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April 2005 Manufacturing ISM Report On Business®

FOR RELEASE: May 2, 2005

Contact: Terri Tracey
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3071
  E-mail: ttracey@ism.ws
PMI at 53.3%

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 2005.


New Orders, Production, Employment Expanding
Prices Increasing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in April for the 23rd consecutive month, while the overall economy grew for the 42nd 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. "In April, the manufacturing sector grew for the 23rd consecutive month based on the ISM data. This represents the longest period of growth in the last 16 years. However, the rate of growth slowed to its lowest level since July 2003. The trend is definitely toward a slower pace of growth, and that should relieve some of the pricing pressure that the sector has experienced during 2004 and year to date in 2005. Declines in Inventories indicate that manufacturers are adjusting to slower growth in new orders."

TOP PERFORMING INDUSTRIES

The 14 industries reporting growth in April — listed in order — are: Wood & Wood Products; Miscellaneous*; Rubber & Plastic Products; Instruments & Photographic Equipment; Furniture; Leather; Glass, Stone & Aggregate; Industrial & Commercial Equipment & Computers; Chemicals; Food; Tobacco; Fabricated Metals; Primary Metals; and Transportation & Equipment. Petroleum is the only industry reporting the same level of activity as last month. The industries reporting decreased activity in April are: Apparel; Paper; Electronic Components & Equipment; Printing & Publishing; and Textiles.

WHAT RESPONDENTS ARE SAYING ...
  • "Very strong business conditions. Record sales levels." (Electronics)
  • "Business is mixed, robust in some areas, softening in others." (Electronics)
  • "Many of our customers have shifted away from USA-made and now 'direct import' from Asia. Our sales have been very spotty this quarter." (Fabricated Metals)
  • "Promotions have been the driving force to retain market share." (Food)
  • "Steel prices continue to abate. More and more companies are accelerating their offshore initiatives to combat the raw material increases in the U.S." (Furniture)
MANUFACTURING AT A GLANCE
APRIL 2005
Index Series
Index
April
Series
Index
March
Percentage
Point
Change
Direction Rate of
Change
Trend*
(Months)
PMI 53.3 55.2 -1.9 Growing Slower 23
New Orders 53.7 57.1 -3.4 Growing Slower 24
Production 56.7 56.5 +0.2 Growing Faster 24
Employment 52.3 53.3 -1.0 Growing Slower 18
Supplier Deliveries 51.5 52.5 -1.0 Slowing Slower 22
Inventories 47.9 54.1 -6.2 Contracting From
Growing
1
Customers' Inventories 41.5 46.0 -4.5 Contracting Faster 47
Prices 71.0 73.0 -2.0 Increasing Slower 38
Backlog of Orders 53.0 56.0 -3.0 Growing Slower 5
Exports 57.2 55.4 +1.8 Growing Faster 40
Imports 56.7 58.9 -2.2 Growing Slower 41
             
OVERALL ECONOMY Growing Slower 42
Manufacturing Sector Growing Slower 23

*Number of months moving in current direction

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (18); Aluminum Extrusions; Beef; Butadiene; Caustic Soda (12); Chemicals (15); Coal; Copper (7); Corrugated Containers (15); Diesel Fuel (8); Energy (3); Freight (14); Fuel (3); Fuel Oil (2); Fuel Surcharges; Gasoline (3); Glass; LDPE; Machined Components (2); Natural Gas (33); Paper (14); PET; Petroleum-Based Products (2); Plastic Products (various forms) (15); Plastic Resin (3); Plastics (9); PVC; Resins (9); Rubber-Based Products; Steel* (19); Titanium (2); Titanium Dioxide; Wood (2); and Wood Pulp.

Commodities Down in Price

Steel (2).*

Commodities in Short Supply

Caustic Soda (3); and Steel (16).

*Reported as both up and down in price.

Note: The number of consecutive months the commodity is listed is indicated after each item.


APRIL 2005 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in April for the 23rd consecutive month. The PMI for April registered 53.3 percent, a decrease of 1.9 percentage points when compared to March's reading of 55.2 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 42.7 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 (55.1 percent) corresponds to a 4.5 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for April (53.3 percent) is annualized, it corresponds to a 3.8 percent increase in GDP annually.

THE LAST 12 MONTHS
Month PMI   Month PMI
Apr 2005 53.3   Oct 2004 57.5
Mar 2005 55.2   Sep 2004 59.1
Feb 2005 55.3   Aug 2004 59.6
Jan 2005 56.4   Jul 2004 61.6
Dec 2004 57.3   Jun 2004 61.2
Nov 2004 57.6   May 2004 62.6
Average for 12 months – 58.1
High – 62.6
Low – 53.3

New Orders

ISM's New Orders Index grew in April with a reading of 53.7 percent. The index is 3.4 percentage points lower than the 57.1 percent registered in March, and it is the 24th consecutive month the index has exceeded 50 percent. A New Orders Index above 51.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars). Eleven industries reported increases for the month of April: Wood & Wood Products; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Miscellaneous*; Furniture; Rubber & Plastic Products; Chemicals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Food; and Transportation & Equipment.

New Orders %Better %Same %Worse Net Index
Apr 2005 34 49 17 +17 53.7
Mar 2005 37 49 14 +23 57.1
Feb 2005 34 48 18 +16 55.8
Jan 2005 34 44 22 +12 56.5

Production

ISM's Production Index is 56.7 percent in April, 0.2 percentage point higher than the 56.5 percent reported in March. April is the 24th consecutive month of growth in the index. An index above 50 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the industries reporting in April, 15 registered growth: Leather; Wood & Wood Products; Tobacco; Instruments & Photographic Equipment; Miscellaneous*; Chemicals; Rubber & Plastic Products; Furniture; Industrial & Commercial Equipment & Computers; Textiles; Glass, Stone & Aggregate; Primary Metals; Food; Fabricated Metals; and Transportation & Equipment.

Production %Better %Same %Worse Net Index
Apr 2005 35 50 15 +20 56.7
Mar 2005 34 51 15 +19 56.5
Feb 2005 32 54 14 +18 56.7
Jan 2005 30 54 16 +14 57.8

Employment

ISM's Employment Index grew for the 18th consecutive month, following a 37-month trend of contraction. The index registered 52.3 percent in April compared to 53.3 percent in March, a decrease of 1 percentage point. An Employment Index above 48.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The nine industries reporting growth in employment during April are: Miscellaneous*; Wood & Wood Products; Rubber & Plastic Products; Food; Furniture; Industrial & Commercial Equipment & Computers; Primary Metals; Transportation & Equipment; and Instruments & Photographic Equipment.

Employment %Higher %Same %Lower Net Index
Apr 2005 20 67 13 +7 52.3
Mar 2005 21 67 12 +9 53.3
Feb 2005 22 69 9 +13 57.4
Jan 2005 23 67 10 +13 58.1

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 22nd consecutive month in April. ISM's Supplier Deliveries Index for April registered 51.5 percent, a decrease of 1 percentage point compared to March's reading of 52.5 percent. A reading above 50 percent indicates slower deliveries. The 10 industries reporting slower supplier deliveries in April are: Apparel; Rubber & Plastic Products; Paper; Glass, Stone & Aggregate; Furniture; Primary Metals; Wood & Wood Products; Instruments & Photographic Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.

Supplier
Deliveries
%Slower %Same %Faster Net Index
Apr 2005 14 76 10 +4 51.5
Mar 2005 13 81 6 +7 52.5
Feb 2005 14 80 6 +8 53.9
Jan 2005 13 79 8 +5 53.7

NOTE: A list of commodities in short supply is available on page 2 of this report.

Inventories

Manufacturers' inventories declined in April following a one-month increase as ISM's Inventories Index registered 47.9 percent, down 6.2 percentage points when compared to March's 54.1 percent. 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 chained 2000 dollars). The six industries reporting higher inventories in April are: Wood & Wood Products; Furniture; Industrial & Commercial Equipment & Computers; Food; Chemicals; and Transportation & Equipment.

Inventories %Higher %Same %Lower Net Index
Apr 2005 17 63 20 -3 47.9
Mar 2005 26 58 16 +10 54.1
Feb 2005 19 64 17 +2 48.6
Jan 2005 20 67 13 +7 52.8

Customers' Inventories**

The April Customers' Inventories Index is at 41.5 percent, 4.5 percentage points lower compared to the 46 percent reported in March. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 47th consecutive month that the index has registered below 50 percent. Four industries reported higher customers' inventories during April and they are: Furniture; Miscellaneous*; Electronic Components & Equipment; and Chemicals.

Customers'
Inventories
% Reporting %Too
High
%About
Right
%Too
Low
Net Index
Apr 2005 68 10 63 27 -17 41.5
Mar 2005 77 11 70 19 -8 46.0
Feb 2005 69 8 69 23 -15 42.5
Jan 2005 71 8 73 19 -11 44.5

Prices**

ISM's Prices Index indicates manufacturers continue to pay higher prices in April. This is the 38th consecutive month the index has registered higher prices. April's index is at 71 percent, 2 percentage points lower than March's reading of 73 percent. In April, 52 percent of supply executives reported paying higher prices and 10 percent reported paying lower prices, while 38 percent reported that prices were unchanged from the preceding month.

A Prices Index above 47.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In April, 18 industries reported paying higher prices: Tobacco; Petroleum; Leather; Glass, Stone & Aggregate; Textiles; Transportation & Equipment; Printing & Publishing; Chemicals; Paper; Instruments & Photographic Equipment; Furniture; Primary Metals; Electronic Components & Equipment; Rubber & Plastic Products; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Miscellaneous*; and Food.

Prices %Higher %Same %Lower Net Index
Apr 2005 52 38 10 +42 71.0
Mar 2005 51 44 5 +46 73.0
Feb 2005 38 55 7 +31 65.5
Jan 2005 45 48 7 +38 69.0

NOTE: A list of commodities up in price and down in price is available on page 2 of this report.

Backlog of Orders**

ISM's Backlog of Orders Index registered 53 percent, indicating manufacturers' backlogs in April are growing at a slower rate when compared to March. Of the 87 percent of respondents who report their backlog of orders, 25 percent reported greater backlogs, 19 percent reported smaller backlogs, and 56 percent reported no change from March. The 11 industries reporting an increase in order backlogs during the month are: Wood & Wood Products; Apparel; Furniture; Textiles; Glass, Stone & Aggregate; Miscellaneous*; Industrial & Commercial Equipment & Computers; Fabricated Metals; Instruments & Photographic Equipment; Food; and Transportation & Equipment.

Backlog of
Orders
% Reporting %Greater %Same %Less Net Index
Apr 2005 87 25 56 19 +6 53.0
Mar 2005 86 29 54 17 +12 56.0
Feb 2005 84 21 59 20 +1 50.5
Jan 2005 84 26 49 25 +1 50.5

New Export Orders

ISM's New Export Orders Index for April registered 57.2 percent, an increase of 1.8 percentage points when compared to March's index of 55.4 percent. This is the 40th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in April are: Tobacco; Food; Chemicals; Instruments & Photographic Equipment; Printing & Publishing; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Paper; Rubber & Plastic Products; Fabricated Metals; and Electronic Components & Equipment.

New Export
Orders
% Reporting %Higher %Same %Lower Net Index
Apr 2005 76 23 71 6 +17 57.2
Mar 2005 77 19 76 5 +14 55.4
Feb 2005 76 19 74 7 +12 57.4
Jan 2005 78 18 77 5 +13 56.9

Imports

Imports of materials by manufacturers grew during April as the Imports Index registered 56.7 percent. The index decreased 2.2 percentage points when compared to March's index of 58.9 percent, indicating a slower rate of growth. The 13 industries reporting growth in import activity for April are: Miscellaneous*; Printing & Publishing; Furniture; Textiles; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Transportation & Equipment; Wood & Wood Products; Electronic Components & Equipment; Rubber & Plastic Products; Instruments & Photographic Equipment; Fabricated Metals; and Chemicals.

Imports % Reporting %Higher %Same %Lower Net Index
Apr 2005 79 22 72 6 +16 56.7
Mar 2005 81 21 76 3 +18 58.9
Feb 2005 77 25 69 6 +19 60.7
Jan 2005 79 23 74 3 +20 61.1

*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 rose 7 days to 110 days. Average leadtime for Production Materials rose 4 days to 50 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies rose 1 day to 22 days.

Percent Reporting

Capital
Expenditures
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
April 2005 26 7 13 20 23 11 110
March 2005 25 10 13 21 22 9 103
February 2005 23 10 13 19 24 11 112
January 2005 23 11 12 21 24 9 106
 
Production
Materials
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
April 2005 23 36 24 12 3 2 50
March 2005 20 43 23 10 3 1 46
February 2005 21 40 22 12 4 1 48
January 2005 22 42 21 11 3 1 45
 
MRO
Supplies
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
April 2005 52 36 9 3 0 0 22
March 2005 54 34 10 2 0 0 21
February 2005 53 34 10 2 1 0 22
January 2005 56 31 11 2 0 0 21

About this Report

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 and 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 indexes for five of the indicators with varying weights: New Orders &150; 30%; Production &150; 25%; Employment &150; 20%; Supplier Deliveries &150; 15%; and Inventories &150; 10%.

Diffusion indexes 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 indicates that it is generally declining. A PMI in excess of 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 largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education. This 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 2005 data will be released at 10:00 a.m. (ET) on June 1, 2005.


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