September 2003 Manufacturing ISM Report On Business®

FOR RELEASE: October 1, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  (800) 888-6276, Ext. 3015
PMI at 53.7%

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 September 2003.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in September for the third consecutive month, while the overall economy grew for the 23rd 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 continued to improve for the third consecutive month as new orders and production show evidence of a stronger economy in September. Both of these indices have grown over the past five months, which is very encouraging considering the challenges that the economy has faced in the last two years."

ISM's Backlog of Orders Index indicates that order backlogs improved again in September. However, manufacturing Employment continued to decline in September as the index remained below the breakeven point (an index of 50 percent) for the 36th consecutive month. ISM's Prices Index indicates that manufacturers experienced higher prices for the 19th consecutive month. New Export Orders grew in September for the 21st consecutive month, while September's Imports Index grew for the 11th consecutive month.

Comments from purchasing and supply managers indicate softness in many industries and concerns about energy prices. It is hard to draw a consensus, as there are definitely winners and losers in this recovery.

ISM's PMI is 53.7 percent in September, a decrease of 1 percentage point when compared to 54.7 in August. ISM's New Orders Index rose 0.8 percentage point from 59.6 percent in August to 60.4 percent in September. ISM's Production Index declined 4.3 percentage points from 61.6 percent in August to 57.3 percent in September. The ISM Employment Index is at 45.7 percent for September, a decrease of 0.2 percentage point when compared to the 45.9 percent reported in August.

ISM's Supplier Deliveries Index registered 52.4 percent, 0.9 percentage point lower than August's 53.3 percent. ISM's Inventories Index rose to 42.7 percent in September from the 42.5 percent reported in August. ISM's Customers' Inventories Index for September is at 44.5 percent, an increase of 1.5 percentage points compared to the August reading of 43 percent. ISM's Prices Index in September is 56 percent, 3 percentage points higher than the 53 percent reported in August.

ISM's Backlog of Orders Index increased 1 percentage point, registering 52.5 percent in September compared to 51.5 percent in August. ISM's New Export Orders Index registered 52.9 percent, down 2.4 percentage points from August's 55.3 percent, while ISM's Imports Index rose 5.6 percentage points to 60.7 percent in September from 55.1 percent in August.

"The strength in New Orders during September is a very positive sign as we move into the fourth quarter. The overall picture is better; some manufacturers are very happy with the improvement, while others are waiting for their sector to pickup," said Ore.

Of the 20 industries in the manufacturing sector, 13 industries reported growth: Furniture; Food; Wood & Wood Products; Instruments & Photographic Equipment; Electronic Components & Equipment; Printing & Publishing; Chemicals; Glass, Stone, & Aggregate; Transportation & Equipment; Fabricated Metals; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; and Apparel.

"There are no commodities reported in short supply. Commodities reported up in price are: Aluminum Extrusions; Chemicals; Copper; Corrugated; Diesel Fuel; Energy; Gasoline; Lumber; Natural Gas; Nickel; Plastics; Propylene; and Steel Scrap. The commodities reported down in price are Caustic Soda; Computers; Corrugated; Methanol; Natural Gas; and Paper," Ore stated.

SEPTEMBER 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Sep vs Aug
Rate of Change
Sep vs Aug
PMI 53.7 Growing Slower
New Orders 60.4 Growing Faster
Production 57.3 Growing Slower
Employment 45.7 Contracting Faster
Supplier Deliveries 52.4 Slowing Slower
Inventories 42.7 Contracting Slower
Customers' Inventories 44.5 Too Low Slower
Prices 56.0 Increasing Faster
Backlog of Orders 52.5 Growing Faster
New Export Orders 52.9 Growing Slower
Imports 60.7 Growing Faster

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

PMI

The PMI indicates that the manufacturing economy grew in September for the third consecutive month. The PMI for September registered 53.7 percent, a decrease of 1 percentage point compared to the August reading of 54.7 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 42.9 percent, over a period of time, generally indicates an expansion of the overall economy. The September 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 September (50.6 percent) corresponds to a 2.8 percent increase in real gross domestic product (GDP). However, if the PMI for September (53.7 percent) turned out to be the annual average for 2003, this would correspond to a 4 percent increase in GDP.

Month Sep'03 Aug'03 Jul'03 Jun'03 May'03
PMI% 53.7 54.7 51.8 49.8 49.4
Month Apr'03 Mar'03 Feb'03 Jan'03 Dec'02
PMI% 45.4 46.2 50.5 53.9 55.2
Month Nov'02 Oct'02 Sep'02 Aug'02 Jul'02
PMI% 50.5 49.7 50.7 50.3 50.7

New Orders

ISM's New Orders Index grew in September with a reading of 60.4 percent. The index is 0.8 percentage point higher than the 59.6 percent registered in August, and it is the fifth 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). Thirteen industries report increases for the month of September and they are: Furniture; Instruments & Photographic Equipment; Food; Glass, Stone, & Aggregate; Rubber & Plastic Products; Electronic Components & Equipment; Chemicals; Fabricated Metals; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Printing & Publishing; Paper; and Transportation & Equipment.

New Orders %Better %Same %Worse Net Index
September 2003 38 46 16 +22 60.4
August 2003 35 48 17 +18 59.6
July 2003 30 50 20 +10 56.6
June 2003 25 60 15 +10 52.2

Production

ISM's Production Index is 57.3 percent in September, 4.3 percentage points lower than the 61.6 percent reported in August, reflecting the fifth 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 September, 12 registered growth: Furniture; Food; Wood & Wood Products; Electronic Components & Equipment; Chemicals; Glass, Stone, & Aggregate; Printing & Publishing; Fabricated Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Rubber & Plastic Products; and Instruments & Photographic Equipment.

Production %Better %Same %Worse Net Index
September 2003 33 53 14 +19 57.3
August 2003 33 52 15 +18 61.6
July 2003 25 53 22 +3 53.3
June 2003 25 60 15 +10 52.9

Employment

ISM's Employment Index remained below 50 percent in September for the 36th consecutive month. The index registered 45.7 percent in September compared to 45.9 percent in August, a decrease of 0.2 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 five industries reporting growth in employment during September are: Instruments & Photographic Equipment; Wood & Wood Products; Furniture; Printing & Publishing; and Transportation & Equipment.

Employment %Higher %Same %Lower Net Index
September 2003 12 66 22 -10 45.7
August 2003 12 67 21 -9 45.9
July 2003 14 65 21 -7 46.1
June 2003 15 67 18 -3 46.2

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing September to August. September's reading of 52.4 percent is a decrease of 0.9 percentage point when compared to August's reading of 53.3 percent. A reading above 50 percent indicates slower deliveries. The 10 industries reporting slower supplier deliveries in September are: Textiles; Glass, Stone, & Aggregate; Miscellaneous*; Primary Metals; Electronic Components & Equipment; Wood & Wood Products; Instruments & Photographic Equipment; Transportation & Equipment; Chemicals; and Fabricated Metals.

Supplier Deliveries %Slower %Same %Faster Net Index
September 2003 8 90 2 +6 52.4
August 2003 10 88 2 +8 53.3
July 2003 10 85 5 +5 51.1
June 2003 6 89 5 +1 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 slightly in September as the Inventories Index registered 42.7 percent. This compares to 42.5 percent reported in August. The Inventories Index has been under 50 percent for 44 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 three industries reporting higher inventories in September are: Apparel; Food; and Printing & Publishing.

Inventories %Higher %Same %Lower Net Index
September 2003 14 59 27 -13 42.7
August 2003 11 67 22 -11 42.5
July 2003 16 56 28 -12 45.9
June 2003 12 60 28 -16 41.3

Customers' Inventories

The Customers' Inventories Index is at 44.5 percent, an increase of 1.5 percentage points compared to the August reading of 43 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 28th consecutive month that the index has registered below 50 percent. Paper; Chemicals; and Rubber & Plastic Products are the industries reporting excessive customers' inventories during September.

Customers' Inventories %Reporting % Too High % About Right % Too Low Net Index
September 2003 73 9 71 20 -11 44.5
August 2003 74 9 68 23 -14 43.0
July 2003 81 8 69 23 -15 42.5
June 2003 79 12 67 21 -9 45.5

Prices

ISM's Prices Index indicates manufacturers continued to pay higher prices in September. This is the 19th consecutive month the index has registered higher prices. September's index is at 56 percent, 3 percentage points higher than August's reading of 53 percent. In September, 21 percent of supply executives reported paying higher prices and 9 percent reported paying lower prices, while 70 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 12 industries reporting paying higher prices in September are: Tobacco; Wood & Wood Products; Textiles; Primary Metals; Instruments & Photographic Equipment; Food; Fabricated Metals; Furniture; Transportation & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; and Rubber & Plastic Products.

Prices %Higher %Same %Lower Net Index
September 2003 21 70 9 +12 56.0
August 2003 19 68 13 +6 53.0
July 2003 21 64 15 +6 53.0
June 2003 26 61 13 +13 56.5

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 52.5 percent, indicating manufacturers' backlogs in September were higher when compared to August. Of the 89 percent of respondents who report their backlog of orders, 23 percent reported greater backlogs, 18 percent reported smaller backlogs, and 59 percent reported no change from August. The nine industries reporting an increase in order backlogs during the month are: Furniture; Instruments & Photographic Equipment; Rubber & Plastic Products; Food; Glass, Stone, & Aggregate; Electronic Components & Equipment; Wood & Wood Products; Industrial & Commercial Equipment & Computers; and Fabricated Metals.

Backlog of Orders %Reporting %Greater %Same %Less Net Index
September 2003 89 23 59 18 +5 52.5
August 2003 87 22 59 19 +3 51.5
July 2003 89 22 58 20 +2 51.0
June 2003 84 18 64 18 0 50.0

New Export Orders

ISM's New Export Orders Index for September registered 52.9 percent, a decrease of 2.4 percentage points when compared to August's index of 55.3 percent. This is the 21st consecutive month of growth in export orders. The eight industries reporting growth in new export orders in September are: Food; Electronic Components & Equipment; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Chemicals; Transportation & Equipment; and Fabricated Metals.

New Export Orders %Reporting %Better %Same %Worse Net Index
September 2003 77 16 76 8 +8 52.9
August 2003 76 19 74 7 +12 55.3
July 2003 78 18 73 9 +9 53.8
June 2003 77 18 77 5 +13 54.4

Imports

Imports of materials by manufacturers grew during September as the Imports Index registered 60.7 percent. The index rose 5.6 percentage points when compared to August's index of 55.1 percent. The 14 industries reporting growth in import activity for September are: Instruments & Photographic Equipment; Furniture; Miscellaneous*; Wood & Wood Products; Textiles; Apparel; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Food; Transportation & Equipment; Fabricated Metals; Chemicals; Paper; and Rubber & Plastic Products.

Imports %Reporting %Higher %Same %Lower Net Index
September 2003 79 29 67 4 +25 60.7
August 2003 79 17 77 6 +11 55.1
July 2003 82 17 76 7 +10 56.0
June 2003 80 21 73 6 +15 56.4

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

Buying Policy

Average commitment leadtime for Capital Expenditures increased 2 days to 99 days. Average leadtime for Production Materials remained the same at 45 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies increased 2 days to 23 days.

  Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures
September 2003 21 14 16 20 21 8 99
August 2003 25 10 16 20 22 7 97
July 2003 25 8 13 24 19 11 107
June 2003 25 12 10 24 20 9 101
Production Materials
September 2003 23 44 18 10 4 1 45
August 2003 24 41 19 12 3 1 45
July 2003 21 43 22 9 3 2 48
June 2003 23 44 19 9 4 1 45
MRO Supplies
September 2003 54 33 8 4 1 0 23
August 2003 55 35 6 3 1 0 21
July 2003 52 38 7 2 1 0 22
June 2003 55 33 8 3 1 0 22

In Short Supply

No commodities reported in short supply.

Up in Price

Aluminum Extrusions — 2nd month; Chemicals — 3rd month; Copper — 2nd month; Corrugated; Diesel Fuel; Energy; Gasoline; Lumber; Natural Gas* — 14th month; Nickel — 2nd month; Plastics; Propylene; and Steel Scrap — 2nd month.

Down in Price

Caustic Soda — 2nd month; Computers; Corrugated — 7th month; Methanol; Natural Gas* — 6th month; and Paper.

*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 October 2003 data will be released at 10:00 a.m. (ET) on November 3, 2003.



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