FOR RELEASE: April 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 March 2002.
(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the second consecutive month in March. The overall economy grew for the fifth 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 March report certainly validates the turnaround for manufacturing. While the growth in production slowed, new orders rose to a very lofty level, in fact, reaching a level last seen in October 1986. It is encouraging that the rate of decline in employment is slowing and that a number of businesses indicated that they are starting to rehire."
ISM's Backlog of Orders Index indicates that order backlogs grew for the second consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the third consecutive month. Manufacturing employment continued to decline in March as the index remained below the breakeven point (an index of 50 percent) for the 18th consecutive month. ISM's Prices Index moved above 50 percent as manufacturers experienced higher prices for the first time after 12 consecutive months of lower prices. New Export Orders grew in March for the third consecutive month. March's Imports Index accelerated slightly registering growth for the fourth consecutive month. Comments from supply executives varied greatly by industry. Chemicals and Electronics industry respondents see improvement, but it is very slow. Primary Metals received a boost from the steel tariffs, while the Fabricated Metals and Industrial Equipment sectors are concerned about paying higher metals prices.
ISM's PMI is 55.6 percent in March, an increase of 0.9 percentage point from the 54.7 percent reported in February. ISM's New Orders Index rose from 62.8 percent in February to 65.3 percent in March. ISM's Production Index declined 3.4 percentage points from 61.2 percent in February to 57.8 percent in March. The ISM Employment Index is at 47.5 percent for March, an increase of 3.7 percentage points when compared to the 43.8 percent reported in February.
ISM's Supplier Deliveries Index rose to 53.1 percent from 52.3 percent in February. ISM's Inventories Index is 41.2 percent. ISM's Customer Inventories Index declined slightly to 40 percent from February's 41.5 percent indicating a faster rate of inventory liquidation when compared to February. ISM's Prices Index in March is 51.9 percent, an increase of 10.4 percentage points from February's 41.5 percent. ISM's Backlog of Orders Index rose from 53 percent in February to 62.5 percent in March.
ISM's New Export Orders Index registered 51 percent, up 0.1 percentage point from February's 51.1 percent. Imports of materials by manufacturers grew, as ISM's Imports Index is 53.4 percent for the month, up from February's 52 percent.
"The overall picture shows growth in manufacturing activity during March and a strong finish for the first quarter," added Ore. "The PMI indicates a second consecutive month of significant growth. This month the Prices Index made a strong move upward indicating the return of pricing power in some commodities. While the Prices Index was up, the list of commodities up in price is quite small suggesting it is too early in the recovery to worry about inflation as a result of pricing moves. Manufacturing has struggled for many months, and industries like primary metals and textiles have been through a devastating period. Overall growth for the first quarter is stronger than predicted and capable of providing a basis for continuing recovery in the second quarter. To this point, the economy has benefited from low energy prices, low inventories, and low interest rates. However, it now appears that energy prices are rising, we have reached the end of the inventory liquidation, and interest rates will certainly rise. The capital investment tax credit will help, but ultimately consumers will need to reestablish themselves as the major driver."
Of the 20 industries in the manufacturing sector, 15 industries reported growth: Apparel; Primary Metals; Textiles; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Instruments & Photographic Equipment; Furniture; Transportation & Equipment; Electronic Components & Equipment; Glass, Stone & Aggregate; Rubber & Plastic Products; Fabricated Metals; Printing & Publishing; Wood & Wood Products; Food; and Industrial & Commercial Equipment & Computers.
"Steel is the only commodity reported in short supply. Commodities reported up in price are: Aluminum, Fuel, Natural Gas, and Steel. The commodities reported down in price are: Caustic Soda, Corrugated Containers, Resins, and Wood Pulp," Ore stated.
Mar vs Feb
|Rate of Change|
Mar vs Feb
|Customer Inventories||40.0||Too Low||Lower|
|Backlog of Orders||62.5||Growing||Faster|
|New Export Orders||51.0||Growing||Slower|
The PMI indicates that the manufacturing economy grew during the month of March with an index of 55.6 percent. This is the second consecutive month of growth for the manufacturing sector following 18 consecutive months of decline. 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 March 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 March (53.4 percent) corresponds to 3.9 percent growth in real gross domestic product (GDP). However, if the PMI for March (55.6 percent) turned out to be the annual average for 2002, it would correspond to a 4.7 percent increase in GDP."
ISM's New Orders Index indicated growth in March for the fourth consecutive month. The index is 65.3 percent, 2.5 percentage points higher than the 62.8 percent registered in February. 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 March are: Apparel; Primary Metals; Instruments & Photographic Equipment; Textiles; Electronic Components & Equipment; Glass, Stone & Aggregate; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Furniture; Rubber & Plastic Products; Fabricated Metals; Transportation & Equipment; Printing & Publishing; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Food; Paper; and Chemicals.
ISM's Production Index is 57.8 percent in March down from 61.2 percent in February, a decrease of 3.4 percentage points. This is the fourth 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 19 industries reporting, those registering growth in March are: Apparel; Textiles; Primary Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Furniture; Transportation & Equipment; Electronic Components & Equipment; Rubber & Plastic Products; Printing & Publishing; Fabricated Metals; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Chemicals; and Industrial & Commercial Equipment & Computers.
ISM's Manufacturing Employment Index remained below 50 percent in March for the 18th consecutive month. However, the rate of decline continues to slow as the Index registered 47.5 percent in March compared to 43.8 percent in February, an increase of 3.7 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. Industries reporting growth in employment are: Apparel; Primary Metals; Furniture; Wood & Wood Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; and Printing & Publishing.
ISM's Supplier Deliveries Index indicates delivery performance is slower when compared to February (a reading above 50 percent indicates slower deliveries). At 53.1 percent, the index is 0.8 percentage point higher than February's 52.3 percent. The industries reporting slower supplier deliveries in March are: Transportation & Equipment; Fabricated Metals; Primary Metals; Electronic Components & Equipment; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).
NOTE: A list of commodities in short supply is available at the end of this report.
The rate of liquidation of manufacturers' inventories decelerated slightly in March as the Inventories Index registered 41.2 percent, up from the 39.5 percent reported in February. The Inventories Index has been under 50 percent for 26 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). Six industries reported higher inventories in March: Apparel; Textiles; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Primary Metals; and Transportation & Equipment.
Customers' inventories in March were perceived as lower when compared to February. The Customers' Inventories Index is at 40 percent, 1.5 percentage points lower than the 41.5 percent reported in February. The only industry reporting excessive customers' inventories in March is Food.
|%Reporting||% Too High||% About right||% Too Low||Net||Index|
ISM's Prices Index indicates manufacturers paid higher prices in March. This is the first time the Index has registered higher prices since February 2001. With the index at 51.9 percent, the index is 10.4 percentage points higher than February's 41.5 percent. In March,18 percent of supply executives reported paying higher prices and 16 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. Leather; Primary Metals; Wood & Wood Products; Instruments & Photographic Equipment; Fabricated Metals; Rubber & Plastic Products; Glass, Stone & Aggregate; Transportation & Equipment; and Industrial & Commercial Equipment & Computers 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 grew significantly in March for the second consecutive month. ISM's Backlog of Orders Index (not seasonally adjusted) registered 62.5 percent, indicating growth in manufacturers' backlogs. Of the 87 percent of respondents who measure their backlog of orders, 35 percent reported greater backlogs, 10 percent reported smaller backlogs, and 55 percent reported no change from February. Petroleum; Apparel; Textiles; Furniture; Glass, Stone & Aggregate; Primary Metals; Rubber & Plastic Products; Fabricated Metals; Electronic Components & Equipment; Transportation & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Instruments & Photographic Equipment; Wood & Wood Products; Paper; Chemicals; Industrial & Commercial Equipment & Computers; and Printing & Publishing are the industries reporting an increase in order backlog during the month.
ISM's New Export Orders Index for March registered 51 percent, a decrease of 0.1 percentage point when compared to February's index of 51.1 percent. The industries reporting growth in new export orders in March are: Petroleum; Apparel; Textiles; Furniture; Glass, Stone & Aggregate; Transportation & Equipment; Electronic Components & Equipment; Rubber & Plastic Products; and Food.
Imports of materials by manufacturers grew in March as the Imports Index registered 53.4 percent, a 1.4 percentage points increase when compared to February's report of 52 percent. The 10 industries reporting growth in import activity for March are: Apparel; Furniture; Fabricated Metals; Printing & Publishing; Transportation & Equipment; Paper; Wood & Wood Products; Electronic Components & Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.
Average commitment leadtime for Capital Expenditures declined 4 days to 95 days. Average leadtime for Production Materials rose 3 days to 46 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 1 day to 22 days.
Steel is the only commodity reported in short supply.
Aluminum — 2nd month; Fuel; Natural Gas; and Steel — 2nd month.
Caustic Soda — 11th month; Corrugated Containers — 14th month; Resins — 2nd month; and Wood Pulp.
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 April 2002 data will be released at 10:00 a.m. (ET) on May 1, 2002.