FOR RELEASE: January 2, 2002
|ISM Media Relations|
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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 cover only their local vicinity. 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 2001.
(Tempe, Arizona) — Economic activity in the manufacturing sector declined for the 17th consecutive month in December, while the overall economy grew for the second consecutive month say the nation's purchasing and 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's™ Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "While the manufacturing sector continues to decline, the rate of decline has slowed very quickly, giving some hope that recovery may come faster than is generally found in a major downturn. In December, both new orders and production returned to a growth scenario and the trend for most of the indexes is definitely in the right direction. Two industries showing signs of life were Electronic Components & Equipment and Instruments & Photographic Equipment as both industries recorded growth in new orders. When combined with electronic components surfacing on the short supply list we may be seeing the first indications that the tech sector recovery may have begun."
ISM's Backlog of Orders Index indicates that order backlogs declined for the 20th consecutive month. ISM's Supplier Deliveries Index continues to reflect faster deliveries. Manufacturing employment continued to decline in December as the index fell below the breakeven point (an index of 50 percent) for the 15th consecutive month. ISM's Prices Index remained below 50 percent as manufacturers experienced lower prices for the 10th consecutive month. New Export Orders contracted in December for the fourth consecutive month. December's Imports Index moved upward and registered growth for the month. Comments from purchasing and supply executives this month reflect a cautious optimism and include "stable to slight improvement," "steady," "still feeling effects of 9/11," "slow rebound," and "feeling competition from imports."
ISM's PMI is 48.2 percent in December, an increase of 3.7 percentage points from the 44.5 percent reported in November. ISM's Production Index rose 3.5 percentage points from 47.1 percent in November to 50.6 percent in December. ISM's New Orders Index rose a significant 6.1 percentage points from 48.8 percent in November to 54.9 percent in December. ISM's Backlog of Orders Index rose from 38.5 percent in November to 39.5 percent in December. ISM's Supplier Deliveries Index rose to 48 percent from 47.3 percent in November. The ISM Employment Index is at 40.5 percent for December, an increase of 4.8 percentage points when compared to the 35.7 percent reported in November. ISM's Prices Index in December is 34.7 percent, an increase of 3.1 percentage points from November's 31.6 percent.
ISM's Inventories Index is 37.7 percent indicating a faster rate of inventory liquidation when compared to November's 37.9 percent. ISM's Customer Inventories Index declined slightly to 44 percent from November's 44.5 percent. ISM's New Export Orders Index registered 48 percent, down from November's 49.3 percent. Imports of materials by manufacturers grew as ISM's Imports Index is 50.9 percent for the month, up from November's 49.8 percent.
"The overall picture is one of continued decline in manufacturing activity during the month of December," added Ore. "The manufacturing decline is now in its 17th month. The growth in both production and new orders is certainly encouraging."
Of the 20 industries in the manufacturing sector, three industries reported growth: Leather; Apparel; and Instruments & Photographic Equipment.
"Electronic Components & Equipment was the only commodity reported on the Short Supply List. There were no reports of commodities up in price. The commodities reported down in price are: Aluminum, Caustic Soda, Chemicals, Copper, Corrugated Containers, Diesel, Energy, Ethylene, Fuel, Fuel Oil, Gasoline, Natural Gas, Paper, Plastic Resins, Resins, and Steel," Ore stated.
Dec vs Nov
|Rate of Change|
Dec vs Nov
|New Orders||54.9||Growing||From Contracting|
|Backlog of Orders||39.5||Contracting||Slower|
|New Export Orders||48.0||Contracting||Faster|
The PMI indicates that the manufacturing economy failed to grow during the month of December with an index of 48.2 percent. However, the overall economy grew for the second consecutive month after a decline in October. While this is the 17th consecutive month of decline in manufacturing, the rate of contraction slowed significantly when compared to November's 44.5 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 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. The December PMI indicates that the overall economy is growing and the manufacturing sector is contracting. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through December (49.3 percent) corresponds to 0.4 percent growth in real gross domestic product (GDP). However, if the PMI for December (48.2 percent) turned out to be the annual average for 2001, this would correspond to a 2.0 percent increase in GDP."
ISM's New Orders Index indicated growth in December following two consecutive months of decline. The index is 54.9 percent (highest since April 2000) representing an increase of 6.1 percentage points when compared to November's 48.8 percent. A New Orders Index above 50.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Industries reporting increases for the month of December are: Leather; Apparel; Instruments & Photographic Equipment; Electronic Components & Equipment; Textiles; Furniture; Food; and Industrial & Commercial Equipment & Computers.
ISM's Production Index is 50.6 percent in December up from 47.1 percent in November, an increase of 3.5 percentage points. An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the 20 industries reporting, those registering growth in December are: Leather; Apparel; Instruments & Photographic Equipment; Food; and Transportation & Equipment.
ISM's Manufacturing Employment Index fell below 50 percent in December for the 15th consecutive month. The index registered 40.5 percent in December compared to 35.7 percent in November, an increase of 4.8 percentage points.
An Employment Index above 47.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. There were no reports of higher employment in any of the sectors during the month.
ISM's Supplier Deliveries Index indicates delivery performance is slower when compared to November (a reading below 50 percent indicates faster deliveries). At 48 percent, the index is 0.7 percentage point higher than November's 47.3 percent. The industries reporting slower supplier deliveries in December were: Rubber & Plastic Products; Fabricated Metals; and Electronic Components & Equipment.
NOTE: A list of commodities in short supply is available at the end of this report.
The rate of liquidation of manufacturers' inventories accelerated in December as the Inventories Index registered 37.7 percent, down from the 37.9 percent reported in November. The Inventories Index has been under 50 percent for 23 consecutive months. An Inventories Index greater than 41.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). There were no reports of higher inventories in any of the sectors during the month.
Customer inventories in December were lower when compared to November. The Customer Inventories Index is at 44 percent, 0.5 percentage point lower than the 44.5 percent reported in November. The industries reporting higher customer inventories in December are: Primary Metals, and Printing & Publishing.
|%Reporting||%Too High||%About Right||%Too Low||Net||Index|
ISM's Prices Index indicates manufacturers continued to pay lower prices in December. With the index at 34.7 percent, this marks the 10th consecutive month the index has been below 50 percent. The index is 3.1 percentage points higher than November's 31.6 percent. In December, 3 percent of purchasing and supply executives reported paying higher prices and 39 percent reported paying lower prices, while 58 percent reported that prices were unchanged from the preceding month.
A Prices Index below 46.4 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. Leather is the only industry reporting higher prices in December.
NOTE: A list of commodities up in price and down in price is available at the end of this report.
The Backlog of Orders Index failed to grow for the 20th consecutive month in December. ISM's Backlog of Orders Index (not seasonally adjusted) registered 39.5 percent indicating a slower rate of decline in manufacturers' backlogs than reported in November. Of the 88 percent of respondents who measure their backlog of orders, 13 percent reported greater backlogs, 34 percent reported smaller backlogs, and 53 percent reported no change from November. Instruments & Photographic Equipment was the only industry reporting an increase in backlog during the month.
ISM's New Export Orders Index for December registered 48 percent, a decrease of 1.3 percentage points when compared to November's index of 49.3 percent. The industries reporting growth in new export orders in December are: Furniture; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; and Chemicals.
Imports of materials by manufacturers grew in December as the Imports Index registered 50.9 percent, a 1.1 percentage points increase when compared to November's report of 49.8 percent. The seven industries reporting growth in import activity for December are: Furniture; Tobacco; Textiles; Instruments & Photographic Equipment; Fabricated Metals; Electronic Components & Equipment; and Chemicals.
Average commitment leadtime for Capital Expenditures declined 6 days to 86 days. Average leadtime for Production Materials declined 1 day to 46 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 1 day to 20 days.
No commodities were reported up in price.
Aluminum — 10th month; Caustic Soda 8th month; Chemicals — 3rd month; Copper — 7th month; Corrugated Containers — 11th month; Diesel; Energy — 4th month; Ethylene; Fuel — 2nd month; Fuel Oil; Gasoline — 3rd month; Natural Gas — 11th month; Paper — 2nd month; Plastic Resins; Resins — 3rd month; and Steel — 8th month.
The Manufacturing ISM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry's contribution to Gross Domestic Product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee.
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, 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 is then seasonally adjusted to allow for the effects of repetitive intrayear variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to nonmoveable 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 indices for five of the indicators with varying weights: New Orders 30%; Production 25%; Employment 20%; Supplier Deliveries 15%; and Inventories 10%.
Diffusion indices 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 that it is generally declining. A PMI over 42.7 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 42.7 percent, it is generally declining. The distance from 50 percent or 42.7 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 world's leading educator of supply management professionals and is a valuable resource for decision makers in major markets, companies, and government. In May 2001 the membership of NAPM voted to change the association's name from the National Association of Purchasing Management to the Institute for Supply Management™ to reflect the increasing strategic and global significance of supply management. For further information, see the ISM Web site at www.ism.ws. The 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 2002 data will be released at 10:00 a.m. (ET) on February 1, 2002.