FOR RELEASE: March 1, 2002
|ISM, Media Relations|
|(800) 888-6276, Ext. 3015|
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 February 2002.
(Tempe, Arizona) Economic activity in the manufacturing sector indicated growth in February, ending 18 consecutive months of decline. The overall economy grew for the fourth 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. "February signals the turnaround for manufacturing based on a strong PMI reading and an accelerating trend in new orders and production. Most of the indexes are heading in the right direction at this point. Employment is still soft, but it is a lagging indicator and will need a number of months of growth before it recovers. Pricing power is still lagging, but should begin to develop if the trends in new orders and production continue."
ISM's Backlog of Orders Index indicates that order backlogs grew for the first time after 21 months of decline. ISM's Supplier Deliveries Index reflects slower deliveries for the second consecutive month. Manufacturing employment continued to decline in February as the index fell below the breakeven point (an index of 50 percent) for the 17th consecutive month. ISM's Prices Index remained below 50 percent as manufacturers experienced lower prices for the 12th consecutive month. New Export Orders grew in February for the second consecutive month. February's Imports Index decelerated slightly, but registered growth for the third consecutive month. Comments from supply executives fell into two groups this month. One group continued to express concerns with regard to business conditions, while the other indicated that things are starting to improve.
ISM's PMI is 54.7 percent in February, an increase of 4.8 percentage points from the 49.9 percent reported in January. ISM's New Orders Index rose from 55.3 percent in January to 62.8 percent in February. ISM's Production Index rose 9.2 percentage points from 52 percent in January to 61.2 percent in February. The ISM Employment Index is at 43.8 percent for February, an increase of 1.2 percentage points when compared to the 42.6 percent reported in January.
ISM's Supplier Deliveries Index rose to 52.3 percent from 51.7 percent in January. ISM's Inventories Index is 39.5 percent. ISM's Customer Inventories Index declined slightly to 41.5 percent from January's 43.5 percent indicating a faster rate of inventory liquidation when compared to January. ISM's Prices Index in February is 41.5 percent, a decrease of 2.4 percentage points from January's 43.9 percent. ISM's Backlog of Orders Index rose from 44.5 percent in January to 53 percent in February.
ISM's New Export Orders Index registered 51.1 percent, up 0.3 percentage point from January's 50.8 percent. Imports of materials by manufacturers grew, as ISM's Imports Index is 52 percent for the month, down from January's 52.1 percent.
"The overall picture shows growth in manufacturing activity during the month of February," added Ore. "The PMI hasn't been above the 50 mark since July 2000, so this is certainly welcome news. Manufacturing has struggled and hopefully this signals the beginning of a strong recovery. It is encouraging that 13 industries reported growth in new orders. It appears that the inventory liquidation is nearing completion as customers' inventories are quite low. Upward movement of prices for aluminum, copper, nickel, and steel give credibility to the development of pricing power in some industries as we head toward the second quarter."
Of the 20 industries in the manufacturing sector, 14 industries reported growth: Wood & Wood Products; Primary Metals; Fabricated Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Rubber & Plastic Products; Tobacco; Leather; Chemicals; Transportation & Equipment; Glass, Stone & Aggregate; Food; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; and Printing & Publishing.
"There were no reports of commodities in short supply. Commodities reported up in price are: Aluminum, Copper, Nickel, and Steel. The commodities reported down in price are: Caustic Soda, Chemicals, Corrugated Containers, Natural Gas, High Density Polyethylene, Resins, and Steel," Ore stated.
Feb vs Jan
|Rate of Change|
Feb vs Jan
|Customer Inventories||41.5||Too Low||Lower|
|Backlog of Orders||53.0||Growing||From Contracting|
|New Export Orders||51.1||Growing||Faster|
The PMI indicates that the manufacturing economy grew during the month of February with an index of 54.7 percent. This is the first month of growth for the manufacturing sector following 18 consecutive months of decline and is significant when compared to January's 49.9 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 February 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 and February (52.3 percent) corresponds to 3.5 percent growth in real gross domestic product (GDP). However, if the PMI for February (54.7 percent) turned out to be the annual average for 2002, this would correspond to a 4.4 percent increase in GDP."
ISM's New Orders Index indicated growth in February for the third consecutive month. The index is 62.8 percent, 7.5 percentage points greater than the 55.3 percent registered in January. 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 February are: Wood & Wood Products; Fabricated Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Electronic Components & Equipment; Rubber & Plastic Products; Chemicals; Food; Industrial & Commercial Equipment & Computers; Printing & Publishing; Furniture; Transportation & Equipment; and Instruments & Photographic Equipment.
ISM's Production Index is 61.2 percent in February up from 52 percent in January, an increase of 9.2 percentage points. This is the third consecutive month that the Production Index has been above 50 percent, indicating growth in manufacturing production. 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, those registering growth in February are: Wood & Wood Products; Tobacco; Primary Metals; Fabricated Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Glass, Stone & Aggregate; Apparel; Rubber & Plastic Products; Transportation & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Food; and Printing & Publishing.
ISM's Manufacturing Employment Index remained below 50 percent in February for the 17th consecutive month. The Index registered 43.8 percent in February compared to 42.6 percent in January, an increase of 1.2 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. Wood & Wood Products is the only industry reporting growth in employment.
ISM's Supplier Deliveries Index indicates delivery performance is slower when compared to January (a reading above 50 percent indicates slower deliveries). At 52.3 percent, the index is 0.6 percentage point higher than January's 51.7 percent. The industries reporting slower supplier deliveries in February are: Primary Metals; Furniture; Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Fabricated Metals; Electronic Components & Equipment; Printing & Publishing; and Transportation & 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 slightly in February as the Inventories Index registered 39.5 percent, down from the 40.5 percent reported in January. The Inventories Index has been under 50 percent for 25 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). Three industries reported higher inventories in February: Leather; Glass, Stone & Aggregate; and Rubber & Plastic Products.
Customers' inventories in February were perceived as lower when compared to January. The Customers' Inventories Index is at 41.5 percent, 2 percentage points lower than the 43.5 percent reported in January. The only industry reporting excessive customers' inventories in February is Primary Metals.
|%Reporting||%Too High||%About Right||%Too Low||Net||Index|
ISM's Prices Index indicates manufacturers continued to pay lower prices in February. With the index at 41.5 percent, this marks the 12th consecutive month the index has been below 50 percent. The index is 2.4 percentage points lower than January's 43.9 percent. In February, 9 percent of supply executives reported paying higher prices and 26 percent reported paying lower prices, while 65 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. Primary Metals; Fabricated Metals; Instruments & Photographic Equipment; Transportation & Equipment; and Electronic Components & Equipment are the industries reporting paying higher prices for the month.
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 grew in February after 21 consecutive months of contraction. ISM's Backlog of Orders Index (not seasonally adjusted) registered 53 percent, indicating growth in manufacturers' backlogs. Of the 88 percent of respondents who measure their backlog of orders, 23 percent reported greater backlogs, 17 percent reported smaller backlogs, and 60 percent reported no change from January. Fabricated Metals; Furniture; Rubber & Plastic Products; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Transportation & Equipment; and Industrial & Commercial Equipment & Computers are the industries reporting an increase in order backlog during the month.
ISM's New Export Orders Index for February registered 51.1 percent, an increase of 0.3 percentage point when compared to January's index of 50.8 percent. The industries reporting growth in new export orders in February are: Instruments & Photographic Equipment; Electronic Components & Equipment; and Industrial & Commercial Equipment & Computers.
Imports of materials by manufacturers grew in February as the Imports Index registered 52 percent, a 0.1 percentage point decrease when compared to January's report of 52.1 percent. The six industries reporting growth in import activity for February are: Tobacco; Fabricated Metals; Printing & Publishing; Electronic Components & Equipment; Transportation & Equipment; and Chemicals.
Average commitment leadtime for Capital Expenditures rose 6 days to 99 days. Average leadtime for Production Materials declined 2 days to 43 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 1 day to 21 days.
No commodities reported in short supply.
Aluminum; Copper; Nickel; and Steel (also shown down in price).
Caustic Soda 10th month; Chemicals; Corrugated Containers 13th month; Natural Gas 13th month; High Density Polyethylene; Resins; and Steel 10th month (also shown up in price).
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, 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 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 March 2002 data will be released at 10:00 a.m. (ET) on April 1, 2002.