contracting Slower 18
New Orders 55.3 49.2 +6.1 Growing From Contracting 1
Production 57.9 52.5 +5.4 Growing Faster 2
Employment 45.6 40.7 +4.9 Contracting Slower 12
Supplier Deliveries 52.0 50.6 +1.4 Slowing Faster 2
Inventories 33.5 30.8 +2.7 Contracting Slower 39
Customers' Inventories 42.5 43.5 -1.0 Too Low Faster 4
Prices 55.0 50.0 +5.0 Increasing From Unchanged 1
Backlog of Orders 50.0 47.5 +2.5 Unchanged From Contracting 1
Exports 50.5 49.5 +1.0 Growing From Contracting 1
Imports 50.0 46.0 +4.0 Unchanged From Contracting 1
             
OVERALL ECONOMY Growing Faster 3
Manufacturing Sector Contracting Slower 18

*Number of months moving in current direction.


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum; Copper (2); Copper Based Products; Nickel; Plastic Resins; Polypropylene; Pulp; Solvents; Steel; and Steel Products.

Commodities Down in Price

Caustic Soda (5); Corrugated Containers (7); Diesel Fuel; and Natural Gas.

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.



JULY 2009 MANUFACTURING INDEX SUMMARIES


PMI

Manufacturing contracted at a slower rate in July as the PMI registered 48.9 percent, which is 4.1 percentage points higher than the 44.8 percent reported in June. This is the 18th consecutive month of contraction in the manufacturing sector. 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 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the third consecutive month in the overall economy, and continuing contraction in the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (40.6 percent) corresponds to a 0.2 percent decrease in real gross domestic product (GDP). However, if the PMI for July (48.9 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Jul 2009 48.9   Jan 2009 35.6
Jun 2009 44.8   Dec 2008 32.9
May 2009 42.8   Nov 2008 36.6
Apr 2009 40.1   Oct 2008 38.7
Mar 2009 36.3   Sep 2008 43.4
Feb 2009 35.8   Aug 2008 49.3
Average for 12 months – 40.4
High – 49.3
Low – 32.9

New Orders

ISM's New Orders Index registered 55.3 percent in July, 6.1 percentage points higher than the 49.2 percent registered in June. New orders have grown in two of the last three months. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The nine industries reporting growth in new orders in July — listed in order — are: Electrical Equipment, Appliances & Components; Primary Metals; Paper Products; Printing & Related Support Activities; Chemical Products; Transportation Equipment; Miscellaneous Manufacturing; Fabricated Metal Products; and Computer & Electronic Products. The five industries contracting in July — listed in order — are: Plastics & Rubber Products; Wood Products; Food, Beverage & Tobacco Products; Machinery; and Nonmetallic Mineral Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Jul 2009 33 45 22 +11 55.3
Jun 2009 28 48 24 +4 49.2
May 2009 27 54 19 +8 51.1
Apr 2009 31 40 29 +2 47.2

Production

ISM's Production Index registered 57.9 percent in July, which is an increase of 5.4 percentage points from June's reading of 52.5 percent. An index above 50.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. This is the second month the Production Index has registered above 50 percent, following nine months of contraction.

The 11 industries reporting growth in production during the month of July — listed in order — are: Nonmetallic Mineral Products; Paper Products; Textile Mills; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Transportation Equipment; Computer & Electronic Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The four industries reporting decreases in production in July are: Plastics & Rubber Products; Wood Products; Machinery; and Primary Metals.


Production
%
Better
%
Same
%
Worse

Net

Index
Jul 2009 33 50 17 +16 57.9
Jun 2009 32 46 22 +10 52.5
May 2009 23 52 25 -2 46.0
Apr 2009 21 45 34 -13 40.4

Employment

ISM's Employment Index registered 45.6 percent in July, which is 4.9 percentage points higher than the 40.7 percent reported in June. This is the 12th consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Two of the 18 manufacturing industries reported growth in employment in July: Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The 10 industries that reported decreases in employment during July — listed in order — are: Wood Products; Textile Mills; Machinery; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Miscellaneous Manufacturing; Primary Metals; and Plastics & Rubber Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Jul 2009 11 70 19 -8 45.6
Jun 2009 9 66 25 -16 40.7
May 2009 8 56 36 -28 34.3
Apr 2009 7 58 35 -28 34.4

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in July as the Supplier Deliveries Index registered 52 percent, which is 1.4 percentage points higher than the 50.6 percent registered in June. This is the second month that the Supplier Deliveries Index has been above 50 percent, following eight months of faster delivery performance. A reading above 50 percent indicates slower deliveries.

The seven industries reporting slower supplier deliveries in July — listed in order — are: Textile Mills; Wood Products; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Chemical Products. The three industries reporting faster deliveries in July are: Primary Metals; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Jul 2009 14 80 6 +8 52.0
Jun 2009 8 87 5 +3 50.6
May 2009 8 86 6 +2 49.8
Apr 2009 5 80 15 -10 44.9

Inventories

Manufacturers' inventories contracted in July as the Inventories Index registered 33.5 percent, which is 2.7 percentage points higher than June's reading of 30.8 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

None of the 18 manufacturing industries reported higher inventories in July. The 14 industries that reported decreases in July — listed in order — are: Textile Mills; Machinery; Furniture & Related Products; Paper Products; Computer & Electronic Products; Miscellaneous Manufacturing; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Printing & Related Support Activities; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; and Plastics & Rubber Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Jul 2009 5 55 40 -35 33.5
Jun 2009 8 46 46 -38 30.8
May 2009 10 46 44 -34 32.9
Apr 2009 11 47 42 -31 33.6

Customers' Inventories*

The ISM Customers' Inventories Index registered 42.5 percent in July, 1 percentage point lower than the 43.5 percent reported in June. The index indicates that respondents believe their customers' inventories are too low at this time. This is the fourth consecutive month the Customers' Inventories Index has been below 50 percent, following eight months above 50 percent.

Three industries reported higher customers' inventories during July: Computer & Electronic Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. The 10 industries that reported lower customers' inventories during July — listed in order — are: Plastics & Rubber Products; Textile Mills; Primary Metals; Printing & Related Support Activities; Wood Products; Food, Beverage & Tobacco Products; Machinery; Paper Products; Chemical Products; and Transportation Equipment.

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

Net

Index
Jul 2009 77 15 55 30 -15 42.5
Jun 2009 74 15 57 28 -13 43.5
May 2009 72 23 46 31 -8 46.0
Apr 2009 80 21 57 22 -1 49.5

Prices*

The ISM Prices Index registered 55 percent in July, 5 percentage points higher than the 50 percent reported in June. This is the first month that the Prices Index has registered above 50 percent since September 2008. While 28 percent of respondents reported paying higher prices and 18 percent reported paying lower prices, 54 percent of supply executives reported paying the same prices as in June. A Prices Index above 47.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

The eight industries reporting paying increased prices during the month of July — listed in order — are: Textile Mills; Miscellaneous Manufacturing; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Furniture & Related Products; Transportation Equipment; and Machinery. The four industries that reported paying lower prices during July are: Paper Products; Food, Beverage & Tobacco Products; Chemical Products; and Nonmetallic Mineral Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Jul 2009 28 54 18 +10 55.0
Jun 2009 22 56 22 0 50.0
May 2009 10 67 23 -13 43.5
Apr 2009 7 50 43 -36 32.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 50 percent in July, 2.5 percentage points higher than the 47.5 percent reported in June. Of the 86 percent of respondents who reported their backlog of orders, 21 percent reported greater backlogs, 21 percent reported smaller backlogs, and 58 percent reported no change from June.

The eight industries reporting increased order backlogs in July — listed in order — are: Textile Mills; Primary Metals; Printing & Related Support Activities; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products. The six industries that reported decreases in order backlogs during July — listed in order — are: Plastics & Rubber Products; Chemical Products; Transportation Equipment; Machinery; Computer & Electronic Products; and Nonmetallic Mineral Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Jul 2009 86 21 58 21 0 50.0
Jun 2009 84 21 53 26 -5 47.5
May 2009 85 19 58 23 -4 48.0
Apr 2009 86 13 55 32 -19 40.5

New Export Orders*

ISM's New Export Orders Index registered 50.5 percent in July, 1 percentage point higher than the 49.5 percent reported in June. This is the first month of growth in the New Export Orders Index following nine consecutive months of contraction.

The six industries reporting growth in new export orders in July — listed in order — are: Textile Mills; Fabricated Metal Products; Paper Products; Electrical Equipment, Appliances & Components; Chemical Products; and Food, Beverage & Tobacco Products. The five industries that reported decreases in new export orders in July — listed in order — are: Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Machinery; and Transportation Equipment.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jul 2009 76 16 69 15 +1 50.5
Jun 2009 75 12 75 13 -1 49.5
May 2009 77 7 82 11 -4 48.0
Apr 2009 77 13 62 25 -12 44.0

Imports*

Imports of materials by manufacturers in July remained unchanged from June, as the Imports Index registered 50 percent, 4 percentage points higher than the 46 percent reported in June. This month's reading ends 17 consecutive months of contraction in imports.

Five of the 18 manufacturing industries reported growth in imports during the month of July: Nonmetallic Mineral Products; Textile Mills; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; and Machinery. The six industries that reported decreases in imports in July — listed in order — are: Computer & Electronic Products; Transportation Equipment; Furniture & Related Products; Paper Products; Miscellaneous Manufacturing; and Chemical Products.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jul 2009 83 13 74 13 0 50.0
Jun 2009 81 7 78 15 -8 46.0
May 2009 83 12 61 27 -15 42.5
Apr 2009 85 10 64 26 -16 42.0

* 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 4 days to 102 days. Average lead time for Production Materials decreased 3 days to 43 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies is unchanged at 22 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jul 2009 32 9 10 18 20 11 102
Jun 2009 29 10 12 15 23 11 106
May 2009 30 9 13 12 23 13 111
Apr 2009 36 7 11 12 24 10 101
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jul 2009 31 42 15 6 4 2 43
Jun 2009 30 39 16 10 2 3 46
May 2009 31 38 21 4 3 3 45
Apr 2009 31 38 21 4 4 2 44
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jul 2009 53 35 9 2 1 0 22
Jun 2009 49 38 11 2 0 0 22
May 2009 52 33 12 2 1 0 23
Apr 2009 59 28 8 3 2 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 41.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.2 percent, it is generally declining. The distance from 50 percent or 41.2 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 2009 data will be released at 10:00 a.m. (ET) on Tuesday, September 1, 2009.


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