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May 2003 Manufacturing ISM Report On Business®

FOR RELEASE: June 2, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 49.4%

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 May 2003.

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

(Tempe, Arizona) – Economic activity in the manufacturing sector failed to grow in May, while the overall economy grew for the 19th 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 May for the third consecutive month. However, there are signs of life in manufacturing as both the New Orders Index and the Production Index rose above the 50 percent mark after each had seen two consecutive months of decline. There is also good news on the pricing front as the Prices Index declined 12 percentage points, leaving it just above the breakeven point. Order backlogs grew in May following 10 months of decline. These are all signs of encouragement that manufacturing is recovering from the decline due to the war."

ISM's Backlog of Orders Index indicates that order backlogs increased in May. Manufacturing employment continued to decline in May as the index remained below the breakeven point (an index of 50 percent) for the 32nd consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the 15th consecutive month. New Export Orders grew in May for the 17th consecutive month. May's Imports Index grew for the seventh consecutive month.

Comments from purchasing and supply managers focus on the continued weakness in many sectors, pressure from natural gas prices, SARS concerns in Asia, and the impact of a declining dollar.

ISM's PMI rose to 49.4 percent in May, an increase of 4 percentage points when compared to 45.4 in April. ISM's New Orders Index rose 6.7 percentage points from 45.2 percent in April to 51.9 percent in May. ISM's Production Index rose 4.5 percentage points from 47 percent in April to 51.5 percent in May. The ISM Employment Index is at 43 percent for May, an increase of 1.6 percentage points when compared to the 41.4 percent reported in April.

ISM's Supplier Deliveries Index registered 51.3 percent, 1.3 percentage points higher than April's 50 percent. ISM's Inventories Index rose to 46.1 percent from 42.7 percent in April. ISM's Customers' Inventories Index for May is at 45 percent, a slight increase of 0.5 percentage point compared to the April reading of 44.5 percent. ISM's Prices Index in May is 51.5 percent, a decrease of 12 percentage points from April's 63.5 percent.

ISM's Backlog of Orders Index increased 3.5 percentage points, registering 51 percent in May compared to 47.5 percent in April. ISM's New Export Orders Index registered 50.8 percent, down 0.3 percentage point from April's 51.1 percent, while ISM's Imports Index declined from 54.5 percent in April to 52.2 percent in May.

"Supply managers' comments seem to be split among those who are starting to see improvement, those who see no improvement in sight, and those who are uncertain as to the direction. This is not really unusual when the economy is at a crossroads. Judging by the reversal in a number of the indexes this month, we are apparently at or near a crossroads," said Ore.

Of the 20 industries in the manufacturing sector, 11 industries reported growth: Petroleum; Glass, Stone, & Aggregate; Chemicals; Fabricated Metals; Electronic Components & Equipment; Food; Instruments & Photographic Equipment; Transportation & Equipment; Printing & Publishing; Miscellaneous*; and Paper.

"There are no commodities reported in short supply. Commodities reported up in price are: Caustic Soda; Chemicals; Copper; Lumber; Natural Gas; Plastic Resins; and Resin. The commodities reported down in price are Corrugated; Diesel Fuel; Fuel Oil; Gasoline; Natural Gas; and Steel," Ore stated.

MAY 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
May vs Apr
Rate of Change
May vs Apr
PMI 49.4 Contracting Slower
New Orders 51.9 Growing From Contracting
Production 51.5 Growing From Contracting
Employment 43.0 Contracting Slower
Supplier Deliveries 51.3 Slowing From Unchanged
Inventories 46.1 Contracting Slower
Customers' Inventories 45.0 Too Low Slower
Prices 51.5 Increasing Slower
Backlog of Orders 51.0 Growing From Contracting
New Export Orders 50.8 Growing Slower
Imports 52.2 Growing Slower

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

PMI

The PMI indicates that the manufacturing economy declined in May for the third consecutive month. The PMI for May registered 49.4 percent, an increase of 4 percentage points compared to the April reading of 45.4 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 May 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 May (49.1 percent) corresponds to a 2.3 percent increase in real gross domestic product (GDP). However, if the PMI for May (49.4 percent) turned out to be the annual average for 2003, this would correspond to a 2.4 percent increase in GDP.

Month May'03 Apr'03 Mar'03 Feb'03 Jan'03
PMI% 49.4 45.4 46.2 50.5 53.9
Month Dec'02 Nov'02 Oct'02 Sep'02 Aug'02
PMI% 55.2 50.5 49.7 50.7 50.3
Month Jul'02 Jun'02 May'02 Apr'02 Mar'02
PMI% 50.7 55.2 54.7 53.3 54.7

New Orders

ISM's New Orders Index grew in May with a reading of 51.9 percent. The index is 6.7 percentage points higher than the 45.2 percent registered in April, reversing the trend of the previous two months. 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 May are: Petroleum; Glass, Stone, & Aggregate; Chemicals; Fabricated Metals; Electronic Components & Equipment; Food; Transportation & Equipment; Instruments & Photographic Equipment; Rubber & Plastic Products; Primary Metals; and Printing & Publishing.

New
Orders
%Better %Same %Worse Net Index
May 2003 29 54 17 +12 51.9
April 2003 22 58 20 +2 45.2
March 2003 26 49 25 +1 46.2
February 2003 30 48 22 +8 52.3

Production

ISM's Production Index is 51.5 percent in May, 4.5 percentage points higher than the 47 percent reported in April. This indicates a reversal of the decline seen in March and April. 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 May, the following registered growth: Petroleum; Glass, Stone, & Aggregate; Chemicals; Fabricated Metals; Electronic Components & Equipment; Printing & Publishing; Instruments & Photographic Equipment; Miscellaneous*; Food; and Transportation & Equipment.

Production %Better %Same %Worse Net Index
May 2003 25 60 15 +10 51.5
April 2003 20 63 17 +3 47.0
March 2003 22 56 22 0 46.3
February 2003 28 54 18 +10 55.4

Employment

ISM's Manufacturing Employment Index remained below 50 percent in May for the 32nd consecutive month. The index registered 43 percent in May compared to 41.4 percent in April, an increase of 1.6 percentage points. 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 only industries reporting growth in employment during May are: Apparel and Food.

Employment %Higher %Same %Lower Net Index
May 2003 13 65 22 -9 43.0
April 2003 9 68 23 -14 41.4
March 2003 9 69 22 -13 42.1
February 2003 10 65 25 -15 42.8

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower in May with a reading of 51.3 percent. This is an increase of 1.3 percentage points when compared to April's reading of 50 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in May are: Instruments & Photographic Equipment; Textiles; Glass, Stone, & Aggregate; Transportation & Equipment; Miscellaneous*; Chemicals; Industrial & Commercial Equipment & Computers; and Electronic Components & Equipment.

Supplier
Deliveries
%Slower %Same %Faster Net Index
May 2003 8 87 5 +3 51.3
April 2003 7 86 7 0 50.0
March 2003 10 86 4 +6 53.8
February 2003 9 88 3 +6 53.3

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 in May as the Inventories Index registered 46.1 percent. This compares to 42.7 percent reported in April. The Inventories Index has been under 50 percent for 40 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 five industries reporting higher inventories in May are: Paper; Electronic Components & Equipment; Food; Fabricated Metals; and Furniture.

Inventories %Higher %Same %Lower Net Index
May 2003 14 65 21 -7 46.1
April 2003 14 59 27 -13 42.7
March 2003 15 57 28 -13 42.3
February 2003 15 61 24 -9 43.8

Customers' Inventories

The Customers' Inventories Index is at 45 percent, an increase of 0.5 percentage point compared to the April reading of 44.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 24th consecutive month that the index has registered below 50 percent. Glass, Stone, & Aggregate; Paper; and Chemicals are the only industries reporting excessive customers' inventories during May.

Customers'
Inventories
%
Reporting
%
Too
High
%
About
Right
%
Too
Low
Net Index
May 2003 78 10 70 20 -10 45.0
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

Prices

ISM's Prices Index (not seasonally adjusted, effective with January 2003 seasonal adjustments) indicates manufacturers continued to pay higher prices in May. This is the 15th consecutive month the index has registered higher prices. With the index at 51.5 percent, the index is significantly less than April's reading of 63.5 percent. In May, 21 percent of supply executives reported paying higher prices and 18 percent reported paying lower prices, while 61 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 May are: Tobacco; Petroleum; Leather; Wood & Wood Products; Textiles; Paper; Rubber & Plastic Products; Food; Printing & Publishing; Chemicals; and Furniture.

Prices %Higher %Same %Lower Net Index
May 2003 21 61 18 +3 51.5
April 2003 37 53 10 +27 63.5
March 2003 47 46 7 +40 70.0
February 2003 40 51 9 +31 65.5

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 51 percent, indicating growth in manufacturers' backlogs as the index rose 3.5 percentage points compared with April's report of 47.5 percent. This is the first month that the index has grown after 10 consecutive months of decline. Of the 86 percent of respondents who report their backlog of orders, 21 percent reported greater backlogs, 19 percent reported smaller backlogs, and 60 percent reported no change from April. The industries reporting an increase in order backlogs during the month are: Paper; Printing & Publishing; Fabricated Metals; Transportation & Equipment; Miscellaneous*; Chemicals; and Instruments & Photographic Equipment.

Backlog
of Orders
%
Reporting
%
Greater
%
Same
%
Less
Net Index
May 2003 86 21 60 19 +2 51.0
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

New Export Orders

ISM's New Export Orders Index for May registered 50.8 percent, a decrease of 0.3 percentage point when compared to April's index of 51.1 percent. This is the 17th consecutive month of growth in export orders. The industries reporting growth in new export orders in May are: Electronic Components & Equipment; Food; Printing & Publishing; Instruments & Photographic Equipment; Chemicals; Paper; Rubber & Plastic Products; and Miscellaneous*.

New Export
Orders
%
Reporting
%
Better
%
Same
%
Worse
Net Index
May 2003 75 16 72 12 +4 50.8
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

Imports

Imports of materials by manufacturers grew during May as the Imports Index registered 52.2 percent. The index declined 2.3 percentage points when compared to April's index of 54.5 percent. The eight industries reporting growth in import activity for May are: Textiles; Instruments & Photographic Equipment; Paper; Fabricated Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Chemicals.

Imports %Reporting %Higher %Same %Lower Net Index
May 2003 79 16 75 9 +7 52.2
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

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

Buying Policy

Average commitment leadtime for Capital Expenditures rose three days to 104 days. Average leadtime for Production Materials increased one day to 46 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies increased one day to 21 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
May 2003 23 9 15 23 21 9 104
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
Production Materials              
May 2003 21 45 20 8 5 1 46
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
MRO Supplies              
May 2003 54 36 8 1 1 0 21
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

In Short Supply

No commodities are reported in short supply.

Up in Price

Caustic Soda – 12th month; Chemicals – 5th month; Copper; Lumber; Natural Gas* – 10th month; Plastic Resins – 4th month; and Resin – 5th month.

Down in Price

Corrugated – 3rd month; Diesel Fuel; Fuel Oil – 2nd month; Gasoline; Natural Gas* – 2nd month; and Steel – 2nd month.

*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 June 2003 data will be released at 10:00 a.m. (ET) on July 1, 2003.



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