FOR RELEASE: September 3, 2002

CONTACT:	Kristen Kioa
	ISM, Media Relations
	Tempe, Arizona
	(800) 888-6276, Ext. 3015

PMI at 50.5%

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 August 2002.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the seventh consecutive month in August. The overall economy grew for the 10th 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. "Putting the year in perspective, we now have seven consecutive months of modest growth. August's PMI, at 50.5 percent, indicates that manufacturing improved when compared to July. New Orders softened, and are a cause for concern as we look at the balance of the year. At the current level of growth in the overall economy, many manufacturers find themselves anxious about second-half sales."

ISM's Backlog of Orders Index indicates that order backlogs declined for the second consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the eighth consecutive month. Manufacturing employment continued to decline in August as the index remained below the breakeven point (an index of 50 percent) for the 23rd consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the sixth consecutive month. New Export Orders grew in August for the eighth consecutive month. August's Imports Index decelerated, while still registering growth for the ninth consecutive month.

Comments from purchasing and supply executives reflect soft demand and very competitive markets. While some indicate that business is improving, they lack confidence when forecasting the months ahead. Declines in consumer and business confidence are major themes.

ISM's PMI is 50.5 percent in August, the same as reported in July. ISM's New Orders Index declined from 50.4 percent in July to 49.7 percent in August. ISM's Production Index declined 0.1 percentage point from 55.7 percent in July to 55.6 percent in August. The ISM Employment Index is at 45.8 percent for August, an increase of 0.8 percentage point when compared to the 45 percent reported in July.

ISM's Supplier Deliveries Index registered 53.4 percent, compared to 54.9 percent in July. ISM's Inventories Index rose to 45.2 percent. ISM's Customers' Inventories Index for August is at 42.5 percent, the same as reported in July. ISM's Prices Index in August is 61.5 percent, a decrease of 6.8 percentage points from July's 68.3 percent. ISM's Backlog of Orders Index declined 0.5 percentage point from 45.5 percent in July to 45 percent in August.

ISM's New Export Orders Index registered 52.7 percent, up 0.5 percentage point from July's 52.5 percent. The rate of growth in imports decreased as the Imports Index declined from 54.2 percent in July to 51.9 percent in August.

"Manufacturing activity improved slightly during August," added Ore. "Steel price concerns are less than they were last month. The decline of the U.S. Dollar seems to have helped exports while slowing imports."

Of the 20 industries in the manufacturing sector, eight industries reported growth: Printing & Publishing; Leather; Transportation & Equipment; Apparel; Chemicals; Food; Industrial & Commercial Equipment & Computers; and Paper.

"Steel and Steel — Coated are the commodities reported in short supply. Commodities reported up in price are: Caustic Soda, Chemicals, Corrugated Containers, Flour, Methanol, Natural Gas, Fuel Oil, Phenol, Plastics, Polyethylene — High Density, Resins, Soybean Oil, Steel, Steel — Coated, Steel — Galvanized, and Wheat. Aluminum, Corrugated Containers, and Natural Gas are the commodities reported down in price," Ore stated.

AUGUST 2002 ISM BUSINESS SURVEY AT A GLANCE

	Series Index	Direction Aug vs Jul	Rate of Change Aug vs Jul
PMI	50.5	Growing	Same
New Orders	49.7	Contracting	From Growing
Production	55.6	Growing	Slower
Employment	45.8	Contracting	Slower
Supplier Deliveries	53.4	Slowing	Slower
Inventories	45.2	Contracting	Slower
Customers' Inventories	42.5	Too Low	Same
Prices	61.5	Increasing	Slower
Backlog of Orders	45.0	Contracting	Faster
New Export Orders	52.7	Growing	Faster
Imports	51.9	Growing	Slower

THE ECONOMY AT A GLANCE

Overall Economy	Growing	Same
Manufacturing	Growing	Same

PMI

The PMI indicates that the manufacturing economy grew for the seventh consecutive month during August with an index of 50.5 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 August 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 August (53.4 percent) corresponds to 3.9 percent growth in real gross domestic product (GDP). However, if the PMI for August (50.5 percent) turned out to be the annual average for 2002, it would correspond to a 2.8 percent increase in GDP."

Month	Aug'02	Jul'02	Jun'02	May'02	Apr'02
PMI%	50.5	50.5	56.2	55.7	53.9
Month	Mar'02	Feb'02	Jan'02	Dec'01	Nov'01
PMI%	55.6	54.7	49.9	48.1	44.7
Month	Oct'01	Sep'01	Aug'01	Jul'01	Jun'01
PMI%	39.5	46.2	47.9	43.9	44.3

New Orders

ISM's New Orders Index declined in August after eight consecutive months of growth. The index is 49.7 percent, 0.7 percentage point lower than the 50.4 percent registered in July. 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 August are: Printing & Publishing; Paper; Chemicals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Furniture.

New Orders	%Better	%Same	%Worse	Net	Index
August 2002	23	52	25	-2	49.7
July 2002	26	49	25	+1	50.4
June 2002	38	50	12	+26	60.8
May 2002	43	45	12	+31	63.1

Production

ISM's Production Index is 55.6 percent in August, 0.1 percentage point lower than the 55.7 percent reported in July. This is the ninth 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 20 industries reporting in August, the following registered growth: Chemicals; Printing & Publishing; Textiles; Transportation & Equipment; Furniture; Food; Paper; Fabricated Metals; and Industrial & Commercial Equipment & Computers.

Production	%Better	%Same	%Worse	Net	Index
August 2002	24	57	19	+5	55.6
July 2002	24	58	18	+6	55.7
June 2002	34	56	10	+24	61.4
May 2002	35	53	12	+23	58.5

Employment

ISM's Manufacturing Employment Index remained below 50 percent in August for the 23rd consecutive month. The Index registered 45.8 percent in August compared to 45 percent in July, an increase of 0.8 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: Printing & Publishing; Furniture; and Transportation & Equipment.

Employment	%Higher	%Same	%Lower	Net	Index
August 2002	10	71	19	-9	45.8
July 2002	9	73	18	-9	45.0
June 2002	18	67	15	+3	49.7
May 2002	18	65	17	+1	47.3

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower in August compared to July (a reading above 50 percent indicates slower deliveries). At 53.4 percent, the Index is 1.5 percentage points lower than July's 54.9 percent. The industries reporting slower supplier deliveries in August are: Apparel; Primary Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Printing & Publishing; Textiles; Fabricated Metals; Food; Paper; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Electronic Components & Equipment.

Supplier Deliveries	%Slower	%Same	%Faster	Net	Index
August 2002	13	83	4	+9	53.4
July 2002	15	82	3	+12	54.9
June 2002	14	82	4	+10	55.2
May 2002	13	82	5	+8	53.9

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 August as the Inventories Index registered 45.2 percent. This compares to 41.8 percent as reported in July. The Inventories Index has been under 50 percent for 31 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). The seven industries reporting higher inventories in August are: Leather; Food; Rubber & Plastic Products; Glass, Stone & Aggregate; Fabricated Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Chemicals.

Inventories	%Higher	%Same	%Lower	Net	Index
August 2002	18	58	24	-6	45.2
July 2002	12	57	31	-19	41.8
June 2002	14	59	27	-13	43.7
May 2002	14	61	25	-11	45.6

Customers' Inventories

The Customers' Inventories Index is at 42.5 percent, the same percentage reported in July. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 15th consecutive month that the Index has registered below 50. Food is the only industry reporting excessive customers' inventories in August.

Customers' Inventories	%Reporting	% Too High	% About right	% Too Low	Net	Index
August 2002	80	6	73	21	-15	42.5
July 2002	87	9	67	24	-15	42.5
June 2002	85	10	69	21	-11	44.5
May 2002	85	4	70	26	-22	39.0

Prices

ISM's Prices Index indicates manufacturers continued to pay higher prices in August. This is the sixth consecutive month the Index has registered higher prices. With the Index at 61.5 percent, it is 6.8 percentage points lower than July's 68.3 percent. In August, 34 percent of supply executives reported paying higher prices and 8 percent reported paying lower prices, while 58 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 August are: Leather; Glass, Stone & Aggregate; Food; Primary Metals; Wood & Wood Products; Paper; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Furniture; Printing & Publishing; Fabricated Metals; Chemicals; Rubber & Plastic Products; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; and Electronic Components & Equipment.

Prices	%Higher	%Same	%Lower	Net	Index
August 2002	34	58	8	+26	61.5
July 2002	41	53	6	+35	68.3
June 2002	40	53	7	+33	65.5
May 2002	38	54	8	+30	63.0

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 45 percent, indicating a faster decline in manufacturers' backlogs as the Index declined 0.5 percentage point from July's report of 45.5 percent. Of the 86 percent of respondents who report their backlog of orders, 17 percent reported greater backlogs, 27 percent reported smaller backlogs, and 56 percent reported no change from July. The industries reporting an increase in order backlog during the month are: Glass, Stone & Aggregate; Food; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Printing & Publishing.

Backlog of Orders	%Reporting	%Greater	%Same	%Less	Net	Index
August 2002	86	17	56	27	-10	45.0
July 2002	88	14	63	23	-9	45.5
June 2002	89	26	55	19	+7	53.5
May 2002	89	29	55	16	+13	56.5

New Export Orders

ISM's New Export Orders Index for August registered 52.7 percent, an increase of 0.5 percentage point when compared to July's index of 52.2 percent. This is the eighth consecutive month the Index has indicated growth. The industries reporting growth in new export orders in August are: Food; Printing & Publishing; Industrial & Commercial Equipment & Computers; Furniture; Paper; Fabricated Metals; Transportation & Equipment; Electronic Components & Equipment; and Textiles.

New Export Orders	%Reporting	%Better	%Same	%Worse	Net	Index
August 2002	77	14	79	7	+7	52.7
July 2002	75	13	79	8	+5	52.2
June 2002	77	19	74	7	+12	54.5
May 2002	76	15	77	8	+7	53.3

Imports

Imports of materials by manufacturers continued to grow at a slower rate in August as the Imports Index registered 51.9 percent. The August Index indicates a slower rate of growth as evidenced by the 2.3 percentage points decrease when compared to July's Index of 54.2 percent. The nine industries reporting growth in import activity for August are: Wood & Wood Products; Apparel; Textiles; Industrial & Commercial Equipment & Computers; Furniture; Fabricated Metals; Food; Transportation & Equipment; and Printing & Publishing.

Imports	%Reporting	%Higher	%Same	%Lower	Net	Index
August 2002	74	14	78	8	+6	51.9
July 2002	74	14	78	8	+6	54.2
June 2002	74	16	79	5	+11	55.1
May 2002	77	18	75	7	+11	53.6

Buying Policy

Average commitment leadtime for Capital Expenditures rose 7 days to 102 days. Average leadtime for Production Materials rose 2 days to 48 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies remained at 21 days.

Percent Reporting
	Hand to Mouth	30 Days	60 Days	90 Days	6 Mos.	1 Year+	Avg. Days
Capital Expenditures
August 2002	23	7	16	23	24	7	102
July 2002	24	7	17	24	23	5	95
June 2002	24	7	18	24	23	4	92
May 2002	26	4	17	26	22	5	94
Production Materials
August 2002	21	44	20	10	3	2	48
July 2002	21	46	18	9	5	1	46
June 2002	21	46	17	10	4	2	48
May 2002	21	45	18	10	4	2	49
MRO Supplies
August 2002	54	33	10	3	0	0	21
July 2002	55	33	8	4	0	0	21
June 2002	52	36	9	2	0	1	24
May 2002	55	36	7	1	1	0	20

In Short Supply

Steel — 6th month; and Steel, Coated — 3rd month.

Up in Price

Caustic Soda — 3rd month; Chemicals — 2nd month; Corrugated Containers — 3rd month; Flour — 2nd month; Fuel Oil; Methanol; Natural Gas; Phenol; Plastics — 2nd month; Polyethylene, High Density — 5th month; Resins — 2nd month; Soybean Oil; Steel — 7th month; Steel, Coated — 3rd month; Steel — Galvanized — 2nd month; and Wheat — 2nd month.

Down in Price

Aluminum; Corrugated Containers (also up in price); and Natural Gas — 2nd month (also up 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 September 2002 data will be released at 10:00 a.m. (ET) on October 1, 2002.

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