FOR RELEASE: November 1, 2002

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

PMI at 48.5%

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 October 2002.

New Orders Growing
Production Contracting
Supplier Deliveries Slowing
Employment, Inventories Decline

(Tempe, Arizona) — Economic activity in the manufacturing sector declined for the second consecutive month. The overall economy grew for the 12th 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 its recent trend as it lost momentum again in October. There has been very little month-over-month change in manufacturing activity as the PMI has averaged 49.8 percent over the last four months. The West Coast dock strike obviously had an impact as the Imports Index fell 6 percentage points."

ISM's Backlog of Orders Index indicates that order backlogs declined for the fourth consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the 10th consecutive month. Manufacturing employment continued to decline in October as the index remained below the breakeven point (an index of 50 percent) for the 25th consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the eighth consecutive month. New Export Orders grew in October for the 10th consecutive month. October's Imports Index declined after 10 consecutive months of growth.

Comments from purchasing and supply executives express varying concerns this month. The major uneasiness surrounded the dock strike on the West Coast, with one respondent indicating significant costs incurred due to airfreight costs from Japan. Others are still concerned about possible war with Iraq. On the upside, a number of companies appear to be thriving in this environment indicating that orders are up in markets where they compete with imports.

ISM's PMI is 48.5 percent in October, a decrease of 1 percentage point when compared to 49.5 in September. ISM's New Orders Index rose from 50.2 percent in September to 50.9 percent in October. ISM's Production Index declined 1.6 percentage points from 50.9 percent in September to 49.3 percent in October. The ISM Employment Index is at 45 percent for October, an increase of 0.1 percentage point when compared to the 44.9 percent reported in September.

ISM's Supplier Deliveries Index registered 52.6 percent compared to 55.7 percent in September. ISM's Inventories Index declined to 40.2 percent from 43.6 percent in September. ISM's Customers' Inventories Index for October is at 42.5 percent, an increase of 2 percentage points compared to the September reading of 40.5 percent. ISM's Prices Index in October is 58.3 percent, a decrease of 4.2 percentage points from September's 62.5 percent. ISM's Backlog of Orders Index declined 1 percentage point from 44.5 percent in September to 43.5 percent in October.

ISM's New Export Orders Index registered 54.4 percent, up 2.6 percentage points from September's 51.8 percent. ISM's Imports Index contracted from 54.7 percent in September to 48.7 percent in October.

"Manufacturing activity declined again in October," added Ore. "The sector lacks drivers at this point. While New Orders are relatively unchanged, the uncertainty with regard to terrorism and potential military action continue to add to the stagnation. Capital spending for additional capacity and IT is very soft. It appears that manufacturing employment is significantly lagging other recoveries."

Of the 20 industries in the manufacturing sector, seven industries reported growth: Apparel; Textiles; Food; Printing & Publishing; Leather; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Primary Metals.

"There are no reports of commodities in short supply. Commodities reported up in price are: Caustic Soda, Corrugated Containers, Gasoline, Honey, Natural Gas, Oil, Paper, Plastic, Steel and Sugar. Aluminum and Copper are the commodities reported down in price," Ore stated.

OCTOBER 2002 ISM BUSINESS SURVEY AT A GLANCE

	Series Index	Direction Oct vs Sep	Rate of Change Oct vs Sep
PMI	48.5	Contracting	Faster
New Orders	50.9	Growing	Faster
Production	49.3	Contracting	From Growing
Employment	45.0	Contracting	Slower
Supplier Deliveries	52.6	Slowing	Slower
Inventories	40.2	Contracting	Faster
Customers' Inventories	42.5	Too Low	Slower
Prices	58.3	Increasing	Slower
Backlog of Orders	43.5	Contracting	Faster
New Export Orders	54.4	Growing	Faster
Imports	48.7	Contracting	From Growing

THE ECONOMY AT A GLANCE

Overall Economy	Growing	Slower
Manufacturing	Contracting	Faster

PMI

The PMI indicates that the manufacturing economy failed to grow in October for the second consecutive month. With the index at 48.5 percent, this represents a 1 percentage point decrease compared to the September reading of 49.5 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 October PMI indicates that the overall economy is growing, but the manufacturing sector is in decline. Ore said, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through October (52.5 percent) corresponds to 3.6 percent growth in real gross domestic product (GDP). However, if the PMI for October (48.5 percent) turned out to be the annual average for 2002, it would correspond to a 2.1 percent increase in GDP."

Month	Oct'02	Sep'02	Aug'02	Jul'02	Jun'02
PMI%	48.5	49.5	50.5	50.5	56.2
Month	May'02	Apr'02	Mar'02	Feb'02	Jan'02
PMI%	55.7	53.9	55.6	54.7	49.9
Month	Dec'01	Nov'01	Oct'01	Sep'01	Aug'01
PMI%	48.1	44.7	39.5	46.2	47.9

New Orders

ISM's New Orders Index grew slightly in October registering 50.9 percent. The index is 0.7 percentage point higher than the 50.2 percent registered in September and reflects the second consecutive month of growth. 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 October are: Apparel; Textiles; Food; Printing & Publishing; Primary Metals; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

New Orders	% Better	% Same	% Worse	Net	Index
October 2002	23	53	24	-1	50.9
September 2002	30	47	23	+7	50.2
August 2002	23	52	25	-2	49.7
July 2002	26	49	25	+1	50.4

Production

ISM's Production Index is 49.3 percent in October, 1.6 percentage points lower than the 50.9 percent reported in September. This month's contraction follows 10 consecutive months during which the Production Index had been above 50 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 20 industries reporting in October, the following registered growth: Apparel; Textiles; Printing & Publishing; Food; Paper; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Transportation & Equipment.

Production	% Better	% Same	% Worse	Net	Index
October 2002	22	56	22	0	49.3
September 2002	27	55	18	+9	50.9
August 2002	24	57	19	+5	55.6
July 2002	24	58	18	+6	55.7

Employment

ISM's Manufacturing Employment Index remained below 50 percent in October for the 25th consecutive month. The index registered 45 percent in October compared to 44.9 percent in September, an increase of 0.1 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: Transportation & Equipment; Food; and Printing & Publishing.

Employment	% Higher	% Same	% Lower	Net	Index
October 2002	11	67	22	-11	45.0
September 2002	10	69	21	-11	44.9
August 2002	10	71	19	-9	45.8
July 2002	9	73	18	-9	45.0

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing October to September (a reading above 50 percent indicates slower deliveries). At 52.6 percent, the index is 3.1 percentage points lower than September's 55.7 percent. The industries reporting slower supplier deliveries in October are: Apparel; Textiles; Fabricated Metals; Furniture; Printing & Publishing; Food; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Rubber & Plastic Products; and Transportation & Equipment.

Supplier Deliveries	% Slower	% Same	% Faster	Net	Index
October 2002	12	83	5	+7	52.6
September 2002	16	81	3	+13	55.7
August 2002	13	83	4	+9	53.4
July 2002	15	82	3	+12	54.9

NOTE: A list of commodities in short supply is available at the end of this report.

Inventories

The rate of liquidation of manufacturers' inventories accelerated in October as the Inventories Index registered 40.2 percent. This compares to 43.6 percent reported in September. The Inventories Index has been under 50 percent for 33 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 October are: Leather; Apparel; Wood & Wood Products; Paper; Food; Fabricated Metals; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

Inventories	% Higher	% Same	% Lower	Net	Index
October 2002	12	58	30	-18	40.2
September 2002	13	62	25	-12	43.6
August 2002	18	58	24	-6	45.2
July 2002	12	57	31	-19	41.8

Customers' Inventories

The Customers' Inventories Index is at 42.5 percent, an increase of 2 percentage points compared to the September reading of 40.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 17th consecutive month that the index has registered below 50. Paper; and Glass, Stone & Aggregate are the only industries indicating their customers' inventories are too high.

Customers' Inventories	% Reporting	% Too High	% About Right	% Too Low	Net	Index
October 2002	83	9	67	24	-15	42.5
September 2002	81	6	69	25	-19	40.5
August 2002	80	6	73	21	-15	42.5
July 2002	87	9	67	24	-15	42.5

Prices

ISM's Prices Index indicates manufacturers continued to pay higher prices in October. This is the eighth consecutive month the index has registered higher prices. With the index at 58.3 percent, it is 4.2 percentage points lower than September's 62.5 percent. In October, 27 percent of supply executives reported paying higher prices and 8 percent reported paying lower prices, while 65 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 October are: Food; Wood & Wood Products; Tobacco; Textiles; Printing & Publishing; Glass, Stone & Aggregate; Chemicals; Paper; Industrial & Commercial Equipment & Computers; Fabricated Metals; Rubber & Plastic Products; Primary Metals; and Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments).

Prices	% Higher	% Same	% Lower	Net	Index
October 2002	27	65	8	+19	58.3
September 2002	32	66	2	+30	62.5
August 2002	34	58	8	+26	61.5
July 2002	41	53	6	+35	68.3

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 43.5 percent, indicating a slightly faster rate of decline in manufacturers' backlogs as the index decreased 1 percentage point from September's report of 44.5 percent. Of the 88 percent of respondents who report their backlog of orders, 15 percent reported greater backlogs, 28 percent reported smaller backlogs, and 57 percent reported no change from September. The industries reporting an increase in order backlog during the month are: Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Glass, Stone & Aggregate; and Food.

Backlog of Orders	% Reporting	% Greater	% Same	% Less	Net	Index
October 2002	88	15	57	28	-13	43.5
September 2002	88	16	57	27	-11	44.5
August 2002	86	17	56	27	-10	45.0
July 2002	88	14	63	23	-9	45.5

New Export Orders

ISM's New Export Orders Index for October registered 54.4 percent, an increase of 2.6 percentage points when compared to September's index of 51.8 percent. This is the 10th consecutive month the index has indicated growth. The industries reporting growth in new export orders in October are: Textiles; Apparel; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Paper; Fabricated Metals; Food; and Electronic Components & Equipment.

New Export Orders	% Reporting	% Better	% Same	% Worse	Net	Index
October 2002	77	10	82	8	+2	54.4
September 2002	76	16	76	8	+8	51.8
August 2002	77	14	79	7	+7	52.7
July 2002	75	13	79	8	+5	52.2

Imports

Imports of materials by manufacturers failed to grow in October as the Imports Index registered 48.7 percent. The index declined 6 percentage points when compared to September's index of 54.7 percent. The five industries reporting growth in import activity for October are: Fabricated Metals; Food; Chemicals; Industrial & Commercial Equipment & Computers; and Furniture.

Imports	% Reporting	% Higher	% Same	% Lower	Net	Index
October 2002	79	12	75	13	-1	48.7
September 2002	74	19	74	7	+12	54.7
August 2002	74	14	78	8	+6	51.9
July 2002	74	14	78	8	+6	54.2

Buying Policy

Average commitment leadtime for Capital Expenditures declined 2 days to 96 days. Average leadtime for Production Materials remained at 46 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 3 days to 17 days.

Percent Reporting
	Hand to Mouth	30 Days	60 Days	90 Days	6 Mos.	1 Year+	Avg. Days
Capital Expenditures
October 2002	23	8	16	22	27	4	96
September 2002	25	9	15	22	22	7	98
August 2002	23	7	16	23	24	7	102
July 2002	24	7	17	24	23	5	95
Production Materials
October 2002	23	45	16	12	2	2	46
September 2002	24	45	16	10	3	2	46
August 2002	21	44	20	10	3	2	48
July 2002	21	46	18	9	5	1	46
MRO Supplies
October 2002	60	33	6	1	0	0	17
September 2002	57	31	10	2	0	0	20
August 2002	54	33	10	3	0	0	21
July 2002	55	33	8	4	0	0	21

In Short Supply

No commodities reported in Short Supply.

Up in Price

Caustic Soda — 5th month; Corrugated Containers — 5th month; Gasoline: Honey; Natural Gas — 3rd month; Oil; Paper; Plastic; Steel — 9th month; and Sugar.

Down in Price

Aluminum and Copper.

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 42.7 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 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 November 2002 data will be released at 10:00 a.m. (ET) on December 2, 2002.

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