FOR RELEASE: January 2, 2003

Contact:	Kristen Kioa
	ISM, Media Relations
	Tempe, Arizona
	(800) 888-6276, Ext. 3015

PMI at 54.7%

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 2002.

New Orders, Production Growing
Supplier Deliveries Slowing
Employment, Inventories Decline

(Tempe, Arizona) – Economic activity in the manufacturing sector grew for the first time in four months. The overall economy grew for the 14th 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 and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The manufacturing sector rebounded in December. A strong showing in New Orders drove the PMI upward, while the Production Index strengthened and helped push the PMI up by 5.5 percentage points. The question at this point is whether the manufacturing sector can continue to gather momentum during the first quarter of 2003."

ISM's Backlog of Orders Index indicates that order backlogs declined for the sixth consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the 12th consecutive month. Manufacturing employment continued to decline in December as the index remained below the breakeven point (an index of 50 percent) for the 27th consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the 10th consecutive month. New Export Orders grew in December after a one-month decline. December's Imports Index grew for the second consecutive month.

Comments from purchasing and supply executives in some instances indicate improvement in new orders during December. But, there are still those who see little if any improvement in their business. The situation with Iraq appears to still be weighing on some. The uncertainty remains a deterrent to business.

ISM's PMI is 54.7 percent in December, an increase of 5.5 percentage points when compared to 49.2 in November. ISM's New Orders Index rose from 49.9 percent in November to 63.3 percent in December. ISM's Production Index rose 1 percentage point from 54.6 percent in November to 55.6 percent in December. The ISM Employment Index is at 47.4 percent for December, an increase of 3.6 percentage points when compared to the 43.8 percent reported in November.

ISM's Supplier Deliveries Index registered 51.4 percent compared to 50.8 percent in November. ISM's Inventories Index rose to 46.2 percent from 42.1 percent in November. ISM's Customers' Inventories Index for December is at 43 percent, a decrease of 3.5 percentage points compared to the November reading of 46.5 percent. ISM's Prices Index in December is 56.9 percent, an increase of 1.2 percentage points from November's 55.7 percent. ISM's Backlog of Orders Index rose 4 percentage points from 42.5 percent in November to 46.5 percent in December.

ISM's New Export Orders Index registered 52.2 percent, up 3.1 percentage points from November's 49.1 percent. ISM's Imports Index rose from 53.1 percent in November to 55.3 percent in December.

"Overall, these positive signs may help provide momentum for Q1 as companies start to see some improvement. The magnitude of the improvement is somewhat difficult to explain at this point. One respondent mentioned the mid-week holiday as a motivator for customers to place increased orders to cover their needs."

Of the 20 industries in the manufacturing sector, 11 industries reported growth: Food; Leather; Instruments & Photographic Equipment; Printing & Publishing; Textiles; Furniture; Electronic Components & Equipment; Paper; Wood & Wood Products; Transportation & Equipment; and Chemicals.

"There were no reports of commodities in short supply. Commodities reported up in price are: Caustic Soda, Copper, Corrugated Containers, Hydrochloric Acid, Natural Gas, Paper, and Polyethylene. Steel is the only commodity reported down in price," Ore stated.

DECEMBER 2002 ISM BUSINESS SURVEY AT A GLANCE

	Series Index	Direction Dec vs Nov	Rate of Change Dec vs Nov
PMI	54.7	Growing	From Contracting
New Orders	63.3	Growing	From Contracting
Production	55.6	Growing	Faster
Employment	47.4	Contracting	Slower
Supplier Deliveries	51.4	Slowing	Faster
Inventories	46.2	Contracting	Slower
Customers' Inventories	43.0	Too Low	Faster
Prices	56.9	Increasing	Faster
Backlog of Orders	46.5	Contracting	Slower
New Export Orders	52.2	Growing	From Contracting
Imports	55.3	Growing	Faster

THE ECONOMY AT A GLANCE

Overall Economy	Growing	Faster
Manufacturing	Growing	From Contracting

PMI

The PMI indicates that the manufacturing economy grew in December following three consecutive months of decline. With the index at 54.7 percent, this represents an increase of 5.5 percentage points compared to the November reading of 49.2 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 that both an expansion of the overall economy. The December PMI indicates that both the overall economy and the manufacturing sector are growing. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through December (52.4 percent) corresponds to 3.5 percent growth in real gross domestic product (GDP). However, the PMI for December (54.7 percent) corresponds to a 4.4 percent increase in GDP."

Month	Dec'02	Nov'02	Oct'02	Sep'02	Aug'02
PMI%	54.7	49.2	48.5	49.5	50.5
Month	Jul'02	Jun'02	May'02	Apr'02	Mar'02
PMI%	50.5	56.2	55.7	53.9	55.6
Month	Feb'02	Jan'02	Dec'01	Nov'01	Oct'01
PMI%	54.7	49.9	48.1	44.7	39.5

New Orders

ISM's New Orders Index rose significantly in December with a reading of 63.3 percent. The index is 13.4 percentage points higher than the 49.9 percent registered in November. This is the largest one-month increase in the New Orders Index since a jump of 18 percentage points between July and August of 1980 (from 36.1 to 54.1). A New Orders Index above 50.8 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: Instruments & Photographic Equipment; Food; Electronic Components & Equipment; Printing & Publishing; Furniture; Wood & Wood Products; Transportation & Equipment; and Paper.

New Orders	%Better	%Same	%Worse	Net	Index
December 2002	33	41	26	+7	63.3
November 2002	22	51	27	-5	49.9
October 2002	23	53	24	-1	50.9
September 2002	30	47	23	+7	50.2

Production

ISM's Production Index is 55.6 percent in December, 1 percentage point higher than the 54.6 percent reported in November. This is the second consecutive month of growth in production, following a decline in October. An index above 49.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the 20 industries reporting in December, the following registered growth: Leather; Food; Textiles; Paper; Printing & Publishing; Instruments & Photographic Equipment; Electronic Components & Equipment; Furniture; and Wood & Wood Products.

Production	%Better	%Same	%Worse	Net	Index
December 2002	25	54	21	+4	55.6
November 2002	22	60	18	+4	54.6
October 2002	22	56	22	0	49.3
September 2002	27	55	18	+9	50.9

Employment

ISM's Manufacturing Employment Index remained below 50 percent in December for the 27th consecutive month. The index registered 47.4 percent in December compared to 43.8 percent in November, an increase of 3.6 percentage points. An Employment Index above 47.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The six industries reporting growth in employment during December are: Textiles; Furniture; Food; Transportation & Equipment; Chemicals; and Printing & Publishing.

Employment	%Higher	%Same	%Lower	Net	Index
December 2002	11	70	19	-8	47.4
November 2002	9	69	22	-13	43.8
October 2002	11	67	22	-11	45.0
September 2002	10	69	21	-11	44.9

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing December to November (a reading above 50 percent indicates slower deliveries). At 51.4 percent, the index is 0.6 percentage point higher than November's 50.8 percent. The eight industries reporting slower supplier deliveries in December are: Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Printing & Publishing; Electronic Components & Equipment; Food; Chemicals; and Industrial & Commercial Equipment & Computers.

Supplier Deliveries	%Slower	%Same	%Faster	Net	Index
December 2002	8	87	5	+3	51.4
November 2002	11	80	9	+2	50.8
October 2002	12	83	5	+7	52.6
September 2002	16	81	3	+13	55.7

NOTE: A list of commodities in short supply is available at the end of this report.

Inventories

The rate of liquidation of manufacturers' inventories decelerated in December as the Inventories Index registered 46.2 percent. This compares to 42.1 percent reported in November. The Inventories Index has been under 50 percent for 35 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 (in constant 1987 dollars). The four industries reporting higher inventories in December are: Glass, Stone & Aggregate; Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Food.

Inventories	%Higher	%Same	%Lower	Net	Index
December 2002	16	56	28	-12	46.2
November 2002	13	55	32	-19	42.1
October 2002	12	58	30	-18	40.2
September 2002	13	62	25	-12	43.6

Customers' Inventories

The Customers' Inventories Index is at 43 percent, a decrease of 3.5 percentage points compared to the November reading of 46.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 19th consecutive month that the index has registered below 50. Paper; Glass, Stone & Aggregate; Food; and Chemicals are the industries reporting excessive customer inventories during December.

Customers' Inventories	%Reporting	% Too High	% About Right	% Too Low	Net	Index
December 2002	82	10	66	24	-14	43.0
November 2002	80	12	69	19	-7	46.5
October 2002	83	9	67	24	-15	42.5
September 2002	81	6	69	25	-19	40.5

Prices

ISM's Prices Index indicates manufacturers continued to pay higher prices in December. This is the 10th consecutive month the index has registered higher prices. With the index at 56.9 percent, it is 1.2 percentage points higher than November's 55.7 percent. In December, 22 percent of supply executives reported paying higher prices and 12 percent reported paying lower prices, while 66 percent reported that prices were unchanged from the preceding month.

A Prices Index below 46.6 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The industries reporting paying higher prices for December are: Leather; Glass, Stone & Aggregate; Printing & Publishing; Furniture; Wood & Wood Products; Chemicals; Primary Metals; Rubber & Plastic Products; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Fabricated Metals.

Prices	%Higher	%Same	%Lower	Net	Index
December 2002	22	66	12	+10	56.9
November 2002	18	70	12	+6	55.7
October 2002	27	65	8	+19	58.3
September 2002	32	66	2	+30	62.5

NOTE: A list of commodities up in price and down in price is available at the end of this report.

Backlog of Orders

ISM's Backlog of Orders Index (not seasonally adjusted) registered 46.5 percent, indicating a slower rate of decline in manufacturers' backlogs as the index rose 4 percentage points from November's report of 42.5 percent. This is the sixth consecutive month that the Backlog of Orders Index has failed to grow. Of the 88 percent of respondents who report their backlog of orders, 18 percent reported greater backlogs, 25 percent reported smaller backlogs, and 57 percent reported no change from November. The industries reporting an increase in order backlogs during the month are: Instruments & Photographic Equipment; Food; Printing & Publishing; Industrial & Commercial Equipment & Computers; Wood & Wood Products; and Paper.

Backlog of Orders	%Reporting	%Greater	%Same	%Less	Net	Index
December 2002	88	18	57	25	-7	46.5
November 2002	87	12	61	27	-15	42.5
October 2002	88	15	57	28	-13	43.5
September 2002	88	16	57	27	-11	44.5

New Export Orders

ISM's New Export Orders Index for December registered 52.2 percent, an increase of 3.1 percentage points when compared to November's index of 49.1 percent. This reverses the decline in export orders experienced in November. The industries reporting growth in new export orders in December are: Apparel; Textiles; Instruments & Photographic Equipment; Furniture; Fabricated Metals; Food; and Industrial & Commercial Equipment & Computers.

New Export Orders	%Reporting	%Better	%Same	%Worse	Net	Index
December 2002	76	13	75	12	+1	52.2
November 2002	76	12	76	12	0	49.1
October 2002	77	10	82	8	+2	54.4
September 2002	76	16	76	8	+8	51.8

Imports

Imports of materials by manufacturers grew during December as the Imports Index registered 55.3 percent. The index rose 2.2 percentage points when compared to November's index of 53.1 percent. The 12 industries reporting growth in import activity for December are: Textiles; Apparel; Furniture; Instruments & Photographic Equipment; Fabricated Metals; Food; Wood & Wood Products; Paper; Electronic Components & Equipment; Chemicals; Printing & Publishing; and Transportation & Equipment.

Imports	%Reporting	%Higher	%Same	%Lower	Net	Index
December 2002	76	18	73	9	+9	55.3
November 2002	75	14	75	11	+3	53.1
October 2002	79	12	75	13	-1	48.7
September 2002	74	19	74	7	+12	54.7

Buying Policy

Average commitment leadtime for Capital Expenditures rose 10 days to 110 days. Average leadtime for Production Materials rose 2 days to 50 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 1 day to 20 days.

Percent Reporting
	Hand to Mouth	30 Days	60 Days	90 Days	6 Mos.	1 Year+	Avg. Days
Capital Expenditures
December 2002	23	8	11	21	29	8	110
November 2002	25	8	14	24	21	8	100
October 2002	23	8	16	22	27	4	96
September 2002	25	9	15	22	22	7	98
Production Materials
December 2002	19	44	21	10	4	2	50
November 2002	22	43	19	11	3	2	48
October 2002	23	45	16	12	2	2	46
September 2002	24	45	16	10	3	2	46
MRO Supplies
December 2002	57	32	9	2	0	0	20
November 2002	60	30	7	3	0	0	19
October 2002	60	33	6	1	0	0	17
September 2002	57	31	10	2	0	0	20

In Short Supply

There are no commodities on the short supply list.

Up in Price

Caustic Soda — 7th month; Copper; Corrugated Containers — 7th month; Hydrochloric Acid; Natural Gas — 5th month; Paper; and Polyethylene.

Down in Price

Steel is the only commodity report Down in Price.

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 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. The 20 manufacturing Standard Industry Classification codes are: Food; Tobacco; Textiles; Apparel; Wood & Wood Products; Furniture; Paper; Printing & Publishing; Chemicals; Petroleum; Rubber & Plastic Products; Leather; Glass, Stone & Aggregate; Primary Metals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Transportation & Equipment; Instruments & Photographic Equipment; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

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 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 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 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.

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. 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 3, 2003.

Back to Top