May 2001 Manufacturing Report On Business®

FOR RELEASE: June 1, 2001

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (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 May 2001.

Purchasing Managers' Index (PMI) at 42.1%
Production, New Orders, and Employment Contracting
Prices and Inventories Declining

(Tempe, Arizona) — Economic activity in the manufacturing sector declined in May for the 10th consecutive month. The overall economy failed to grow in May, say the nation's purchasing executives in the latest Manufacturing NAPM Report On Business®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the National Association of Purchasing Management's Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The manufacturing sector continued to decelerate, and at a faster rate, in May. While the sector continues to struggle, it is encouraging that pricing pressures appear to be moderating and inventory liquidation has accelerated relieving concerns about inflationary pressures. May appears to be a continuation of the soft start for the second quarter that we saw in April. However, there is no evidence of recovery in this month's report as the key indicators continue to decelerate at a faster pace."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the 13th consecutive month. NAPM's Supplier Deliveries Index, after reversing direction in March, continues to reflect faster deliveries. Manufacturing employment declined in May as the index fell below the breakeven point (an index of 50 percent) for the eighth consecutive month. This is the lowest point for the index since March 1991 (33.6 percent). NAPM's Prices Index fell below 50 percent as manufacturers experienced lower prices for the third consecutive month after 22 months of paying higher prices. New Export Orders failed to grow in May as the index fell below 50 percent for the second consecutive month. May's Imports Index failed to grow for the fifth consecutive month. Comments from purchasing managers this month express concerns about the economy, the impact of continuing high energy prices, and a lackluster quarter in the automotive sector.

NAPM's Purchasing Managers' Index is 42.1 percent in May, a decrease of 1.1 percentage points from the 43.2 percent reported in April. NAPM's Production Index fell 0.2 percentage point from 42.9 percent in April to 42.7 percent in May. NAPM's New Orders Index declined 0.4 percentage point from 45.9 percent in April to 45.5 percent in May. NAPM's Backlog of Orders Index declined from 43.5 percent in April to 40 percent in May, indicating smaller backlogs. NAPM's Supplier Deliveries Index is 45.7 percent in May, indicating faster deliveries during the month. The NAPM Employment Index is at 35 percent for May, a decrease of 3.1 percentage points when compared to the 38.1 percent reported in April. NAPM's Prices Index in May is 45.2 percent, a decrease of 3.7 percentage points from April's 48.9 percent.

NAPM's Inventories Index is at 38.7 percent indicating a faster rate of inventory liquidation when compared to April's 39.6 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 19 percent of the purchasing executives felt they were too high (down from 20 percent in April), while 17 percent felt they were too low (down from 20 percent in April) and 64 percent thought they were about right (up from 60 percent in April). NAPM's New Export Orders Index registered 45.6 percent, down from April's 47.3 percent. Imports of materials by manufacturers continued to decline as NAPM's Imports Index is 46.6 percent in May, down from April's 47.2 percent.

"The overall picture is one of continued decline in manufacturing activity during the month of May," added Ore. "The manufacturing sector is in its 10th month of decline and continues sluggish at best. Major concerns are slowing demand, both domestically and internationally, and energy-related issues."

Of the 20 industries in the manufacturing sector, three reported growth: Food; Industrial & Commercial Equipment & Computers; and Wood & Wood Products.

"Caustic Soda and Vanilla are the commodities reported on the Short Supply List. Commodities with reports of price increases are: Caustic Soda (also reported down in price), Dairy Products, Electricity, Energy, Fuel Oil, Gasoline, Natural Gas (also reported down in price), and Petroleum Products. The commodities reported down in price are: Aluminum, Caustic Soda (also reported up in price), Corrugated Containers, Methanol, Natural Gas (also reported up in price), Paper, Propylene, Stainless Steel, Steel, and Wood Pulp," Ore stated.

Series May
May vs Apr
Rate of Change
May vs Apr
PMI 42.1 Contracting Faster
Production 42.7 Contracting Faster
New Orders 45.5 Contracting Faster
Backlog of Orders 40.0 Contracting Faster
Supplier Deliveries 45.7 Faster Faster
Inventories 38.7 Contracting Faster
Employment 35.0 Contracting Faster
Prices 45.2 Contracting Faster
New Export Orders 45.6 Contracting Faster
Imports 46.6 Contracting Faster

Overall Economy Contracting From Growing
Manufacturing Contracting Faster

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy failed to grow during the month of May with an index of 42.1 percent, a decrease when compared to April's PMI of 43.2 percent. This is the 10th consecutive month that the manufacturing sector has failed to grow. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

The May index of 42.1 percent indicates a decline in the overall economy as well as the manufacturing sector. A PMI in excess of 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through May (42.3 percent) corresponds to a -0.2 percent annual decrease in real gross domestic product (GDP). If the PMI for May (42.1 percent) turned out to be the annual average for 2001, this would correspond to the same annual decrease in GDP."

Month May'01 Apr'01 Mar'01 Feb'01 Jan'01
PMI% 42.1 43.2 43.1 41.9 41.2
Month Dec'00 Nov'00 Oct'00 Sep'00 Aug'00
PMI% 44.3 47.9 48.3 49.6 49.9
Month Jul'00 Jun'00 May'00 Apr'00 Mar'00
PMI% 51.7 52.1 53.1 54.7 55.3


NAPM's Production Index declined to 42.7 percent in May down slightly from 42.9 percent in April. This is the sixth consecutive month that the index has fallen below 50 percent. Of the 20 industries reporting, only Primary Metals and Food grew in May. An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Production %Better %Same %Worse Net Index
May 2001 19 52 29 -10 42.7
April 2001 21 50 29 -8 42.9
March 2001 20 51 29 -9 42.8
February 2001 19 41 40 -21 39.7

New Orders

NAPM's New Orders Index failed to grow in May for the 11th consecutive month. The index is at 45.5 percent representing a decrease of 0.4 percentage point when compared to April's 45.9 percent. A New Orders Index above 50.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars). For the month of May, four industries reported higher rates of increase in new orders. They were (listed in order): Wood & Wood Products; Industrial & Commercial Machinery & Equipment; Food; and Rubber & Plastic Products.

New Orders %Better %Same %Worse Net Index
May 2001 25 45 30 -5 45.5
April 2001 28 45 27 +1 45.9
March 2001 22 46 32 -10 42.3
February 2001 21 40 39 -18 40.8

Backlog of Orders

The Backlog of Orders Index failed to grow for the 13th consecutive month in May. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 40 percent indicating a faster rate of decline in manufacturers' backlogs than reported in April. Of the 90 percent of respondents who measure their backlog of orders, 14 percent reported greater backlogs, 34 percent reported smaller backlogs, and 52 percent reported no change from April. Wood & Wood Products was the only industry reporting an increased backlog of orders during the month.

of Orders
%Reporting %Greater %Same %Less Net Index
May 2001 90 14 52 34 -20 40.0
April 2001 90 16 55 29 -13 43.5
March 2001 88 20 47 33 -13 43.5
February 2001 90 13 48 39 -26 37.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in May indicates delivery performance is faster when compared to April (a reading below 50 percent indicates faster deliveries). At 45.7 percent, the index is 1.7 percentage points lower than April's 47.4 percent. The industries reporting slower supplier deliveries in May were: Textiles and Rubber & Plastic Products.

%Slower %Same %Faster Net Index
May 2001 6 80 14 -8 45.7
April 2001 5 85 10 -5 47.4
March 2001 9 77 14 -5 48.3
February 2001 6 88 6 0 51.3

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


The rate of liquidation of manufacturers' inventories accelerated in May as the Inventories Index registered 38.7 percent, down from the 39.6 percent reported in April. The Inventories Index has been under 50 percent for 16 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 (constant 1987 dollars). There were no reports of higher inventories in the industry sectors.

Inventories %Higher %Same %Lower Net Index
May 2001 13 51 36 -23 38.7
April 2001 16 49 35 -19 39.6
March 2001 19 52 29 -10 44.2
February 2001 19 55 26 -7 45.7


NAPM's Manufacturing Employment Index fell below 50 percent in May for the eighth consecutive month. The index registered 35 percent in May compared to 38.1 percent in April, a decrease of 3.1 percentage points.

An Employment Index above 47.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Food is the only industry indicating growth in employment during the month.

Employment %Higher %Same %Lower Net Index
May 2001 11 53 36 -25 35.0
April 2001 10 59 31 -21 38.1
March 2001 12 58 30 -18 40.4
February 2001 10 54 36 -26 37.2


NAPM's Prices Index indicates manufacturers paid lower prices in May. With the index at 45.2 percent, this marks the third consecutive month that the index has been below 50 percent after 22 consecutive months of higher prices. The index is 3.7 percentage points lower than April's 48.9 percent. In May, 14 percent of purchasing executives reported paying higher prices and 21 percent reported paying lower prices, while 65 percent reported that prices were unchanged from the preceding month.

A Prices Index below 46.4 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The three industries that reported paying higher prices were: Wood & Wood Products; Glass, Stone & Aggregate; and Food.

Prices %Higher %Same %Lower Net Index
May 2001 14 65 21 -7 45.2
April 2001 18 63 19 -1 48.9
March 2001 21 56 23 -2 49.9
February 2001 27 57 16 +11 58.1

NOTE: A list of commodities up in price and down in price is available at the end of this report.

New Export Orders

NAPM's New Export Orders Index for May registered 45.6 percent, 1.7 percentage points lower than April's index of 47.3 percent. The Index has fallen below 50 percent in seven of the last eight months. Industries reporting growth in new export orders in May were: Instruments & Photographic Equipment and Food.

New Export
%Exporting %Better %Same %Worse Net Index
May 2001 77 6 80 14 -8 45.6
April 2001 79 10 77 13 -3 47.3
March 2001 75 13 76 11 +2 50.6
February 2001 80 11 70 19 -8 47.6


Imports of materials by manufacturers continued to decline in May as the Imports Index registered 46.6 percent, a 0.6 percentage point decrease when compared to April's report of 47.2 percent. The four industries reporting growth in import activity for May were: Glass, Stone & Aggregate; Furniture; Fabricated Metals; and Chemicals.

Imports %Importing %Higher %Same %Lower Net Index
May 2001 77 8 81 11 -3 46.6
April 2001 79 9 78 13 -4 47.2
March 2001 76 11 78 11 0 49.1
February 2001 77 10 71 19 -9 46.5

Buying Policy

Average commitment leadtime for Capital Expenditures declined 3 days to 104 days. Average leadtime for Production Materials remained unchanged at 45 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained unchanged at 22 days.

Percent Reporting
Capital Expenditures              
May 2001 19 9 19 21 25 7 104
April 2001 23 8 15 19 27 8 107
March 2001 20 10 18 16 28 8 108
February 2001 19 7 16 22 29 7 110
Production Materials              
May 2001 23 40 23 10 3 1 45
April 2001 26 38 23 8 4 1 45
March 2001 21 44 23 9 3 0 42
February 2001 23 42 24 7 3 1 43
MRO Supplies              
May 2001 53 37 7 2 1 0 22
April 2001 48 40 10 2 0 0 22
March 2001 48 38 11 2 1 0 24
February 2001 49 38 10 2 1 0 23

In Short Supply

Caustic Soda — 9th month; and Vanilla.

Up in Price

Caustic Soda — 11th month (also reported down in price); Dairy Products; Electricity; Energy; Fuel Oil; Gasoline — 5th month; Natural Gas — 17th month (also reported down in price); and Petroleum Products.

Down in Price

Aluminum — 3rd month; Caustic Soda (also reported up in price); Corrugated Containers — 4th month; Methanol; Natural Gas — 4th month (also reported up in price); Paper — 2nd month; Propylene; Stainless Steel — 6th month; Steel; and Wood Pulp.

Data and Method of Presentation

The Manufacturing NAPM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing executives in over 350 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, 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 (New Orders, Production, Supplier Deliveries, Inventories, and Employment) with varying weights.

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, that 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, NAPM 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 NAPM Report On Business® is published monthly by the National Association of Purchasing Management, the largest purchasing and supply management research and education organization in the United States. NAPM is comprised of 180 affiliates with more than 47,000 members in the United States. 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 NAPM Report On Business® is posted on NAPM's Web site at on the first business day of every month after 10:10 a.m. (ET).

The next Manufacturing NAPM Report On Business® featuring the June 2001 data will be released at 10:00 a.m. (ET) on July 2, 2001.

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