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November 2002 Manufacturing ISM Report On Business®

FOR RELEASE: December 2, 2002

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
PMI at 49.2%

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 November 2002.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector declined for the third consecutive month. The overall economy grew for the 13th 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 failed to grow in November. While the Production Index strengthened, the New Orders Index softened. The PMI has averaged 49.6 percent for the past five months. The sector continues to need drivers that will help end the stagnation."

ISM's Backlog of Orders Index indicates that order backlogs declined for the fifth consecutive month. ISM's Supplier Deliveries Index reflects slower deliveries for the 11th consecutive month. Manufacturing employment continued to decline in November as the index remained below the breakeven point (an index of 50 percent) for the 26th consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the ninth consecutive month. New Export Orders failed to grow in November after 10 consecutive months of growth. November's Imports Index grew following one month of decline.

Comments from purchasing and supply executives indicate that their business is either "flat," "depressed," or in the "doldrums" this month. The dock strike on the West Coast was still on the minds of many as they apparently were taking other measures such as using airfreight or shipping through East Coast ports. The situation with Iraq is another major concern as members felt the uncertainty is a deterrent to business.

ISM's PMI is 49.2 percent in November, an increase of 0.7 percentage point when compared to 48.5 in October. ISM's New Orders Index declined from 50.9 percent in October to 49.9 percent in November. ISM's Production Index rose 5.3 percentage points from 49.3 percent in October to 54.6 percent in November. The ISM Employment Index is at 43.8 percent for November, a decrease of 1.2 percentage points when compared to the 45 percent reported in October.

ISM's Supplier Deliveries Index registered 50.8 percent compared to 52.6 percent in October. ISM's Inventories Index rose to 42.1 percent from 40.2 percent in October. ISM's Customers' Inventories Index for November is at 46.5 percent, an increase of 4 percentage points compared to the October reading of 42.5 percent. ISM's Prices Index in November is 55.7 percent, a decrease of 2.6 percentage points from October's 58.3 percent. ISM's Backlog of Orders Index declined 1 percentage point from 43.5 percent in October to 42.5 percent in November.

ISM's New Export Orders Index registered 49.1 percent, down 5.3 percentage points from October's 54.4 percent. ISM's Imports Index rose from 48.7 percent in October to 53.1 percent in November.

"November's decline in manufacturing was slight when compared to October. The trend is well established that the overall economy is holding up, but the manufacturing sector is feeling the brunt of the downturn. The decline in manufacturing employment is quickening. We are seeing a slowing in the rate of price increases. Overall, there are not really any signs of potential change either upward or downward."

Of the 20 industries in the manufacturing sector, eight industries reported growth: Textiles; Food; Instruments & Photographic Equipment; Tobacco; Rubber & Plastic Products; Chemicals; Printing & Publishing; and Furniture.

"Steel is the only commodity reported in short supply. Commodities reported up in price are: Caustic Soda, Corn, Corrugated Containers, Diesel Fuel, Gasoline, Natural Gas, Nickel, Phenol, Steel and Wheat. Natural Gas and Pork are the only commodities reported down in price," Ore stated.

NOVEMBER 2002 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Nov vs Oct
Rate of Change
Nov vs Oct
PMI 49.2 Contracting Slower
New Orders 49.9 Contracting From Growing
Production 54.6 Growing From Contracting
Employment 43.8 Contracting Faster
Supplier Deliveries 50.8 Slowing Slower
Inventories 42.1 Contracting Slower
Customers' Inventories 46.5 Too Low Slower
Prices 55.7 Increasing Slower
Backlog of Orders 42.5 Contracting Faster
New Export Orders 49.1 Contracting From Growing
Imports 53.1 Growing From Contracting

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

PMI

The PMI indicates that the manufacturing economy failed to grow in November for the third consecutive month. With the index at 49.2 percent, this represents a 0.7 percentage point increase compared to the October reading of 48.5 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 November 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 November (52.2 percent) corresponds to 3.4 percent growth in real gross domestic product (GDP). However, if the PMI for November (49.2 percent) turned out to be the annual average for 2002, it would correspond to a 2.4 percent increase in GDP."

Month Nov'02 Oct'02 Sep'02 Aug'02 Jul'02
PMI% 49.2 48.5 49.5 50.5 50.5
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

New Orders

ISM's New Orders Index declined slightly in November following two months of growth. The index registered 49.9 percent, 1 percentage point lower than the 50.9 percent registered in October. 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 November are: Instruments & Photographic Equipment; Textiles; Food; Rubber & Plastic Products; Chemicals; Wood & Wood Products; and Printing & Publishing.

New
Orders
%Better %Same %Worse Net Index
November 2002 22 51 27 -5 49.9
October 2002 23 53 24 -1 50.9
September 2002 30 47 23 +7 50.2
August 2002 23 52 25 -2 49.7

Production

ISM's Production Index is 54.6 percent in November, 5.3 percentage points higher than the 49.3 percent reported in October. This reverses a one-month excursion in which the Production Index dropped below 50 percent after 10 consecutive months above 50. 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 November, the following registered growth: Furniture; Tobacco; Textiles; Food; Chemicals; Rubber & Plastic Products; Printing & Publishing; Fabricated Metals; and Instruments & Photographic Equipment.

Production %Better %Same %Worse Net Index
November 2002 22 60 18 +4 54.6
October 2002 22 56 22 0 49.3
September 2002 27 55 18 +9 50.9
August 2002 24 57 19 +5 55.6

Employment

ISM's Manufacturing Employment Index remained below 50 percent in November for the 26th consecutive month. The index registered 43.8 percent in November compared to 45 percent in October, a decrease of 1.2 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. Chemicals is the only industry reporting growth in employment during November.

Employment %Higher %Same %Lower Net Index
November 2002 9 69 22 -13 43.8
October 2002 11 67 22 -11 45.0
September 2002 10 69 21 -11 44.9
August 2002 10 71 19 -9 45.8

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing November to October (a reading above 50 percent indicates slower deliveries). At 50.8 percent, the index is 1.8 percentage points lower than October's 52.6 percent. The industries reporting slower supplier deliveries in November are: Printing & Publishing; Paper; Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; Food; and Industrial & Commercial Equipment & Computers.

Supplier
Deliveries
%Slower %Same %Faster Net Index
November 2002 11 80 9 +2 50.8
October 2002 12 83 5 +7 52.6
September 2002 16 81 3 +13 55.7
August 2002 13 83 4 +9 53.4

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 November as the Inventories Index registered 42.1 percent. This compares to 40.2 percent reported in October. The Inventories Index has been under 50 percent for 34 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 three industries reporting higher inventories in November are: Rubber & Plastic Products; Food; and Printing & Publishing.

Inventories %Higher %Same %Lower Net Index
November 2002 13 55 32 -19 42.1
October 2002 12 58 30 -18 40.2
September 2002 13 62 25 -12 43.6
August 2002 18 58 24 -6 45.2

Customers' Inventories

The Customers' Inventories Index is at 46.5 percent, an increase of 4 percentage points compared to the October reading of 42.5 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 18th consecutive month that the index has registered below 50. Furniture; Glass, Stone & Aggregate; Paper; Primary Metals; and Instruments & Photographic Equipment are the industries reporting excessive customer inventories during November.

Customers'
Inventories
%
Reporting
%
Too
High
%
About
Right
%
Too
Low
Net Index
November 2002 80 12 69 19 -7 46.5
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

Prices

ISM's Prices Index indicates manufacturers continued to pay higher prices in November. This is the ninth consecutive month the index has registered higher prices. With the index at 55.7 percent, it is 2.6 percentage points lower than October's 58.3 percent. In November, 18 percent of supply executives reported paying higher prices and 12 percent reported paying lower prices, while 70 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 November are: Leather; Tobacco; Rubber & Plastic Products; Chemicals; Glass, Stone & Aggregate; Furniture; Instruments & Photographic Equipment; Wood & Wood Products; Food; Paper; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); and Printing & Publishing.

Prices %Higher %Same %Lower Net Index
November 2002 18 70 12 +6 55.7
October 2002 27 65 8 +19 58.3
September 2002 32 66 2 +30 62.5
August 2002 34 58 8 +26 61.5

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 42.5 percent, indicating a slightly faster rate of decline in manufacturers' backlogs as the index decreased 1 percentage point from October's report of 43.5 percent. This is the fifth consecutive month that the index has failed to grow. Of the 87 percent of respondents who report their backlog of orders, 12 percent reported greater backlogs, 27 percent reported smaller backlogs, and 61 percent reported no change from October. The industries reporting an increase in order backlog during the month are: Rubber & Plastic Products; and Food.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
November 2002 87 12 61 27 -15 42.5
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

New Export Orders

ISM's New Export Orders Index for November registered 49.1 percent, a decrease of 5.3 percentage points when compared to October's index of 54.4 percent. This is the first month this year that the index has fallen below 50 percent. The industries reporting growth in new export orders in November are: Textiles; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Food; Fabricated Metals; Transportation & Equipment; and Electronic Components & Equipment.

New Export
Orders
%Reporting %Better %Same %Worse Net Index
November 2002 76 12 76 12 0 49.1
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

Imports

Imports of materials by manufacturers grew in November as the Imports Index registered 53.1 percent. The index rose 4.4 percentage points when compared to October's index of 48.7 percent. The seven industries reporting growth in import activity for November are: Furniture; Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Fabricated Metals; Food; Electronic Components & Equipment; and Industrial & Commercial Equipment & Computers.

Imports %Reporting %Higher %Same %Lower Net Index
November 2002 75 14 75 11 +3 53.1
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

Buying Policy

Average commitment leadtime for Capital Expenditures rose 4 days to 100 days. Average leadtime for Production Materials rose 2 days to 48 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies rose 2 days to 19 days.

Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
November 2002 25 8 14 24 21 8 100
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
Production Materials              
November 2002 22 43 19 11 3 2 48
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
MRO Supplies              
November 2002 60 30 7 3 0 0 19
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

In Short Supply

Steel is the only commodity reported in Short Supply.

Up in Price

Caustic Soda — 6th month; Corn; Corrugated Containers — 6th month; Diesel Fuel; Gasoline — 2nd month; Natural Gas* — 4th month; Nickel; Phenol; Steel — 10th month; and Wheat.

Down in Price

Natural Gas* and Pork are the only commodities reported Down in Price.

*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 42.7 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 December 2002 data will be released at 10:00 a.m. (ET) on January 2, 2003.



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