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May 2002 Manufacturing ISM Report On Business®

FOR RELEASE: June 3, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 55.7%

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 2002.

New Orders, Production Growing
Supplier Deliveries Slowing
Employment, Inventories Decline
Exports, Imports Growing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the fourth consecutive month in May. The overall economy grew for the seventh 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. "May was a good month for manufacturing. The PMI strengthened as 16 industries saw improvement in new orders. This should help establish momentum in the sector that will carry forward into the third quarter."

ISM's Backlog of Orders Index indicates that order backlogs grew for the fourth consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the fifth consecutive month. Manufacturing employment continued to decline in May as the index remained below the breakeven point (an index of 50 percent) for the 20th consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the third consecutive month. New Export Orders grew in May for the fifth consecutive month. May's Imports Index decelerated, while still registering growth for the sixth consecutive month.

Comments from purchasing and supply executives continue to vary greatly. An electronics industry respondent suggested the "economy is in search of its identity," while another said "some positive changes are coming into view." Metal fabricators report diverse comments as well, such as, "It appears the economy may be turning around" and "Sales are still relatively soft for the spring season. Adverse weather seems to be a factor."

ISM's PMI is 55.7 percent in May, an increase 1.8 percentage points from the 53.9 percent reported in April. ISM's New Orders Index rose from 59 percent in April to 63.1 percent in May. ISM's Production Index rose 0.5 percentage point from 58 percent in April to 58.5 percent in May. The ISM Employment Index is at 47.3 percent for May, an increase of 0.6 percentage point when compared to the 46.7 percent reported in April.

ISM's Supplier Deliveries Index registered 53.9 percent, compared to 53.7 percent in April. ISM's Inventories Index rose to 45.6 percent. ISM's Customer Inventories Index for May is at 39 percent, a slight decrease when compared to April's 40.5 percent, indicating less inventory in the supply chain. ISM's Prices Index in May is 63 percent, an increase of 2.7 percentage points from April's 60.3 percent. ISM's Backlog of Orders Index rose slightly from 56 percent in April to 56.5 percent in May.

ISM's New Export Orders Index registered 53.3 percent, up 1.4 percentage points from April's 51.9 percent. The rate of growth in imports slowed somewhat, as the Index declined from 55.7 percent in April to 53.6 percent in May.

"The growth in manufacturing activity continued and even gained some momentum during May. Some sectors are experiencing a faster recovery than others," added Ore. "May's PMI indicates the fourth consecutive month of significant growth. The pass-through of oil prices seems to have slowed. Energy is still a concern for many buyers. Primary Metals, Furniture, Transportation & Equipment, and Printing & Publishing are aggressively hiring at this time."

Of the 20 industries in the manufacturing sector, 18 industries reported growth: Petroleum; Textiles; Rubber & Plastic Products; Transportation & Equipment; Furniture; Glass, Stone & Aggregate; Instruments & Photographic Equipment; Primary Metals; Wood & Wood Products; Fabricated Metals; Electronic Components & Equipment; Tobacco; Paper; Chemicals; Printing & Publishing; Food; Industrial & Commercial Equipment & Computers; and Apparel.

"Steel is the only commodity reported in short supply. Commodities reported up in price are: Aluminum, High Density Polyethylene; Natural Gas, Paper, Plastic Film, Polyethylene, Resins, Steel, Steel - Cold Rolled, and Steel - Flat Rolled. The commodities reported down in price are: Caustic Soda, Corrugated Containers, and Packaging," Ore stated.

MAY 2002 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
May vs Apr
Rate of Change
May vs Apr
PMI 55.7 Growing Faster
New Orders 63.1 Growing Faster
Production 58.5 Growing Faster
Employment 47.3 Contracting Slower
Supplier Deliveries 53.9 Slowing Faster
Inventories 45.6 Contracting Slower
Customer Inventories 39.0 Too Low Faster
Prices 63.0 Increasing Faster
Backlog of Orders 56.5 Growing Faster
New Export Orders 53.3 Growing Faster
Imports 53.6 Growing Slower

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

PMI

The PMI indicates that the manufacturing economy grew for the fourth consecutive month during May with an index of 55.7 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 May PMI indicates that both the overall economy and the manufacturing sector are growing. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through May (54 percent) corresponds to 4.1 percent growth in real gross domestic product (GDP). However, if the PMI for May (55.7 percent) turned out to be the annual average for 2002, it would correspond to a 4.7 percent increase in GDP."

Month May's02 Apr's02 Mar's02 Feb's02 Jan's02
PMI% 55.7 53.9 55.6 54.7 49.9
Month Dec's01 Nov's01 Oct's01 Sep's01 Aug's01
PMI% 48.1 44.7 39.5 46.2 47.9
Month Jul's01 Jun's01 May's01 Apr's01 Mar's01
PMI% 43.9 44.3 42.3 43.2 43.2

New Orders

ISM's New Orders Index indicated growth in May for the sixth consecutive month. The index is 63.1 percent, 4.1 percentage points higher than the 59 percent registered in April. A New Orders Index above 50.8 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 May are: Petroleum; Rubber & Plastic Products; Furniture; Glass, Stone & Aggregate; Transportation & Equipment; Instruments & Photographic Equipment; Textiles; Wood & Wood Products; Electronic Components & Equipment; Paper; Primary Metals; Fabricated Metals; Chemicals; Food; Printing & Publishing; and Industrial & Commercial Equipment & Computers.

New
Orders
%
Better
%
Same
%
Worse
Net Index
May 2002 43 45 12 +31 63.1
April 2002 44 43 13 +31 59.0
March 2002 49 40 11 +38 65.3
February 2002 39 47 14 +25 62.8

Production

ISM's Production Index is 58.5 percent in May, 0.5 percentage point higher than the 58 percent reported in April. This is the sixth consecutive month that the Production Index has been above 50 percent, indicating growth in manufacturing production. An index above 49.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the 19 industries reporting in May, the following registered growth: Petroleum; Instruments & Photographic Equipment; Tobacco; Textiles; Transportation & Equipment; Glass, Stone & Aggregate; Wood & Wood Products; Rubber & Plastic Products; Fabricated Metals; Primary Metals; Paper; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Chemicals; Food; and Printing & Publishing.

Production %
Better
%
Same
%
Worse
Net Index
May 2002 35 53 12 +23 58.5
April 2002 38 49 13 +25 58.0
March 2002 36 52 12 +24 57.8
February 2002 33 54 13 +20 61.2

Employment

ISM's Manufacturing Employment Index remained below 50 percent in May for the 20th consecutive month. The Index registered 47.3 percent in May compared to 46.7 percent in April, an increase of 0.6 percentage point. An Employment Index above 47.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Industries reporting growth in employment are: Primary Metals; Furniture; Transportation & Equipment; Printing & Publishing; Rubber & Plastic Products; Chemicals; Fabricated Metals; and Textiles.

Employment %
Higher
%
Same
%
Lower
Net Index
May 2002 18 65 17 +1 47.3
April 2002 16 64 20 -4 46.7
March 2002 17 62 21 -4 47.5
February 2002 9 68 23 -14 43.8

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower (a reading above 50 percent indicates slower deliveries). At 53.9 percent, the Index is 0.2 percentage point higher than April's 53.7 percent. The industries reporting slower supplier deliveries in May are: Apparel; Fabricated Metals; Furniture; Instruments & Photographic Equipment; Textiles; Electronic Components & Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Industrial & Commercial Equipment & Computers; and Chemicals.

Supplier
Deliveries
%
Slower
%
Same
%
Faster
Net Index
May 2002 13 82 5 +8 53.9
April 2002 10 87 3 +7 53.7
March 2002 10 84 6 +4 53.1
February 2002 9 85 6 +3 52.3

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 again in May as the Inventories Index registered 45.6 percent compared to the 42.9 percent reported in April. The Inventories Index has been under 50 percent for 28 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 (in constant 1987 dollars). Four industries reported higher inventories in May: Textiles; Primary Metals; Chemicals; and Fabricated Metals.

Inventories %
Higher
%
Same
%
Lower
Net Index
May 2002 14 61 25 -11 45.6
April 2002 13 61 26 -13 42.9
March 2002 11 63 26 -15 41.2
February 2002 10 64 26 -16 39.5

Customers's Inventories

The Customers' Inventories Index is at 39 percent, down from 40.5 percent reported in April. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 12th consecutive month that the index has registered below 50. There were no reports of excessive customers' inventories in May.

Customer
Inventories
%
Reporting
%
Too
High
%
About
Right
%
Too
Low
Net Index
May 2002 85 4 70 26 -22 39.0
April 2002 86 8 65 27 -19 40.5
March 2002 87 7 66 27 -20 40.0
February 2002 88 8 67 25 -17 41.5

Prices

ISM's Prices Index indicates manufacturers paid higher prices in May. This is the third month the Index has registered higher prices. With the Index at 63 percent, it is 2.7 percentage points higher than April's 60.3 percent. In May, 38 percent of supply executives reported paying higher prices and 8 percent reported paying lower prices, while 54 percent reported that prices were unchanged from the preceding month.

A Prices Index below 46.6 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 May are: Petroleum; Primary Metals; Glass, Stone & Aggregate; Rubber & Plastic Products; Fabricated Metals; Tobacco; Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Chemicals; Paper; Furniture; Transportation & Equipment; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Food; Electronic Components & Equipment; and Textiles.

Prices %
Higher
%
Same
%
Lower
Net Index
May 2002 38 54 8 +30 63.0
April 2002 36 53 11 +25 60.3
March 2002 18 66 16 +2 51.9
February 2002 9 65 26 -17 41.5

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 56.5 percent, indicating a faster rate of growth in manufacturers' backlogs as the Index rose 0.5 percentage point from April's report of 56 percent. Of the 89 percent of respondents who measure their backlog of orders, 29 percent reported greater backlogs, 16 percent reported smaller backlogs, and 55 percent reported no change from April. The industries reporting an increase in order backlog during the month are: Petroleum; Furniture; Glass, Stone & Aggregate; Textiles; Paper; Electronic Components & Equipment; Transportation & Equipment; Wood & Wood Products; Rubber & Plastic Products; Primary Metals; and Chemicals.

Backlog
of Orders
%
Reporting
%
Greater
%
Same
%
Less
Net Index
May 2002 89 29 55 16 +13 56.5
April 2002 87 27 58 15 +12 56.0
March 2002 87 35 55 10 +25 62.5
February 2002 88 23 60 17 +6 53.0

New Export Orders

ISM's New Export Orders Index for May registered 53.3 percent, an increase of 1.4 percentage points when compared to April's index of 51.9 percent. This is the fifth consecutive month of growth for New Export Orders. The industries reporting growth in new export orders in May are: Wood & Wood Products; Textiles; Furniture; Transportation & Equipment; Printing & Publishing; Chemicals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; and Rubber & Plastic Products.

New Export
Orders
%
Exporting
%
Better
%
Same
%
Worse
Net Index
May 2002 76 15 77 8 +7 53.3
April 2002 77 15 76 9 +6 51.9
March 2002 76 13 77 10 +3 51.0
February 2002 74 11 78 11 0 51.1

Imports

Imports of materials by manufacturers continued to grow in May as the Imports Index registered 53.6 percent. The May Index indicates a slower rate of growth as evidenced by the 2.1 percentage points decline when compared to 55.7 percent in April. The eight industries reporting growth in import activity for May are: Wood & Wood Products; Furniture; Transportation & Equipment; Fabricated Metals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Food; and Printing & Publishing.

Imports %
Importing
%
Higher
%
Same
%
Lower
Net Index
May 2002 77 18 75 7 +11 53.6
April 2002 76 19 75 6 +13 55.7
March 2002 75 15 80 5 +10 53.4
February 2002 75 10 81 9 +1 52.0

Buying Policy

Average commitment leadtime for Capital Expenditures rose 3 days to 94 days. Average leadtime for Production Materials declined 1 day to 49 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies was unchanged at 20 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
May 2002 26 4 17 26 22 5 94
April 2002 23 12 14 25 21 5 91
March 2002 24 6 18 24 23 5 95
February 2002 25 8 16 21 23 7 99
Production Materials              
May 2002 21 45 18 10 4 2 49
April 2002 18 46 19 11 4 2 50
March 2002 22 48 17 7 4 2 46
February 2002 25 47 17 7 2 2 43
MRO Supplies              
May 2002 55 36 7 1 1 0 20
April 2002 56 34 8 2 0 0 20
March 2002 55 33 8 3 1 0 22
February 2002 53 35 10 2 0 0 21

In Short Supply

Steel (third month) is the only commodity reported in short supply.

Up in Price

Aluminum — 4th month; High Density Polyethylene — 2nd month; Natural Gas — 3rd month; Paper — 2nd month ; Plastic Film; Polyethylene — 2nd month; Resins — 2nd month; Steel — 4th month; Steel – Cold Rolled; Steel – Flat Rolled.

Down in Price

Caustic Soda — 13th month; Corrugated Containers — 16th month; Packaging.

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.

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 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 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 42.7 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.

TThe 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. In June 2001 the membership of NAPM voted to change the association's name from the National Association of Purchasing Management to the Institute for Supply Management™ to reflect the increasing strategic and global significance of supply management. For further information, see the ISM Web site at www.ism.ws. 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 June 2002 data will be released at 10:00 a.m. (ET) on July 1, 2002.



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