December 2003 Manufacturing ISM Report On Business®

FOR RELEASE: January 2, 2004

CONTACT: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 66.2%

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 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 2003.

Production, New Orders, Employment Grow
Inventories Decline
Supplier Deliveries Slower

(Tempe, Arizona) – Economic activity in the manufacturing sector grew in December for the sixth consecutive month, while the overall economy grew for the 26th 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. "With the PMI growing at an accelerating rate, the manufacturing sector enjoyed its best month since December 1983. Much of the momentum is in New Orders, as the Index is the highest reported reading since July 1950. The strength in December's data provides significant encouragement for prospects in the first quarter of 2004."

ISM's Backlog of Orders Index indicates that order backlogs increased in December, and the Employment Index grew for the second consecutive month. ISM's Prices Index indicates that manufacturers once again experienced higher prices in their purchases. The New Export Orders and Import Indexes continue to grow, with exports accelerating during the month.

Comments from purchasing and supply managers validate that a recovery is underway, and month-over-month improvement is significant to many respondents for the first time in three years. Although some expressed concern over steel prices, many expect relief with the release of the steel tariffs.

ISM's PMI registered 66.2 percent in December, an increase of 3.4 percentage points when compared to 62.8 percent in November. ISM's New Orders Index rose 3.9 percentage points from 73.7 percent in November to 77.6 percent in December. ISM's Production Index rose 4.7 percentage points from 68.3 percent in November to 73 percent in December. The ISM Employment Index is at 55.5 percent for December, an increase of 4.5 percentage points when compared to the 51 percent reported in November.

ISM's Supplier Deliveries Index registered 58.8 percent, 2.8 percentage points higher than November's 56 percent. ISM's Inventories Index registered 47.3 percent in December, down from the 50 percent reported in November. ISM's Customers' Inventories Index for December is at 39 percent, a decrease of 0.5 percentage point compared to the November reading of 39.5 percent. ISM's Prices Index in December is 66 percent, 2 percentage points higher than the 64 percent reported in November.

ISM's Backlog of Orders Index increased 2 percentage points, registering 61 percent in December compared to 59 percent in November. ISM's New Export Orders Index registered 60.4 percent, a increase of 2.5 percentage points from November's 57.9 percent. ISM's Imports Index decreased 4.6 percentage points to 57.8 percent in December, down from 62.4 percent in November.

"The month-over-month growth from November to December indicates a rapid recovery taking place in the sector, though there are still some businesses lagging and wondering when they will see the improvement that others are experiencing," said Ore.

Of the 20 industries in the manufacturing sector, 17 industries reported growth: Instruments & Photographic Equipment; Leather; Furniture; Miscellaneous*; Apparel; Electronic Components & Equipment; Transportation & Equipment; Tobacco; Textiles; Industrial & Commercial Equipment & Computers; Primary Metals; Printing & Publishing; Fabricated Metals; Food; Wood & Wood Products; Glass, Stone, & Aggregate; and Rubber & Plastic Products.

"There are no reports of commodities in short supply. Commodities reported up in price are: Aluminum; Aluminum Extrusions; Beef; Brass; Chemicals; Copper; Copper Cathode; Ethylene; Freight; Natural Gas; Nickel; Plywood; Polyethylene Resin; Stainless Steel; Steel; Steel Plates; and Steel Tubing. The only commodity reported down in price is Corrugated Cartons," Ore stated.

DECEMBER 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Dec vs Nov
Rate of Change
Dec vs Nov
PMI 66.2 Growing Faster
New Orders 77.6 Growing Faster
Production 73.0 Growing Faster
Employment 55.5 Growing Faster
Supplier Deliveries 58.8 Slowing Faster
Inventories 47.3 Contracting From Unchanged
Customers' Inventories 39.0 Too Low Faster
Prices 66.0 Increasing Faster
Backlog of Orders 61.0 Growing Faster
New Export Orders 60.4 Growing Faster
Imports 57.8 Growing Slower

THE ECONOMY AT A GLANCE
Overall Economy Growing Faster
Manufacturing Growing Faster

PMI

The PMI indicates that the manufacturing economy grew in December for the sixth consecutive month. The PMI for December registered 66.2 percent, an increase of 3.4 percentage points compared to the November reading of 62.8 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 42.9 percent, over a period of time, generally indicates an expansion of the overall economy. The December PMI indicates that both the overall economy and the manufacturing sector are growing. The past relationship between the PMI and the overall economy indicates that the average PMI for January through December (53.5 percent) corresponds to a 3.9 percent increase in real gross domestic product (GDP). However, if the PMI for December (66.2 percent) is annualized, this corresponds to an 8.6 percent increase in GDP.

Month Dec'03 Nov'03 Oct'03 Sep'03 Aug'03
PMI% 66.2 62.8 57.0 53.7 54.7
Month Jul'03 Jun'03 May'03 Apr'03 Mar'03
PMI% 51.8 49.8 49.4 45.4 46.2
Month Feb'02 Jan'03 Dec'02 Nov'02 Oct'02
PMI% 50.5 53.9 55.2 50.5 49.7

New Orders

ISM's New Orders Index grew in December with a reading of 77.6 percent. The index is 3.9 percentage points higher than the 73.7 percent registered in November and is the eighth consecutive month the index has exceeded 50 percent. This is the highest the index has been since July 1950, when the index registered 80.3 percent. A New Orders Index above 51 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). Sixteen industries report increases for the month of December: Leather; Instruments & Photographic Equipment; Furniture; Apparel; Textiles; Primary Metals; Miscellaneous*; Electronic Components & Equipment; Transportation & Equipment; Glass, Stone, & Aggregate; Industrial & Commercial Equipment & Computers; Printing & Publishing; Fabricated Metals; Food; Wood & Wood Products; and Chemicals.

New Orders %Better %Same %Worse Net Index
December 2003 45 42 13 +32 77.6
November 2003 45 43 12 +33 73.7
October 2003 37 48 15 +22 64.3
September 2003 38 46 16 +22 60.4

Production

ISM's Production Index is 73 percent in December, 4.7 percentage points higher than the 68.3 percent reported in November, reflecting the eighth consecutive month of growth. 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 20 industries surveyed in December, 18 registered growth: Tobacco; Leather; Instruments & Photographic Equipment; Furniture; Apparel; Electronic Components & Equipment; Textiles; Miscellaneous*; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Primary Metals; Fabricated Metals; Printing & Publishing; Paper; Food; Wood & Wood Products; Rubber & Plastic Products; and Chemicals.

Production %Better %Same %Worse Net Index
December 2003 44 46 10 +34 73.0
November 2003 40 49 11 +29 68.3
October 2003 35 51 14 +21 62.6
September 2003 33 53 14 +19 57.3

Employment

ISM's Employment Index grew for the second consecutive month, following a 37-month trend of contraction as the index registered 55.5 percent in December compared to 51 percent in November, an increase of 4.5 percentage points. An Employment Index above 47.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The nine industries reporting growth in employment during December are: Miscellaneous*; Transportation & Equipment; Instruments & Photographic Equipment; Printing & Publishing; Industrial & Commercial Equipment & Computers; Furniture; Food; Electronic Components & Equipment; and Fabricated Metals.

Employment %Higher %Same %Lower Net Index
December 2003 21 64 15 +6 55.5
November 2003 16 66 18 -2 51.0
October 2003 15 63 22 -7 47.7
September 2003 12 66 22 -10 45.7

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing December to November. December's reading of 58.8 percent is an increase of 2.8 percentage points over November's reading of 56 percent. A reading above 50 percent indicates slower deliveries. The 12 industries reporting slower supplier deliveries in December are: Instruments & Photographic Equipment; Primary Metals; Miscellaneous*; Furniture; Fabricated Metals; Electronic Components & Equipment; Wood & Wood Products; Transportation & Equipment; Food; Printing & Publishing; Chemicals; and Industrial & Commercial Equipment & Computers.

Supplier
Deliveries
%Slower %Same %Faster Net Index
December 2003 17 81 2 +15 58.8
November 2003 14 82 4 +10 56.0
October 2003 11 87 2 +9 53.9
September 2003 8 90 2 +6 52.4

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

Inventories

Manufacturers' inventories declined in December as the index registered 47.3 percent, a decrease of 2.7 percentage points when compared to November's 50 percent. Prior to November, the Inventories Index registered under 50 percent for 45 consecutive months. An Inventories Index greater than 42.1 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: Apparel; Glass, Stone, & Aggregate; Electronic Components & Equipment; and Furniture.

Inventories %Higher %Same %Lower Net Index
December 2003 13 64 23 -10 47.3
November 2003 16 62 22 -6 50.0
October 2003 14 60 26 -12 44.5
September 2003 14 59 27 -13 42.7

Customers' Inventories**

The Customers' Inventories Index is at 39 percent, a decrease of 0.5 percentage point compared to the November reading of 39.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 31st consecutive month that the index has registered below 50 percent. Food is the only industry reporting excessive customers' inventories during December.

Customers'
Inventories
%Reporting % Too High % About Right % Too Low Net Index
December 2003 74 5 68 27 -22 39.0
November 2003 77 8 63 29 -21 39.5
October 2003 73 5 68 27 -22 39.0
September 2003 73 9 71 20 -11 44.5

Prices**

ISM's Prices Index indicates manufacturers continued to pay higher prices in December. This is the 22nd consecutive month the index has registered higher prices. December's index is at 66 percent, 2 percentage points higher than November's reading of 64 percent. In December, 37 percent of supply executives reported paying higher prices and 5 percent reported paying lower prices, while 58 percent reported that prices were unchanged from the preceding month.

A Prices Index below 46.9 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The 17 industries reporting paying higher prices in December are: Tobacco; Primary Metals; Food; Fabricated Metals; Furniture; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Paper; Miscellaneous*; Wood & Wood Products; Glass, Stone, & Aggregate; Transportation & Equipment; Electronic Components & Equipment; Textiles; Chemicals; Instruments & Photographic Equipment; and Printing & Publishing.

Prices %Higher %Same %Lower Net Index
December 2003 37 58 5 +32 66.0
November 2003 33 62 5 +28 64.0
October 2003 26 65 9 +17 58.5
September 2003 21 70 9 +12 56.0

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 registered 61 percent, indicating manufacturers' backlogs in December were higher when compared to November. Of the 88 percent of respondents who report their backlog of orders, 34 percent reported greater backlogs, 12 percent reported smaller backlogs, and 54 percent reported no change from November. The 11 industries reporting an increase in order backlogs during the month are: Textiles; Apparel; Electronic Components & Equipment; Instruments & Photographic Equipment; Printing & Publishing; Furniture; Miscellaneous*; Glass, Stone, & Aggregate; Primary Metals; Industrial & Commercial Equipment & Computers; and Transportation & Equipment.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
December 2003 88 34 54 12 +22 61.0
November 2003 86 33 52 15 +18 59.0
October 2003 87 27 53 20 +7 53.5
September 2003 89 23 59 18 +5 52.5

New Export Orders

ISM's New Export Orders Index for December registered 60.4 percent, an increase of 2.5 percentage points when compared to November's index of 57.9 percent. This is the 24th consecutive month of growth in export orders. The 13 industries reporting growth in new export orders in December are: Instruments & Photographic Equipment; Food; Apparel; Furniture; Primary Metals; Electronic Components & Equipment; Rubber & Plastic Products; Industrial & Commercial Equipment & Computers; Printing & Publishing; Fabricated Metals; Transportation & Equipment; Miscellaneous*; and Chemicals.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
December 2003 77 22 72 6 +16 60.4
November 2003 77 20 74 6 +14 57.9
October 2003 77 20 75 5 +15 59.6
September 2003 77 16 76 8 +8 52.9

Imports

Imports of materials by manufacturers grew during December as the Imports Index registered 57.8 percent. The index decreased 4.6 percentage points when compared to November's index of 62.4 percent. The nine industries reporting growth in import activity for December are: Apparel; Instruments & Photographic Equipment; Electronic Components & Equipment; Furniture; Miscellaneous*; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Printing & Publishing; and Fabricated Metals.

Imports %Reporting %Higher %Same %Lower Net Index
December 2003 78 23 69 8 +15 57.8
November 2003 78 26 69 5 +21 62.4
October 2003 78 19 76 5 +14 57.3
September 2003 79 29 67 4 +25 60.7

*Miscellaneous is a preponderance of jewelry, toys, sporting goods, and musical instruments.
**The Backlog of Orders, Prices, and Customers' Inventories Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures decreased 3 days to 100 days. Average leadtime for Production Materials increased 6 days to 49 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies is unchanged at 21 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
December 2003 27 11 12 20 21 9 100
November 2003 25 7 17 21 21 9 103
October 2003 24 10 15 20 22 9 103
September 2003 21 14 16 20 21 8 99
Production Materials              
December 2003 23 41 19 11 4 2 49
November 2003 25 44 19 7 4 1 43
October 2003 25 39 21 9 5 1 46
September 2003 23 44 18 10 4 1 45
MRO Supplies              
December 2003 54 36 7 2 1 0 21
November 2003 57 34 5 3 1 0 21
October 2003 54 35 7 3 1 0 22
September 2003 54 33 8 4 1 0 23

In Short Supply

No commodities reported in short supply.

Up in Price

Aluminum — 2nd month; Aluminum Extrusions; Beef — 2nd month; Brass — 2nd month; Chemicals; Copper — 5th month; Copper Cathode; Ethylene; Freight; Natural Gas — 17th month; Nickel — 5th month; Plywood; Polyethylene Resin; Stainless Steel — 3rd month; Steel — 3rd month; Steel Plates; and Steel Tubing.

Down in Price

Corrugated Cartons — 10th month.

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 42.9 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding; below 42.9 percent, it is generally declining. The distance from 50 percent or 42.9 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 2003 data will be released at 10:00 a.m. (ET) on February 2, 2004.



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