June 2002 Manufacturing ISM Report On Business®

FOR RELEASE: July 1, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 56.2%

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 June 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 fifth consecutive month in June. The overall economy grew for the eighth 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. "June was a good month for manufacturing. The PMI strengthened as 15 industries saw improvement in production. June's Production Index of 61.4 percent is the highest recorded since June 1999."

ISM's Backlog of Orders Index indicates that order backlogs grew for the fifth consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the sixth consecutive month. Manufacturing employment continued to decline in June as the index remained below the breakeven point (an index of 50 percent) for the 21st consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the fourth consecutive month. New Export Orders grew in June for the sixth consecutive month. June's Imports Index accelerated, while still registering growth for the seventh consecutive month.

Comments from purchasing and supply executives indicate that the manufacturing recovery is gaining momentum, but business is not as strong when looking at year-over-year performance. The weakening U.S. dollar has had an immediate impact on export orders as survey respondents note activity in offshore markets that had been closed due to currency valuations. The recent steel tariffs drove many comments as respondents indicated that the tariffs are moving prices higher and extending deliveries in the industry.

ISM's PMI is 56.2 percent in June, an increase 0.5 percentage point when compared to 55.7 percent reported in May. ISM's New Orders Index declined from 63.1 percent in May to 60.8 percent in June. ISM's Production Index rose 2.9 percentage points from 58.5 percent in May to 61.4 percent in June. The ISM Employment Index is at 49.7 percent for June, an increase of 2.4 percentage points when compared to the 47.3 percent reported in May.

ISM's Supplier Deliveries Index registered 55.2 percent, compared to 53.9 percent in May. ISM's Inventories Index declined to 43.7 percent. ISM's Customer Inventories Index for June is at 44.5 percent, a significant increase when compared to May's 39 percent. ISM's Prices Index in June is 65.5 percent, an increase of 2.5 percentage points from May's 63 percent. ISM's Backlog of Orders Index declined 3 percentage points from 56.5 percent in May to 53.5 percent in June.

ISM's New Export Orders Index registered 54.5 percent, up 1.2 percentage points from May's 53.3 percent. The rate of growth in imports slowed somewhat, as the Imports Index rose from 53.6 percent in May to 55.1 percent in June.

"The growth in manufacturing activity accelerated slightly during June," added Ore. "Steel price increases are drawing a lot of attention from supply managers, and while energy prices have moderated, they are still a concern. Transportation & Equipment; Furniture; and Textiles report a strong upswing in hiring during June. Overall, June was a good month for U.S. manufacturing."

Of the 20 industries in the manufacturing sector, 15 industries reported growth: Textiles; Glass, Stone & Aggregate; Furniture; Paper; Transportation & Equipment; Printing & Publishing; Chemicals; Wood & Wood Products; Fabricated Metals; Food; Instruments & Photographic Equipment; Rubber & Plastic Products; Industrial & Commercial Equipment & Computers; Primary Metals; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

"Steel; Steel, Coated; and Steel, Flat Rolled are the only commodities reported in short supply. Commodities reported up in price are: Aluminum, Caustic Soda; Copper; Corrugated Containers; Energy; Ethylene; Fuels; Molybdenum; Nickel, Polyethylene, Polyethylene, High Density; Polypropylene; Pulp; Resins, Steel; Steel, Coated; Steel, Cold Rolled, Steel, Flat Rolled; Steel, Pipe & Tubing; and Steel, Stampings. The only commodities reported down in price are: Corrugated Containers and Natural Gas," Ore stated.

JUNE 2002 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
June vs May
Rate of Change
June vs May
PMI 56.2 Growing Faster
New Orders 60.8 Growing Slower
Production 61.4 Growing Faster
Employment 49.7 Contracting Slower
Supplier Deliveries 55.2 Slowing Faster
Inventories 43.7 Contracting Faster
Customer Inventories 44.5 Too Low Slower
Prices 65.5 Increasing Faster
Backlog of Orders 53.5 Growing Slower
New Export Orders 54.5 Growing Faster
Imports 55.1 Growing Faster

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

PMI

The PMI indicates that the manufacturing economy grew for the fifth consecutive month during June with an index of 56.2 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 June 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 June (54.3 percent) corresponds to 4.2 percent growth in real gross domestic product (GDP). However, if the PMI for June (56.2 percent) turned out to be the annual average for 2002, it would correspond to a 4.9 percent increase in GDP."

Month Jun'02 May'02 Apr'02 Mar'02 Feb'02
PMI% 56.2 55.7 53.9 55.6 54.7
Month Jan'02 Dec'01 Nov'01 Oct'01 Sep'01
PMI% 49.9 48.1 44.7 39.5 46.2
Month Aug'01 Jul'01 Jun'01 May'01 Apr'01
PMI% 47.9 43.9 44.3 42.3 43.2

New Orders

ISM's New Orders Index indicated growth in June for the seventh consecutive month. The index is 60.8 percent, 2.3 percentage points lower than the 63.1 percent registered in May. 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 June are: Textiles; Furniture; Glass, Stone & Aggregate; Wood & Wood Products; Paper; Chemicals; Transportation & Equipment; Printing & Publishing; Rubber & Plastic Products; Food; Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Industrial & Commercial Equipment & Computers; Primary Metals; Fabricated Metals; and Electronic Components & Equipment.

New Orders %Better %Same %Worse Net Index
June 2002 38 50 12 +26 60.8
May 2002 43 45 12 +31 63.1
April 2002 44 43 13 +31 59.0
March 2002 49 40 11 +38 65.3

Production

ISM's Production Index is 61.4 percent in June, 2.9 percentage points higher than the 58.5 percent reported in May. This is the seventh consecutive month that the Production Index has been above 50 percent, indicating growth in manufacturing production. It is also the strongest reading for this Index since June 1999 (62.7 percent). 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 June, the following registered growth: Textiles; Fabricated Metals; Printing & Publishing; Chemicals; Glass, Stone & Aggregate; Paper; Instruments & Photographic Equipment; Food; Furniture; Transportation & Equipment; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Primary Metals; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

Production %Better %Same %Worse Net Index
June 2002 34 56 10 +24 61.4
May 2002 35 53 12 +23 58.5
April 2002 38 49 13 +25 58.0
March 2002 36 52 12 +24 57.8

Employment

ISM's Manufacturing Employment Index remained below 50 percent in June for the 21st consecutive month. The Index registered 49.7 percent in June compared to 47.3 percent in May, an increase of 2.4 percentage points. 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: Transportation & Equipment; Furniture; Textiles; Glass, Stone & Aggregate; Printing & Publishing; Primary Metals; Paper; and Chemicals.

Employment %Higher %Same %Lower Net Index
June 2002 18 67 15 +3 49.7
May 2002 18 65 17 +1 47.3
April 2002 16 64 20 -4 46.7
March 2002 17 62 21 -4 47.5

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower (a reading above 50 percent indicates slower deliveries). At 55.2 percent, the Index is 1.3 percentage points higher than May's 53.9 percent. The industries reporting slower supplier deliveries in June are: Fabricated Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; Glass, Stone & Aggregate; Furniture; Electronic Components & Equipment; Primary Metals; Industrial & Commercial Equipment & Computers; and Paper.

Supplier
Deliveries
%Slower %Same %Faster Net Index
June 2002 14 82 4 +10 55.2
May 2002 13 82 5 +8 53.9
April 2002 10 87 3 +7 53.7
March 2002 10 84 6 +4 53.1

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 June as the Inventories Index registered 43.7 percent compared to the 45.6 percent reported in May. The Inventories Index has been under 50 percent for 29 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). Three industries reported higher inventories in June: Fabricated Metals; Wood & Wood Products; and Glass, Stone & Aggregate.

Inventories %Higher %Same %Lower Net Index
June 2002 14 59 27 -13 43.7
May 2002 14 61 25 -11 45.6
April 2002 13 61 26 -13 42.9
March 2002 11 63 26 -15 41.2

Customers' Inventories

The Customers' Inventories Index is at 44.5 percent, up from 39 percent reported in May. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 13th consecutive month that the index has registered below 50. Industries reporting excessive customers' inventories in June are: Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Primary Metals; Food; and Glass, Stone & Aggregate.

Customer'
Inventories
%Reporting % Too High % About right % Too Low Net Index
June 2002 85 10 69 21 -11 44.5
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

Prices

ISM's Prices Index indicates manufacturers paid higher prices in June. This is the fourth month the Index has registered higher prices. With the Index at 65.5 percent, it is 2.5 percentage points higher than May's 63 percent. In June, 40 percent of supply executives reported paying higher prices and 7 percent reported paying lower prices, while 53 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 June are: Rubber & Plastic Products; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Glass, Stone & Aggregate; Furniture; Primary Metals; Fabricated Metals; Instruments & Photographic Equipment; Chemicals; Paper; Textiles; Industrial & Commercial Equipment & Computers; Petroleum; Wood & Wood Products; Food; Transportation & Equipment; Electronic Components & Equipment; and Printing & Publishing.

Prices %Higher %Same %Lower Net Index
June 2002 40 53 7 +33 65.5
May 2002 38 54 8 +30 63.0
April 2002 36 53 11 +25 60.3
March 2002 18 66 16 +2 51.9

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 53.5 percent, indicating a slower rate of growth in manufacturers' backlogs as the Index declined 3 percentage points from May's report of 56.5 percent. Of the 89 percent of respondents who report their backlog of orders, 26 percent reported greater backlogs, 19 percent reported smaller backlogs, and 55 percent reported no change from May. The industries reporting an increase in order backlog during the month are: Furniture; Textiles; Glass, Stone & Aggregate; Wood & Wood Products; Paper; Printing & Publishing; Electronic Components & Equipment; Food; Fabricated Metals; Industrial & Commercial Equipment & Computers; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
June 2002 89 26 55 19 +7 53.5
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

New Export Orders

ISM's New Export Orders Index for June registered 54.5 percent, an increase of 1.2 percentage points when compared to May's index of 53.3 percent. This is the sixth consecutive month the Index has indicated growth. The industries reporting growth in new export orders in June are: Textiles; Paper; Wood & Wood Products; Fabricated Metals; Industrial & Commercial Equipment & Computers; Food; Transportation & Equipment; Chemicals; and Electronic Components & Equipment.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
June 2002 77 19 74 7 +12 54.5
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

Imports

Imports of materials by manufacturers continued to grow in June as the Imports Index registered 55.1 percent. The June Index indicates a faster rate of growth as evidenced by the 1.5 percentage points increase compared to May's Index of 53.6. The 11 industries reporting growth in import activity for June are: Furniture; Textiles; Wood & Wood Products; Electronic Components & Equipment; Transportation & Equipment; Fabricated Metals; Printing & Publishing; Food; Chemicals; Industrial & Commercial Equipment & Computers; and Rubber & Plastic Products.

Imports %Reporting %Higher %Same %Lower Net Index
June 2002 74 16 79 5 +11 55.1
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

Buying Policy

Average commitment leadtime for Capital Expenditures declined 2 days to 92 days. Average leadtime for Production Materials declined 1 day to 48 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 4 days to 24 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
June 2002 24 7 18 24 23 4 92
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
Production Materials              
June 2002 21 46 17 10 4 2 48
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
MRO Supplies              
June 2002 52 36 9 2 0 1 24
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

In Short Supply

Steel – 4th month; Steel, Coated; Steel, Flat Rolled.

Up in Price

Aluminum – 5th month; Caustic Soda; Copper; Corrugated Containers (also down in price); Energy; Ethylene; Fuels; Molybdenum; Nickel; Polyethylene – 3rd month; Polyethylene, High Density – 3rd month; Polypropylene; Pulp; Resins – 3rd month; Steel – 5th month; Steel, Coated; Steel, Cold Rolled – 2nd month; Steel, Flat Rolled – 2nd month; Steel, Hot Rolled; Steel, Pipe & Tubing; and Steel, Stampings.

Down in Price

Corrugated Containers (also up in price) – 17th month and Natural Gas are the only commodities reported down in price.

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 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.

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 July 2002 data will be released at 10:00 a.m. (ET) on August 1, 2002.



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