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July 2003 Manufacturing ISM Report On Business®

FOR RELEASE: August 1, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 51.8%

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 July 2003.

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

(Tempe, Arizona) – Economic activity in the manufacturing sector grew in July, while the overall economy grew for the 21st 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. "While the overall economy continues to improve, the manufacturing sector reversed its recent trend of contraction and grew during July for the first time in five months. The improvement in New Orders continues to be very encouraging, and reinforces the possibility that the economy will continue to improve during the second half of the year."

ISM's Backlog of Orders Index indicates that order backlogs improved in July. However, manufacturing Employment continued to decline in July as the index remained below the breakeven point (an index of 50 percent) for the 34th consecutive month. ISM's Prices Index indicates that manufacturers experienced higher prices for the 17th consecutive month. New Export Orders grew in July for the 19th consecutive month. July's Imports Index grew for the ninth consecutive month.

Comments from purchasing and supply managers remain mixed, although it appears many industries have hit bottom and are either coming back or have at least stopped declining. Manufacturers supplying the construction industry mention a positive effect from the seasonal upswing in the industry. Natural gas costs continue to be a major concern to many of the respondents.

ISM's PMI is 51.8 percent in July, an increase of 2 percentage points when compared to 49.8 in June. ISM's New Orders Index rose 4.4 percentage points from 52.2 percent in June to 56.6 percent in July. ISM's Production Index rose 0.4 percentage point from 52.9 percent in June to 53.3 percent in July. The ISM Employment Index is at 46.1 percent for July, a decrease of 0.1 percentage point when compared to the 46.2 percent reported in June.

ISM's Supplier Deliveries Index registered 51.1 percent, 1.1 percentage points higher than June's 50 percent. ISM's Inventories Index rose to 45.9 percent in July from the 41.3 percent reported in June. ISM's Customers' Inventories Index for July is at 42.5 percent, a decrease of 3 percentage points compared to the June reading of 45.5 percent. ISM's Prices Index in July is 53 percent, a decrease of 3.5 percentage points from June's 56.5 percent.

ISM's Backlog of Orders Index increased 1 percentage point, registering 51 percent in July compared to 50 percent in June. ISM's New Export Orders Index registered 53.8 percent, down 0.6 percentage point from June's 54.4 percent, while ISM's Imports Index declined 0.4 percentage point to 56 percent in July from 56.4 percent in June.

"The surge in New Orders is very positive for the sector. While many respondents mention that they fail to see the recovery in their businesses, others indicate a higher level of activity than they have seen in some time. Natural gas costs are a major concern for many companies, and others will continue to struggle due to higher oil prices. Overall, the manufacturing sector is trending positively and appears poised to continue a pattern of growth in the second half of the year," said Ore.

Of the 20 industries in the manufacturing sector, 12 industries reported growth: Leather; Glass, Stone, & Aggregate; Tobacco; Paper; Wood & Wood Products; Miscellaneous*; Furniture; Food; Electronic Components & Equipment; Instruments & Photographic Equipment; Printing & Publishing; and Transportation & Equipment.

"There are no commodities reported in short supply. Commodities reported up in price are: Caustic Soda; Chemicals; Fuel; and Natural Gas. The commodities reported down in price are Corn; Corrugated Cartons; and Natural Gas," Ore stated.

JULY 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
July vs June
Rate of Change
July vs June
PMI 51.8 Growing From Contracting
New Orders 56.6 Growing Faster
Production 53.3 Growing Faster
Employment 46.1 Contracting Faster
Supplier Deliveries 51.1 Slowing From Unchanged
Inventories 45.9 Contracting Slower
Customers' Inventories 42.5 Too Low Faster
Prices 53.0 Increasing Slower
Backlog of Orders 51.0 Growing From Unchanged
New Export Orders 53.8 Growing Slower
Imports 56.0 Growing Slower

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

PMI

The PMI indicates that the manufacturing economy grew in July for the first time in five months. The PMI for July registered 51.8 percent, an increase of 2 percentage points compared to the June reading of 49.8 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 July 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 July (49.6 percent) corresponds to a 2.5 percent increase in real gross domestic product (GDP). However, if the PMI for July (51.8 percent) turned out to be the annual average for 2003, this would correspond to a 3.3 percent increase in GDP.

Month Jul'03 Jun'03 May'03 Apr'03 Mar'03
PMI% 51.8 49.8 49.4 45.4 46.2
Month Feb'03 Jan'03 Dec'02 Nov'02 Oct'02
PMI% 50.5 53.9 55.2 50.5 49.7
Month Sep'02 Aug'02 Jul'02 Jun'02 May'02
PMI% 50.7 50.3 50.7 55.2 54.7

New Orders

ISM's New Orders Index grew in July with a reading of 56.6 percent. The index is 4.4 percentage points higher than the 52.2 percent registered in June, and it is the third consecutive month the index has exceeded 50 percent. 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 July are: Leather; Glass, Stone, & Aggregate; Furniture; Miscellaneous*; Paper; Food; Wood & Wood Products; Printing & Publishing; Electronic Components & Equipment; Instruments & Photographic Equipment; Fabricated Metals; Transportation & Equipment; and Industrial & Commercial Equipment & Computers.

New Orders %Better %Same %Worse Net Index
July 2003 30 50 20 +10 56.6
June 2003 25 60 15 +10 52.2
May 2003 29 54 17 +12 51.9
April 2003 22 58 20 +2 45.2

Production

ISM's Production Index is 53.3 percent in July, 0.4 percentage point higher than the 52.9 percent reported in June, reflecting the third consecutive month of growth. 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 July, the following registered growth: Tobacco; Leather; Glass, Stone, & Aggregate; Wood & Wood Products; Printing & Publishing; Paper; Electronic Components & Equipment; Instruments & Photographic Equipment; Food; Fabricated Metals; and Miscellaneous*.

Production %Better %Same %Worse Net Index
July 2003 25 53 22 +3 53.3
June 2003 25 60 15 +10 52.9
May 2003 25 60 15 +10 51.5
April 2003 20 63 17 +3 47.0

Employment

ISM's Manufacturing Employment Index remained below 50 percent in July for the 34th consecutive month. The index registered 46.1 percent in July compared to 46.2 percent in June, a decrease of 0.1 percentage point. 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 industries reporting growth in Employment during July are: Wood & Wood Products; Transportation & Equipment; Food; Paper; and Miscellaneous*.

Employment %Higher %Same %Lower Net Index
July 2003 14 65 21 -7 46.1
June 2003 15 67 18 -3 46.2
May 2003 13 65 22 -9 43.0
April 2003 9 68 23 -14 41.4

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing July to June. July's reading of 51.1 percent is an increase of 1.1 percentage points when compared to June's reading of 50 percent. A reading above 50 percent indicates slower deliveries. The nine industries reporting slower supplier deliveries in July are: Miscellaneous*; Glass, Stone, & Aggregate; Paper; Furniture; Primary Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; and Fabricated Metals.

Supplier
Deliveries
%Slower %Same %Faster Net Index
July 2003 10 85 5 +5 51.1
June 2003 6 89 5 +1 50.0
May 2003 8 87 5 +3 51.3
April 2003 7 86 7 0 50.0

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 July as the Inventories Index registered 45.9 percent. This compares to 41.3 percent reported in June. The Inventories Index has been under 50 percent for 42 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 industries reporting higher inventories in July are: Primary Metals; Chemicals; and Food.

Inventories %Higher %Same %Lower Net Index
July 2003 16 56 28 -12 45.9
June 2003 12 60 28 -16 41.3
May 2003 14 65 21 -7 46.1
April 2003 14 59 27 -13 42.7

Customers' Inventories

The Customers' Inventories Index is at 42.5 percent, a decrease of 3 percentage points compared to the June reading of 45.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 26th consecutive month that the index has registered below 50 percent. Textiles; Glass, Stone, & Aggregate; and Chemicals are the industries reporting excessive customers' inventories during July.

Customers'
Inventories
%Reporting % Too High % About Right % Too Low Net Index
July 2003 81 8 69 23 -15 42.5
June 2003 79 12 67 21 -9 45.5
May 2003 78 10 70 20 -10 45.0
April 2003 75 10 69 21 -11 44.5

Prices

ISM's Prices Index indicates manufacturers continued to pay higher prices in July. This is the 17th consecutive month the index has registered higher prices. With July's index at 53 percent, it is 3.5 percentage points lower than June's reading of 56.5 percent. In July, 21 percent of supply executives reported paying higher prices and 15 percent reported paying lower prices, while 64 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 in July are: Tobacco; Leather; Rubber & Plastic Products; Wood & Wood Products; Textiles; Primary Metals; Chemicals; Instruments & Photographic Equipment; Miscellaneous*; and Industrial & Commercial Equipment & Computers.

Prices %Higher %Same %Lower Net Index
July 2003 21 64 15 +6 53.0
June 2003 26 61 13 +13 56.5
May 2003 21 61 18 +3 51.5
April 2003 37 53 10 +27 63.5

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 manufacturers' backlogs in July are higher when compared to June. Of the 89 percent of respondents who report their backlog of orders, 22 percent reported greater backlogs, 20 percent reported smaller backlogs, and 58 percent reported no change from June. The industries reporting an increase in order backlogs during the month are: Miscellaneous*; Glass, Stone, & Aggregate; Paper; Fabricated Metals; Instruments & Photographic Equipment; Electronic Components & Equipment; Transportation & Equipment; Wood & Wood Products; and Printing & Publishing.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
July 2003 89 22 58 20 +2 51.0
June 2003 84 18 64 18 0 50.0
May 2003 86 21 60 19 +2 51.0
April 2003 87 17 61 22 -5 47.5

New Export Orders

ISM's New Export Orders Index for July registered 53.8 percent, a decrease of 0.6 percentage point when compared to June's index of 54.4 percent. This is the 19th consecutive month of growth in Export orders. The industries reporting growth in New Export Orders in July are: Instruments & Photographic Equipment; Primary Metals; Chemicals; Electronic Components & Equipment; Paper; Food; Industrial & Commercial Equipment & Computers; Miscellaneous*; and Fabricated Metals.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
July 2003 78 18 73 9 +9 53.8
June 2003 77 18 77 5 +13 54.4
May 2003 75 16 72 12 +4 50.8
April 2003 75 13 78 9 +4 51.1

Imports

Imports of materials by manufacturers grew during July as the Imports Index registered 56 percent. The index declined 0.4 percentage point when compared to June's index of 56.4 percent. The nine industries reporting growth in Import activity for July are: Furniture; Textiles; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Fabricated Metals; Chemicals; Paper; Food; and Transportation & Equipment.

Imports %Reporting %Higher %Same %Lower Net Index
July 2003 82 17 76 7 +10 56.0
June 2003 80 21 73 6 +15 56.4
May 2003 79 16 75 9 +7 52.2
April 2003 78 18 76 6 +12 54.5

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

Buying Policy

Average commitment leadtime for Capital Expenditures increased six days to 107 days. Average leadtime for Production Materials increased three days to 48 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained unchanged at 22 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
July 2003 25 8 13 24 19 11 107
June 2003 25 12 10 24 20 9 101
May 2003 23 9 15 23 21 9 104
April 2003 25 8 13 20 28 6 101
Production Materials              
July 2003 21 43 22 9 3 2 48
June 2003 23 44 19 9 4 1 45
May 2003 21 45 20 8 5 1 46
April 2003 23 44 18 10 4 1 45
MRO Supplies              
July 2003 52 38 7 2 1 0 22
June 2003 55 33 8 3 1 0 22
May 2003 54 36 8 1 1 0 21
April 2003 57 32 7 4 0 0 20

In Short Supply

No commodities are reported in short supply.

Up in Price

Caustic Soda – 14th month; Chemicals; Fuel; and Natural Gas* – 12th month.

Down in Price

Corn; Corrugated Cartons – 5th month; and Natural Gas* – 4th 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 August 2003 data will be released at 10:00 a.m. (ET) on September 2, 2003.



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