March 2003 Manufacturing ISM Report On Business®

FOR RELEASE: April 1, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
PMI at 46.2%

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 March 2003.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in March, while the overall economy grew for the 17th 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 failed to grow in March, marking the end of four consecutive months of growth. A turn in both New Orders and Production drove the change as New Orders fell below 50 percent after six months of growth, and Production fell below 50 percent for the first time in 16 months. March wasn't a good month for manufacturing, as the sector appears to have lost its momentum. Employment continues to be a problem as the index has now been below 50 percent for 30 months."

ISM's Backlog of Orders Index indicates that order backlogs declined for the ninth consecutive month, while ISM's Supplier Deliveries Index reflects slower deliveries for the 15th consecutive month. Manufacturing employment continued to decline in March as the index remained below the breakeven point (an index of 50 percent) for the 30th consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the 13th consecutive month. New Export Orders grew in March for the 15th consecutive month. March's Imports Index grew for the fifth consecutive month.

Comments from purchasing and supply executives focused on war, soft demand, energy availability, and escalating prices. The war appears to have slowed demand in a number of industries, including Chemicals, Electronics, and Industrial Equipment. Issues related to energy consume resources and compress margins.

ISM's PMI declined to 46.2 percent in March, a decrease of 4.3 percentage points when compared to 50.5 in February. ISM's New Orders Index declined 6.1 percentage points from 52.3 percent in February to 46.2 percent in March. ISM's Production Index declined 9.1 percentage points from 55.4 percent in February to 46.3 percent in March. The ISM Employment Index is at 42.1 percent for March, a decrease of 0.7 percentage point when compared to the 42.8 percent reported in February.

ISM's Supplier Deliveries Index registered 53.8 percent, 0.5 percentage point higher than February's 53.3 percent. ISM's Inventories Index declined to 42.3 percent from 43.8 percent in February. ISM's Customers' Inventories Index for March is at 42 percent, a decline of 4 percentage points compared to the February reading of 46 percent. ISM's Prices Index in March is 70 percent, an increase of 4.5 percentage points from February's 65.5 percent. ISM's Backlog of Orders Index declined 7.5 percentage points, registering 41.5 percent in March compared to 49 percent in February.

ISM's New Export Orders Index registered 52 percent, down 3.5 percentage points from February's 55.5 percent. ISM's Imports Index declined from 55.4 percent in February to 52.5 percent in March.

"Supply managers continue to be challenged by business conditions. The start of the war will begin to bring clarity to a difficult situation. In many ways, the threat of war was more intimidating than the actualization," said Ore.

Of the 20 industries in the manufacturing sector, eight industries reported growth: Apparel; Instruments & Photographic Equipment; Printing & Publishing; Electronic Components & Equipment; Food; Miscellaneous*; Textiles; and Wood & Wood Products.

"Natural Gas was the only commodity reported in short supply. Commodities reported up in price are: Acetic Acid, Alcohol, Aromatic Chemicals, Aromatic Hydrocarbons, Benzene, Caustic Soda, Chemicals, Corrugated, Crude Oil, Diesel Fuel, Energy, Ethylene, Freight, Fuel Surcharges, Gasoline, HDPE Resin, Heating Oil, Isopropyl Alcohol, LDPE Products, LDPE Resin, Methanol, Natural Gas, Natural Rubber, Nickel, Paper, Petroleum-based Products, Plastic, Plastic Containers, Plastic Resin, Polyester, Polyester Fiber, Polyethylene, Polyethylene Film, Polyethylene Resin, Polypropylene, PVC, Propylene, Propylene Glycol, Resin, Stainless Steel, Styrene, and Transportation. The only commodities reported down in price are Corrugated and Wheat," Ore stated.

MARCH 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Mar vs. Feb
Rate of Change
Mar vs. Feb
PMI 46.2 Contracting From Growing
New Orders 46.2 Contracting From Growing
Production 46.3 Contracting From Growing
Employment 42.1 Contracting Faster
Supplier Deliveries 53.8 Slowing Faster
Inventories 42.3 Contracting Faster
Customers' Inventories 42.0 Too Low Faster
Prices 70.0 Increasing Faster
Backlog of Orders 41.5 Contracting Faster
New Export Orders 52.0 Growing Slower
Imports 52.5 Growing Slower

THE ECONOMY AT A GLANCE
Overall Economy Growing Slower
Manufacturing Contracting From Growing

PMI

The PMI indicates that the manufacturing economy declined in March following four consecutive months of growth. The PMI for March registered 46.2 percentage points, a decrease of 4.3 percentage points compared to the February reading of 50.5 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 42.9 percent, over a period of time, generally indicates an expansion of the overall economy. The March PMI indicates that the overall economy is growing and the manufacturing sector is declining. The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (50.2 percent) corresponds to a 2.7 percent increase in real gross domestic product (GDP). However, if the PMI for March (46.2 percent) turned out to be the annual average for 2003, this would correspond to a 1.2 percent increase in GDP.

Month Mar'03 Feb'03 Jan'03 Dec'02 Nov'02
PMI% 46.2 50.5 53.9 55.2 50.5
Month Oct'02 Sep'02 Aug'02 Jul'02 Jun'02
PMI% 49.7 50.7 50.3 50.7 55.2
Month May'02 Apr'02 Mar'02 Feb'02 Jan'02
PMI% 54.7 53.3 54.7 53.8 49.8

New Orders

ISM's New Orders Index failed to grow in March with a reading of 46.2 percent. The index is 6.1 percentage points lower than the 52.3 percent registered in February, and ends six consecutive months of growth in the index. 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). Industries reporting increases for the month of March are: Instruments & Photographic Equipment; Apparel; Electronic Components & Equipment; Printing & Publishing; Wood & Wood Products; and Chemicals.

New Orders %Better %Same %Worse Net Index
March 2003 26 49 25 +1 46.2
February 2003 30 48 22 +8 52.3
January 2003 33 46 21 +12 59.7
December 2002 33 41 26 +7 62.9

Production

ISM's Production Index is 46.3 percent in March, 9.1 percentage points lower than the 55.4 percent reported in February, and ends 15 consecutive months of growth in production. 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 reporting in March, the following registered growth: Apparel; Electronic Components & Equipment; Printing & Publishing; Miscellaneous*; Food; Instruments & Photographic Equipment; and Industrial & Commercial Equipment & Computers.

Production %Better %Same %Worse Net Index
March 2003 22 56 22 0 46.3
February 2003 28 54 18 +10 55.4
January 2003 27 51 22 +5 56.3
December 2002 25 54 21 +4 56.6

Employment

ISM's Manufacturing Employment Index remained below 50 percent in March for the 30th consecutive month. The index registered 42.1 percent in March compared to 42.8 percent in February, a decrease of 0.7 percentage point. 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 three industries reporting growth in employment during March are: Miscellaneous*; Transportation & Equipment; and Paper.

Employment %Higher %Same %Lower Net Index
March 2003 9 69 22 -13 42.1
February 2003 10 65 25 -15 42.8
January 2003 11 69 20 -9 47.6
December 2002 11 70 19 -8 48.2

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance continues to slow in March with a reading of 53.8 percent, an increase of 0.5 percentage point when compared to February's reading of 53.3 percent (a reading above 50 percent indicates slower deliveries). The nine industries reporting slower supplier deliveries in March are: Wood & Wood Products; Textiles; Glass, Stone, & Aggregate; Industrial & Commercial Equipment & Computers; Chemicals; Electronic Components & Equipment; Food; Miscellaneous*; and Primary Metals.

Supplier
Deliveries
%Slower %Same %Faster Net Index
March 2003 10 86 4 +6 53.8
February 2003 9 88 3 +6 53.3
January 2003 9 85 6 +3 52.6
December 2002 8 87 5 +3 52.6

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

Inventories

The rate of liquidation of manufacturers' inventories accelerated in March as the Inventories Index registered 42.3 percent. This compares to 43.8 percent reported in February. The Inventories Index has been under 50 percent for 38 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 March are: Leather; Apparel; Rubber & Plastic Products; and Chemicals.

Inventories %Higher %Same %Lower Net Index
March 2003 15 57 28 -13 42.3
February 2003 15 61 24 -9 43.8
January 2003 18 53 29 -11 45.4
December 2002 16 56 28 -12 46.2

Customers' Inventories

The Customers' Inventories Index is at 42 percent, a decrease of 4 percentage points compared to the February reading of 46 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 22nd consecutive month that the index has registered below 50 percent. Glass, Stone, & Aggregate and Primary Metals are the industries reporting excessive customers' inventories during March.

Customers'
Inventories
% Reporting % Too High % About Right % Too Low Net Index
March 2003 72 12 60 28 -16 42.0
February 2003 69 13 66 21 -8 46.0
January 2003 79 10 65 25 -15 42.5
December 2002 82 10 66 24 -14 43.0

Prices

ISM's Prices Index (not seasonally adjusted, effective with January 2003 seasonal adjustments) indicates manufacturers continued to pay higher prices in March. This is the 13th consecutive month the index has registered higher prices. With the index at 70 percent, it is 4.5 percentage points higher than February's 65.5 percent. In March, 47 percent of supply executives reported paying higher prices and 7 percent reported paying lower prices, while 46 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 industries reporting paying higher prices for March are: Tobacco; Textiles; Leather; Chemicals; Rubber & Plastic Products; Paper; Primary Metals; Miscellaneous*; Wood & Wood Products; Furniture; Transportation & Equipment; Instruments & Photographic Equipment; Food; Industrial & Commercial Equipment & Computers; Glass, Stone, & Aggregate; Printing & Publishing; Fabricated Metals; and Electronic Components & Equipment.

Prices %Higher %Same %Lower Net Index
March 2003 47 46 7 +40 70.0
February 2003 40 51 9 +31 65.5
January 2003 27 61 12 +15 57.5
December 2002 22 66 12 +10 56.9

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 41.5 percent, indicating a faster rate of decline in manufacturers' backlogs as the index fell 7.5 percentage points compared with February's report of 49 percent. This is the ninth consecutive month that the Backlog of Orders Index has failed to grow. Of the 87 percent of respondents who report their backlog of orders, 15 percent reported greater backlogs, 32 percent reported smaller backlogs, and 53 percent reported no change from February. The industries reporting an increase in order backlogs during the month are: Apparel; Paper; and Wood & Wood Products.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
March 2003 87 15 53 32 -17 41.5
February 2003 88 22 54 24 -2 49.0
January 2003 88 19 52 29 -10 45.0
December 2002 88 18 57 25 -7 46.5

New Export Orders

ISM's New Export Orders Index for March registered 52 percent, a decrease of 3.5 percentage points when compared to February's index of 55.5 percent. This is the 15th consecutive month of growth in export orders. The industries reporting growth in new export orders in March are: Glass, Stone, & Aggregate; Paper; Textiles; Chemicals; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Primary Metals.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
March 2003 75 13 79 8 +5 52.0
February 2003 75 16 77 7 +9 55.5
January 2003 74 13 82 5 +8 55.6
December 2002 76 13 75 12 +1 52.5

Imports

Imports of materials by manufacturers grew during March as the Imports Index registered 52.5 percent. The index declined 2.9 percentage points when compared to February's index of 55.4 percent. The 10 industries reporting growth in import activity for March are: Printing & Publishing; Apparel; Transportation & Equipment; Instruments & Photographic Equipment; Miscellaneous*; Fabricated Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Chemicals; and Rubber & Plastic Products.

Imports %Reporting %Higher %Same %Lower Net Index
March 2003 79 16 76 8 +8 52.5
February 2003 77 15 76 9 +6 55.4
January 2003 77 19 76 5 +14 59.0
December 2002 76 18 73 9 +9 54.8

Buying Policy

Average commitment leadtime for Capital Expenditures declined three days to 97 days. Average leadtime for Production Materials increased two days to 50 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies increased four days to 22 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
March 2003 25 9 14 22 24 6 97
February 2003 24 8 16 24 20 8 100
January 2003 25 6 15 24 22 8 102
December 2002 23 8 11 21 29 8 110
 
Production Materials              
March 2003 19 45 21 8 5 2 50
February 2003 19 47 19 10 3 2 48
January 2003 22 45 18 9 4 2 48
December 2002 19 44 21 10 4 2 50
 
MRO Supplies              
March 2003 56 33 8 1 2 0 22
February 2003 62 29 8 1 0 0 18
January 2003 58 33 6 3 0 0 19
December 2002 57 32 9 2 0 0 20

*Miscellaneous is a preponderance of jewelry, toys, sporting goods, musical instruments.

In Short Supply

Natural Gas is the only commodity on the short supply list.

Up in Price

Acetic Acid; Alcohol; Aromatic Chemicals; Aromatic Hydrocarbons; Benzene; Caustic Soda – 10th month; Chemicals – 3rd month; Corrugated*; Crude Oil; Diesel Fuel – 2nd month; Energy – 3rd month; Ethylene – 2nd month; Freight; Fuel Surcharges; Gasoline – 3rd month; HDPE Resin; Heating Oil; Isopropyl Alcohol; LDPE Products; LDPE Resin; Methanol – 3rd month; Natural Gas – 8th month; Natural Rubber; Nickel – 3rd month; Paper; Petroleum-Based Products; Plastic – 3rd month; Plastic Containers; Plastic Resin – 2nd month; Polyester; Polyester Fiber; Polyethylene – 2nd month; Polyethylene Film; Polyethylene Resin – 2nd month; Polypropylene; Propylene – 2nd month; Propylene Glycol; PVC; Resin – 3rd month; Stainless Steel; Styrene – 2nd month; and Transportation.

Down in Price

Corrugated* and Wheat.

*Reported as both up and 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 42.9 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 April 2003 data will be released at 10:00 a.m. (ET) on May 1, 2003.



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