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April 2004 Manufacturing ISM Report On Business®

FOR RELEASE: May 3, 2004

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 62.4%

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 2004.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in April for the 11th consecutive month, while the overall economy grew for the 30th 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 continued to improve in April. While New Orders contracted slightly compared to last month, Production moved upward, and Employment grew at a faster rate. The PMI has now been above 60 percent for six consecutive months."

ISM's Backlog of Orders Index indicates that order backlogs increased in April, and the Employment Index grew for the sixth consecutive month. ISM's Prices Index indicates that manufacturers once again experienced higher prices in their purchases, and at the highest rate since November 1979. The New Export Orders and Import Indexes continue to grow, with Imports accelerating at a faster rate in April.

In reviewing comments from the survey respondents, it is apparent that the manufacturing sector continues to improve. However, there are still a number of companies in various industries that have yet to benefit from the recovery. Persistent themes are concerns for availability of ferrous and non-ferrous metals, and escalating costs in a market that is still resistant to higher consumer prices.

ISM's PMI registered 62.4 percent in April, a decrease of 0.1 percentage point when compared to 62.5 percent in March. ISM's New Orders Index declined 0.7 percentage point from 65.7 percent in March to 65 percent in April. ISM's Production Index increased 1.5 percentage points from 65.5 percent in March to 67 percent in April. The ISM Employment Index is at 57.8 percent for April, an increase of 0.8 percentage point when compared to the 57 percent reported in March.

ISM's Supplier Deliveries Index registered 67.1 percent, 0.8 percentage point lower than March's 67.9 percent. ISM's Inventories Index registered 44.8 percent in April, down from the 48.3 percent reported in March. ISM's Customers' Inventories Index for April is at 40.5 percent, an increase of 1 percentage point compared to the March reading of 39.5 percent. ISM's Prices Index in April is 88 percent, 2 percentage points higher than the 86 percent reported in March.

ISM's Backlog of Orders Index increased 3 percentage points, registering 66.5 percent in April compared to 63.5 percent in March. ISM's New Export Orders Index registered 61 percent, a decrease of 1 percentage point from March's 62 percent. ISM's Imports Index increased 1.7 percentage points to 58.5 percent in April, up from 56.8 percent in March.

"The second quarter is off to a very strong start. Many respondents indicate that order backlogs are growing for the first time in several years. The list of metals up in price is quite extensive — almost every category of product has seen price movement," said Ore.

All responding industries reported growth: Apparel; Paper; Furniture; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Primary Metals; Instruments & Photographic Equipment; Textiles; Glass, Stone & Aggregate; Petroleum; Miscellaneous*; Electronic Components & Equipment; Wood & Wood Products; Rubber & Plastic Products; Chemicals; Tobacco; Fabricated Metals; Printing & Publishing; and Food.

"Acetone; Adhesives; Alcohol; Aluminum; Brass; Carbon Steel; Chemicals; Copper and Copper Products; Corrugated Cartons; Diesel Fuel; Electronic Assemblies; Electronic Components; Energy; Ethylene; Fasteners; Flash Memory; Freight; Fuel Oil; Fuel Surcharges; Gasoline; HDPE; Lumber; Natural Gas; Nylon; Packaging Materials; Pallets; Paper; Particle Board; Petroleum-Based Products; Plastics; Plastic Resin; Polyethylene; Polypropylene Resins; Propylene; Resin; Soybean; Stainless Steel; Stainless Steel Products; Steel; Steel Products; Styrene; Transportation; Wire; Wood Products; and Zinc are the commodities listed as up in price. The commodities listed in short supply include Aluminum; Cold Rolled Steel; Copper; Electronic Components; Hot Rolled Steel; Memory Products; Stainless Steel; and Steel. The only commodity reported down in price is Caustic Soda," Ore stated.

APRIL 2004 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Apr vs Mar
Rate of Change
Apr vs Mar
PMI 62.4 Growing Slower
New Orders 65.0 Growing Slower
Production 67.0 Growing Faster
Employment 57.8 Growing Faster
Supplier Deliveries 67.1 Slowing Slower
Inventories 44.8 Contracting Faster
Customers' Inventories 40.5 Too Low Slower
Prices 88.0 Increasing Faster
Backlog of Orders 66.5 Growing Faster
New Export Orders 61.0 Growing Slower
Imports 58.5 Growing Faster

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

PMI

The PMI indicates that the manufacturing economy grew in April for the 11th consecutive month. The PMI for April registered 62.4 percent, a decrease of 0.1 percentage point compared to the March reading of 62.5 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 42.8 percent, over a period of time, generally indicates an expansion of the overall economy. The April 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 April (62.5 percent) corresponds to a 7.2 percent increase in real gross domestic product (GDP). Similarly, if the PMI for April (62.4 percent) is annualized, this corresponds to 7.1 percent increase in GDP.

Month Apr'04 Mar'04 Feb'04 Jan'04 Dec'03
PMI% 62.4 62.5 61.4 63.6 63.4
Month Nov'03 Oct'03 Sep'03 Aug'03 Jul'03
PMI% 61.3 57.1 54.7 55.0 52.6
Month Jun'03 May'03 Apr'03 Mar'03 Feb'03
PMI% 50.4 50.0 46.2 46.6 49.4

New Orders

ISM's New Orders Index grew in April with a reading of 65 percent. The index is 0.7 percentage point lower than the 65.7 percent registered in March and is the 12th consecutive month the index has exceeded 50 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). Eighteen industries report increases for the month of April: Petroleum; Textiles; Furniture; Paper; Transportation & Equipment; Chemicals; Electronic Components & Equipment; Rubber & Plastic Products; Glass, Stone & Aggregate; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Miscellaneous*; Wood & Wood Products; Primary Metals; Apparel; Fabricated Metals; Food; and Printing & Publishing.

New Orders %Better %Same %Worse Net Index
April 2004 51 42 7 +44 65.0
March 2004 50 41 9 +41 65.7
February 2004 49 41 10 +39 66.4
January 2004 48 40 12 +36 71.1

Production

ISM's Production Index is 67 percent in April, 1.5 percentage points higher than the 65.5 percent reported in March, reflecting the 12th 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 industries reporting in April, 18 registered growth: Tobacco; Apparel; Paper; Instruments & Photographic Equipment; Primary Metals; Electronic Components & Equipment; Textiles; Furniture; Rubber & Plastic Products; Glass, Stone & Aggregate; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Chemicals; Miscellaneous*; Fabricated Metals; Printing & Publishing; and Food.

Production %Better %Same %Worse Net Index
April 2004 48 45 7 +41 67.0
March 2004 46 47 7 +39 65.5
February 2004 44 47 9 +35 63.9
January 2004 44 47 9 +35 71.1

Employment

ISM's Employment Index grew for the sixth consecutive month, following a 37-month trend of contraction. The index registered 57.8 percent in April compared to 57 percent in March, an increase of 0.8 percentage point. The last time the Employment Index registered higher than April's index was in December 1987, registering 59.1 percent. An Employment Index above 48 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The 17 industries reporting growth in employment during April are: Petroleum; Apparel; Miscellaneous*; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Furniture; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Wood & Wood Products; Textiles; Primary Metals; Paper; Food; Chemicals; Fabricated Metals; Electronic Components & Equipment; and Printing & Publishing.

Employment %Higher %Same %Lower Net Index
April 2004 30 58 12 +18 57.8
March 2004 26 65 9 +17 57.0
February 2004 23 66 11 +12 56.3
January 2004 16 73 11 +5 52.9

Supplier Deliveries

ISM's Supplier Deliveries Index indicates that delivery performance is slightly slower when comparing April to March. April's reading of 67.1 percent is a decrease of 0.8 percentage point compared to March's reading of 67.9 percent. A reading above 50 percent indicates slower deliveries. The 16 industries reporting slower supplier deliveries in April are: Transportation & Equipment; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Instruments & Photographic Equipment; Fabricated Metals; Apparel; Printing & Publishing; Rubber & Plastic Products; Electronic Components & Equipment; Miscellaneous*; Wood & Wood Products; Paper; Food; Textiles; and Chemicals.

Supplier
Deliveries
%Slower %Same %Faster Net Index
April 2004 38 58 4 +34 67.1
March 2004 38 59 3 +35 67.9
February 2004 28 70 2 +26 62.1
January 2004 24 72 4 +20 60.4

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

Inventories

Manufacturers' inventories declined in April as the index registered 44.8 percent, a decrease of 3.5 percentage points when compared to March's 48.3 percent. The Inventories Index has registered under 50 percent for 51 consecutive months. An Inventories Index greater than 42.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in constant 1987 dollars). The five industries reporting higher inventories in April are: Petroleum; Furniture; Printing & Publishing; Electronic Components & Equipment; and Textiles.

Inventories %Higher %Same %Lower Net Index
April 2004 15 61 24 -9 44.8
March 2004 18 63 19 -1 48.3
February 2004 20 63 17 +3 49.4
January 2004 21 55 24 -3 48.9

Customers' Inventories**

The April Customers' Inventories Index is at 40.5 percent, an increase of 1 percentage point compared to the March reading of 39.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 35th consecutive month that the index has registered below 50 percent. The two industries reporting higher customer inventories during April are: Furniture and Printing & Publishing.

Customers'
Inventories
%Reporting % Too High % About Right % Too Low Net Index
April 2004 73 11 59 30 -19 40.5
March 2004 78 8 63 29 -21 39.5
February 2004 76 7 63 30 -23 38.5
January 2004 72 7 66 27 -20 40.0

Prices**

ISM's Prices Index indicates manufacturers continued to pay higher prices in April. This is the 26th consecutive month the index has registered higher prices. April's index is at 88 percent, 2 percentage points higher than March's reading of 86 percent. The last time the index registered as high as April's index was in November 1979 when it was 89.2 percent. In April, 77 percent of supply executives reported paying higher prices and 1 percent reported paying lower prices, while 22 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 19 industries reporting paying higher prices in April are: Tobacco; Furniture; Petroleum; Glass, Stone & Aggregate; Food; Wood & Wood Products; Transportation & Equipment; Textiles; Primary Metals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Printing & Publishing; Chemicals; Electronic Components & Equipment; Miscellaneous*; Paper; Instruments & Photographic Equipment; and Apparel.

Prices %Higher %Same %Lower Net Index
April 2004 77 22 1 +76 88.0
March 2004 73 26 1 +72 86.0
February 2004 65 33 2 +63 81.5
January 2004 54 43 3 +51 75.5

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 registered 66.5 percent, indicating manufacturers' backlogs in April were higher when compared to March. Of the 88 percent of respondents who report their backlog of orders, 43 percent reported greater backlogs, 10 percent reported smaller backlogs, and 47 percent reported no change from March. The 15 industries reporting an increase in order backlogs during the month are: Paper; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Apparel; Furniture; Miscellaneous*; Instruments & Photographic Equipment; Primary Metals; Fabricated Metals; Electronic Components & Equipment; Wood & Wood Products; Chemicals; Textiles; and Printing & Publishing.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
April 2004 88 43 47 10 +33 66.5
March 2004 87 38 51 11 +27 63.5
February 2004 85 35 54 11 +24 62.0
January 2004 90 34 53 13 +21 60.5

New Export Orders

ISM's New Export Orders Index for April registered 61 percent, a decrease of 1 percentage point when compared to March's index of 62 percent. This is the 17th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in April are: Paper; Miscellaneous*; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Transportation & Equipment; Chemicals; Textiles; Fabricated Metals; Furniture; and Rubber & Plastic Products.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
April 2004 78 27 69 4 +23 61.0
March 2004 77 27 70 3 +24 62.0
February 2004 77 17 75 8 +9 54.9
January 2004 75 21 72 7 +14 57.5

Imports

Imports of materials by manufacturers grew during April as the Imports Index registered 58.5 percent. The index gained 1.7 percentage points when compared to March's index of 56.8 percent, indicating a faster rate of growth. The nine industries reporting growth in import activity for April are: Furniture; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Electronic Components & Equipment; Fabricated Metals; Miscellaneous*; Instruments & Photographic Equipment; Rubber & Plastic Products; and Chemicals.

Imports %Reporting %Higher %Same %Lower Net Index
April 2004 78 24 72 4 +20 58.5
March 2004 79 23 69 8 +15 56.8
February 2004 78 22 73 5 +17 60.2
January 2004 77 21 74 5 +16 59.5

*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 remained the same at 102 days. Average leadtime for Production Materials increased 5 days to 50 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained the same at 22 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
April 2004 27 9 11 21 24 8 102
March 2004 26 8 13 22 23 8 102
February 2004 24 11 11 18 26 10 110
January 2004 21 10 12 23 26 8 108
Production Materials              
April 2004 22 39 21 13 3 2 50
March 2004 24 41 19 12 3 1 45
February 2004 20 40 24 10 5 1 49
January 2004 20 42 21 12 3 2 50
MRO Supplies              
April 2004 54 35 8 2 1 0 22
March 2004 50 39 8 3 0 0 22
February 2004 55 33 9 1 2 0 23
January 2004 53 35 9 2 1 0 22

In Short Supply

Aluminum — 2nd month; Cold Rolled Steel — 3rd month; Copper; Electronic Components — 4th month; Hot Rolled Steel; Memory Products; Stainless Steel — 4th month; and Steel — 4th month.

Up in Price

Acetone; Adhesives; Alcohol; Aluminum — 6th month; Brass — 6th month; Carbon Steel; Chemicals — 3rd month; Copper and Copper Products — 4th month; Corrugated Containers — 3rd month; Diesel Fuel — 2nd month; Electrical Components — 3rd month; Electronic Assemblies; Energy — 4th month; Ethylene; Fasteners — 2nd month; Flash Memory — 2nd month; Freight — 2nd month; Fuel Oil — 4th month; Fuel Surcharges — 2nd month; Gasoline — 4th month; HDPE — 3rd month; Lumber; Natural Gas — 21st month; Nylon; Packaging Materials; Pallets — 2nd month; Paper — 2nd month; Particle Board — 3rd month; Petroleum-Based Products — 2nd month; Plastics — 3rd month; Plastic Resin; Polyethylene; Polypropylene Resins; Propylene — 4th month; Resin — 5th month; Soybean — 2nd month; Stainless Steel — 7th month; Stainless Steel Products (various forms); Steel — 7th month; Steel Products (various forms); Styrene — 2nd month; Transportation; Wire; Wood Products — 2nd month; and Zinc — 2nd month.

Down in Price

Caustic Soda — 4th 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 42.8 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding; below 42.8 percent, it is generally declining. The distance from 50 percent or 42.8 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 2004 data will be released at 10:00 a.m. (ET) on June 1, 2004.


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