April 2003 Manufacturing ISM Report On Business®

FOR RELEASE: May 1, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
PMI at 45.4%

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 April 2003.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in April, while the overall economy grew for the 18th 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 April for the second consecutive month. The sector continued the lackluster performance that was evident in March, as New Orders and Production remained weak. The good news is that the Prices Index appears to have peaked in March, with April showing a significant softening in pricing pressures."

ISM's Backlog of Orders Index indicates that order backlogs declined for the 10th consecutive month, while ISM's Supplier Deliveries Index reflects no change (at 50 percent) after 15 consecutive months of slower deliveries. Manufacturing employment continued to decline in April as the index remained below the breakeven point (an index of 50 percent) for the 31st consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the 14th consecutive month. New Export Orders grew in April for the 16th consecutive month. April's Imports Index grew for the sixth consecutive month.

Comments from purchasing and supply executives turned from a focus on war in March, to soft demand and offsetting the higher prices they have had to pay recently.

ISM's PMI declined to 45.4 percent in April, a decrease of 0.8 percentage point when compared to 46.2 in March. ISM's New Orders Index declined 1 percentage point from 46.2 percent in March to 45.2 percent in April. ISM's Production Index rose 0.7 percentage point from 46.3 percent in March to 47 percent in April. The ISM Employment Index is at 41.4 percent for April, a decrease of 0.7 percentage point when compared to the 42.1 percent reported in March.

ISM's Supplier Deliveries Index registered 50 percent, 3.8 percentage points lower than March's 53.8 percent. ISM's Inventories Index rose slightly to 42.7 percent from 42.3 percent in March. ISM's Customers' Inventories Index for April is at 44.5 percent, an increase of 2.5 percentage points compared to the March reading of 42 percent. ISM's Prices Index in April is 63.5 percent, a decrease of 6.5 percentage points from March's 70 percent. ISM's Backlog of Orders Index increased 6 percentage points, registering 47.5 percent in April compared to 41.5 percent in March.

ISM's New Export Orders Index registered 51.1 percent, down 0.9 percentage point from March's 52 percent. ISM's Imports Index rose from 52.5 percent in March to 54.5 percent in April.

"Apprehension by supply managers about the impact of war appears to be diminished as the war resulted in few, if any, consequences to supply chains. They have now turned their concerns toward soft demand as manufacturing lacks drivers at this time. Supply managers will look to consumer confidence and business confidence as major influencers for the second half of the year," said Ore.

Of the 20 industries in the manufacturing sector, six industries reported growth: Wood & Wood Products; Chemicals; Printing & Publishing; Electronic Components & Equipment; Instruments & Photographic Equipment; and Transportation & Equipment.

"Acetone was the only commodity reported in short supply. Commodities reported up in price are: Acetone; Caustic Soda; Chemicals; Diesel Fuel; Energy; Ethylene; Freight; Fuel Oil; Fuel Surcharges; Gasoline; High Density Polyethylene Resin; Low Density Polyethylene; Methanol; Natural Gas; Oil; Plastic; Plastic Resin; Plastic Resin-Based Products; Plastic Shrink Wrap; Poly Bags; Polyethylene; Polyethylene Products; Polypropylene; Polystyrene; Propylene; and Resin. The only commodities reported down in price are Corrugated; Fuel Oil; Natural Gas; Steel; and Wheat," Ore stated.

APRIL 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Apr vs Mar
Rate of Change
Apr vs Mar
PMI 45.4 Contracting Faster
New Orders 45.2 Contracting Faster
Production 47.0 Contracting Slower
Employment 41.4 Contracting Faster
Supplier Deliveries 50.0 Unchanged From Slower
Inventories 42.7 Contracting Slower
Customers' Inventories 44.5 Too Low Slower
Prices 63.5 Increasing Slower
Backlog of Orders 47.5 Contracting Slower
New Export Orders 51.1 Growing Slower
Imports 54.5 Growing Faster

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

PMI

The PMI indicates that the manufacturing economy declined in April for the second consecutive month. The PMI for April registered 45.4 percentage points, a decrease of 0.8 percentage point compared to the March reading of 46.2 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 42.9 percent, over a period of time, generally indicates an expansion of the overall economy. The April 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 April (49 percent) corresponds to a 2.2 percent increase in real gross domestic product (GDP). However, if the PMI for April (45.4 percent) turned out to be the annual average for 2003, this would correspond to a 0.9 percent increase in GDP.

Month Apr'03 Mar'03 Feb'03 Jan'03 Dec'02
PMI% 45.4 46.2 50.5 53.9 55.2
Month Nov'02 Oct'02 Sep'02 Aug'02 Jul'02
PMI% 50.5 49.7 50.7 50.3 50.7
Month Jun'02 May'02 Apr'02 Mar'02 Feb'02
PMI% 55.2 54.7 53.3 54.7 53.8

New Orders

ISM's New Orders Index failed to grow in April with a reading of 45.2 percent. The index is 1 percentage point lower than the 46.2 percent registered in March, and is the second consecutive month of decline 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 April are: Instruments & Photographic Equipment; Wood & Wood Products; Chemicals; Printing & Publishing; Electronic Components & Equipment; Food; Transportation & Equipment; Fabricated Metals; and Rubber & Plastic Products.

New Orders %Better %Same %Worse Net Index
April 2003 22 58 20 +2 45.2
March 2003 26 49 25 +1 46.2
February 2003 30 48 22 +8 52.3
January 2003 33 46 21 +12 59.7

Production

ISM's Production Index is 47 percent in April, 0.7 percentage point higher than the 46.3 percent reported in March, indicating the second consecutive month of decline 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 April, the following registered growth: Chemicals; Electronic Components & Equipment; Instruments & Photographic Equipment; Printing & Publishing; Food; Wood & Wood Products; Transportation & Equipment; and Primary Metals.

Production %Better %Same %Worse Net Index
April 2003 20 63 17 +3 47.0
March 2003 22 56 22 0 46.3
February 2003 28 54 18 +10 55.4
January 2003 27 51 22 +5 56.3

Employment

ISM's Manufacturing Employment Index remained below 50 percent in April for the 31st consecutive month. The index registered 41.4 percent in April compared to 42.1 percent in March, 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 April are: Apparel; Wood & Wood Products; and Printing & Publishing.

Employment %Higher %Same %Lower Net Index
April 2003 9 68 23 -14 41.4
March 2003 9 69 22 -13 42.1
February 2003 10 65 25 -15 42.8
January 2003 11 69 20 -9 47.6

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is unchanged in April with a reading of 50 percent. This is a decrease of 3.8 percentage points when compared to March's reading of 53.8 percent. A reading above 50 percent indicates slower deliveries. The five industries reporting slower supplier deliveries in April are: Glass, Stone, & Aggregate; Industrial & Commercial Equipment & Computers; Food; Chemicals; and Paper.

Supplier
Deliveries
%Slower %Same %Faster Net Index
April 2003 7 86 7 0 50.0
March 2003 10 86 4 +6 53.8
February 2003 9 88 3 +6 53.3
January 2003 9 85 6 +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 decelerated in April as the Inventories Index registered 42.7 percent. This compares to 42.3 percent reported in March. The Inventories Index has been under 50 percent for 39 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 two industries reporting higher inventories in April are: Wood & Wood Products and Printing & Publishing.

Inventories %Higher %Same %Lower Net Index
April 2003 14 59 27 -13 42.7
March 2003 15 57 28 -13 42.3
February 2003 15 61 24 -9 43.8
January 2003 18 53 29 -11 45.4

Customers' Inventories

The Customers' Inventories Index is at 44.5 percent, an increase of 2.5 percentage points compared to the March reading of 42 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 23rd consecutive month that the index has registered below 50 percent. Glass, Stone, & Aggregate; Primary Metals; and Transportation & Equipment are the industries reporting excessive customers' inventories during April.

Customers'
Inventories
%Reporting % Too High % About Right % Too Low Net Index
April 2003 75 10 69 21 -11 44.5
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

Prices

ISM's Prices Index (not seasonally adjusted, effective with January 2003 seasonal adjustments) indicates manufacturers continued to pay higher prices in April. This is the 14th consecutive month the index has registered higher prices. With the index at 63.5 percent, it is 6.5 percentage points lower than March's 70 percent. In April, 37 percent of supply executives reported paying higher prices and 10 percent reported paying lower prices, while 53 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 April are: Tobacco; Textiles; Glass, Stone, & Aggregate; Paper; Chemicals; Rubber & Plastic Products; Printing & Publishing; Miscellaneous*; Wood & Wood Products; Food; Primary Metals; Transportation & Equipment; Instruments & Photographic Equipment; Furniture; and Electronic Components & Equipment.

Prices %Higher %Same %Lower Net Index
April 2003 37 53 10 +27 63.5
March 2003 47 46 7 +40 70.0
February 2003 40 51 9 +31 65.5
January 2003 27 61 12 +15 57.5

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 47.5 percent, indicating a slower rate of decline in manufacturers' backlogs as the index rose 6 percentage points compared with March's report of 41.5 percent. This is the 10th consecutive month that the Backlog of Orders Index has failed to grow. Of the 87 percent of respondents who report their backlog of orders, 17 percent reported greater backlogs, 22 percent reported smaller backlogs, and 61 percent reported no change from March. The industries reporting an increase in order backlogs during the month are: Chemicals; Instruments & Photographic Equipment; Fabricated Metals; Wood & Wood Products; and Rubber & Plastic Products.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
April 2003 87 17 61 22 -5 47.5
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

New Export Orders

ISM's New Export Orders Index for April registered 51.1 percent, a decrease of 0.9 percentage point when compared to March's index of 52 percent. This is the 16th consecutive month of growth in export orders. The industries reporting growth in new export orders in April are: Glass, Stone & Aggregate; Textiles; Instruments & Photographic Equipment; Rubber & Plastic Products; Electronic Components & Equipment; Food; Industrial & Commercial Equipment & Computers; Chemicals; and Fabricated Metals.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
April 2003 75 13 78 9 +4 51.1
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

Imports

Imports of materials by manufacturers grew during April as the Imports Index registered 54.5 percent. The index rose 2 percentage points when compared to March's index of 52.5 percent. The 10 industries reporting growth in import activity for April are: Transportation & Equipment; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Furniture; Printing & Publishing; Instruments & Photographic Equipment; Fabricated Metals; Food; and Chemicals.

Imports %Reporting %Higher %Same %Lower Net Index
April 2003 78 18 76 6 +12 54.5
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

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

Buying Policy

Average commitment leadtime for Capital Expenditures rose four days to 101 days. Average leadtime for Production Materials decreased five days to 45 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies decreased two days to 20 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
April 2003 25 8 13 20 28 6 101
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
 
Production Materials              
April 2003 23 44 18 10 4 1 45
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
 
MRO Supplies              
April 2003 57 32 7 4 0 0 20
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

In Short Supply

Acetone is the only commodity on the short supply list.

Up in Price

Acetone; Caustic Soda — 11th month; Chemicals — 4th month; Diesel Fuel — 3rd month; Energy — 4th month; Ethylene — 3rd month; Freight — 2nd month; Fuel Oil*; Fuel Surcharges — 2nd month; High Density Polyethylene Resin — 2nd month; Low Density Polyethylene — 2nd month; Methanol — 4th month; Natural Gas* — 9th month; Oil; Plastic — 4th month; Plastic Resin — 3rd month; Plastic Resin- Based Products; Plastic Shrink Wrap; Poly Bags; Polyethylene — 3rd month; Polyethylene Products; Polypropylene — 2nd month; Polystyrene; Propylene — 3rd month; and Resin — 4th month.

Down in Price

Corrugated — 2nd month; Fuel Oil*; Natural Gas*; Steel; 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 May 2003 data will be released at 10:00 a.m. (ET) on June 2, 2003.


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