November 2003 Manufacturing ISM Report On Business®

FOR RELEASE: December 1, 2003

Contact: Kristen Kioa
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
PMI at 62.8%

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 November 2003.

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

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in November for the fifth consecutive month, while the overall economy grew for the 25th 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 enjoyed its best month since December 1983. The big improvement is in Employment as the index rose above 50 percent, indicating growth, following 37 consecutive months of decline. The momentum is coming from continued strength in New Orders and Production as the indexes are presently at very lofty levels."

Backlog of Orders Index indicates that order backlogs increased in November, and the Employment Index reversed a long-term trend of contraction as it indicates growth during the month. ISM's Prices Index indicates that manufacturers experienced higher prices in their purchases. The New Export Orders and Import Indexes continue to grow.

Comments from purchasing and supply managers are more upbeat this month as various industry segments are starting to see improvement. While overall employment appears to be improving, respondents still mention current or impending layoffs. Several indicate transferring production of "product lines" to offshore manufacturing.

ISM's PMI registered 62.8 percent in November, an increase of 5.8 percentage points when compared to 57 percent in October. ISM's New Orders Index rose 9.4 percentage points from 64.3 percent in October to 73.7 percent in November. ISM's Production Index rose 5.7 percentage points from 62.6 percent in October to 68.3 percent in November. The ISM Employment Index is at 51 percent for November, an increase of 3.3 percentage points when compared to the 47.7 percent reported in October.

ISM's Supplier Deliveries Index registered 56 percent, 2.1 percentage points higher than October's 53.9 percent. ISM's Inventories Index registered 50 percent in November, up from the 44.5 percent reported in October. ISM's Customers' Inventories Index for November is at 39.5 percent, an increase of 0.5 percentage point compared to the October reading of 39 percent. ISM's Prices Index in November is 64 percent, 5.5 percentage points higher than the 58.5 percent reported in October.

ISM's Backlog of Orders Index increased 5.5 percentage points, registering 59 percent in November compared to 53.5 percent in October. ISM's New Export Orders Index registered 57.9 percent, a decrease of 1.7 percentage points from October's 59.6 percent. ISM's Imports Index increased 5.1 percentage points to 62.4 percent in November, up from 57.3 percent in October.

"Based on this data, it appears that the recovery is gaining momentum. Indications are that the manufacturing sector is ending 2003 on a very positive note, and all of the indexes support continued strength into 2004. While there are still companies lagging the recovery, they should be encouraged by the current indicators in the sector," said Ore.

Of the 20 industries in the manufacturing sector, 18 industries reported growth: Instruments & Photographic Equipment; Glass, Stone, & Aggregate; Leather; Electronic Components & Equipment; Tobacco; Industrial & Commercial Equipment & Computers; Primary Metals; Food; Transportation & Equipment; Fabricated Metals; Wood & Wood Products; Textiles; Furniture; Miscellaneous*; Printing & Publishing; Chemicals; Apparel; and Rubber & Plastic Products.

"Plywood is the only commodity reported in short supply. Commodities reported up in price are: Aluminum; Beef; Brass; Caustic Soda; Copper; Electrical Components; Lumber; Natural Gas; Nickel; Plastic Resins; Plywood; Polyethylene; Resin; Stainless Steel; and Steel. The commodities reported down in price are Caustic Soda; Corrugated Cartons; and Natural Gas," Ore stated. "Caustic Soda and Natural Gas are reported as both up and down in price."

NOVEMBER 2003 ISM BUSINESS SURVEY AT A GLANCE
  Series
Index
Direction
Nov vs Oct
Rate of Change
Nov vs Oct
PMI 62.8 Growing Faster
New Orders 73.7 Growing Faster
Production 68.3 Growing Faster
Employment 51.0 Growing From Contracting
Supplier Deliveries 56.0 Slowing Faster
Inventories 50.0 Unchanged From Contracting
Customers' Inventories 39.5 Too Low Slower
Prices 64.0 Increasing Faster
Backlog of Orders 59.0 Growing Faster
New Export Orders 57.9 Growing Slower
Imports 62.4 Growing Faster

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

PMI

The PMI indicates that the manufacturing economy grew in November for the fifth consecutive month. The PMI for November registered 62.8 percent, an increase of 5.8 percentage points compared to the October reading of 57 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 November 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 November (52.3 percent) corresponds to a 3.4 percent increase in real gross domestic product (GDP). However, if the PMI for November (62.8 percent) is annualized, this corresponds to a 7.3 percent increase in GDP.

Month Nov'03 Oct'03 Sep'03 Aug'03 Jul'03
PMI% 62.8 57.0 53.7 54.7 51.8
Month Jun'03 May'03 Apr'03 Mar'03 Feb'03
PMI% 49.8 49.4 45.4 46.2 50.5
Month Jan'03 Dec'02 Nov'02 Oct'02 Sep'02
PMI% 53.9 55.2 50.5 49.7 50.7

New Orders

ISM's New Orders Index grew in November with a reading of 73.7 percent. The index is 9.4 percentage points higher than the 64.3 percent registered in October and is the seventh consecutive month the index has exceeded 50 percent. This is the highest the index has been since December 1983, when the index registered 74.8 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). Sixteen industries report increases for the month of November: Instruments & Photographic Equipment; Glass, Stone, & Aggregate; Primary Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Textiles; Rubber & Plastic Products; Wood & Wood Products; Fabricated Metals; Transportation & Equipment; Furniture; Printing & Publishing; Food; Miscellaneous*; Chemicals; and Paper.

New
Orders
%Better %Same %Worse Net Index
November 2003 45 43 12 +33 73.7
October 2003 37 48 15 +22 64.3
September 2003 38 46 16 +22 60.4
August 2003 35 48 17 +18 59.6

Production

ISM's Production Index is 68.3 percent in November, 5.7 percentage points higher than the 62.6 percent reported in October, reflecting the seventh 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 November, 16 registered growth: Tobacco; Instruments & Photographic Equipment; Glass, Stone, & Aggregate; Electronic Components & Equipment; Food; Textiles; Primary Metals; Fabricated Metals; Furniture; Industrial & Commercial Equipment & Computers; Printing & Publishing; Chemicals; Miscellaneous*; Wood & Wood Products; Transportation & Equipment; and Paper.

Production %Better %Same %Worse Net Index
November 2003 40 49 11 +29 68.3
October 2003 35 51 14 +21 62.6
September 2003 33 53 14 +19 57.3
August 2003 33 52 15 +18 61.6

Employment

ISM's Employment Index reversed a 37-month trend of contraction as the index registered 51 percent in November compared to 47.7 percent in October, an increase of 3.3 percentage points. 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 eight industries reporting growth in employment during November are: Leather; Transportation & Equipment; Glass, Stone, & Aggregate; Wood & Wood Products; Instruments & Photographic Equipment; Fabricated Metals; Industrial & Commercial Equipment & Computers; and Food.

Employment %Higher %Same %Lower Net Index
November 2003 16 66 18 -2 51.0
October 2003 15 63 22 -7 47.7
September 2003 12 66 22 -10 45.7
August 2003 12 67 21 -9 45.9

Supplier Deliveries

ISM's Supplier Deliveries Index indicates delivery performance is slower when comparing November to October. November's reading of 56 percent is an increase of 2.1 percentage points over October's reading of 53.9 percent. A reading above 50 percent indicates slower deliveries. The 11 industries reporting slower supplier deliveries in November are: Primary Metals; Electronic Components & Equipment; Instruments & Photographic Equipment; Miscellaneous*; Glass, Stone, & Aggregate; Industrial & Commercial Equipment & Computers; Printing & Publishing; Furniture; Fabricated Metals; Wood & Wood Products; and Transportation & Equipment.

Supplier
Deliveries
%Slower %Same %Faster Net Index
November 2003 14 82 4 +10 56.0
October 2003 11 87 2 +9 53.9
September 2003 8 90 2 +6 52.4
August 2003 10 88 2 +8 53.3

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

Inventories

Manufacturers' inventories were unchanged in November from the prior month as the index registered 50 percent, an increase of 5.5 percentage points when compared to October's 44.5 percent. Prior to November, the Inventories Index registered under 50 percent for 45 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 five industries reporting higher inventories in November are: Leather; Apparel; Instruments & Photographic Equipment; Electronic Components & Equipment; and Primary Metals.

Inventories %Higher %Same %Lower Net Index
November 2003 16 62 22 -6 50.0
October 2003 14 60 26 -12 44.5
September 2003 14 59 27 -13 42.7
August 2003 11 67 22 -11 42.5

Customers' Inventories**

The Customers' Inventories Index is at 39.5 percent, an increase of 0.5 percentage point compared to the October reading of 39 percent. Respondents indicate that their customers do not have sufficient inventories on hand at this time. This is the 30th consecutive month that the index has registered below 50 percent. There are no reports of excessive customers' inventories during November.

Customers'
Inventories
%
Reporting
%
Too
High
%
About
Right
%
Too
Low
Net Index
November 2003 77 8 63 29 -21 39.5
October 2003 73 5 68 27 -22 39.0
September 2003 73 9 71 20 -11 44.5
August 2003 74 9 68 23 -14 43.0

Prices**

ISM's Prices Index indicates manufacturers continued to pay higher prices in November. This is the 21st consecutive month the index has registered higher prices. November's index is at 64 percent, 5.5 percentage points higher than October's reading of 58.5 percent. In November, 33 percent of supply executives reported paying higher prices and 5 percent reported paying lower prices, while 62 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 15 industries reporting paying higher prices in November are: Tobacco; Leather; Rubber & Plastic Products; Primary Metals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Food; Textiles; Transportation & Equipment; Wood & Wood Products; Instruments & Photographic Equipment; Miscellaneous*; Chemicals; Printing & Publishing; and Electronic Components & Equipment.

Prices %Higher %Same %Lower Net Index
November 2003 33 62 5 +28 64.0
October 2003 26 65 9 +17 58.5
September 2003 21 70 9 +12 56.0
August 2003 19 68 13 +6 53.0

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 registered 59 percent, indicating manufacturers' backlogs in November were higher when compared to October. Of the 86 percent of respondents who report their backlog of orders, 33 percent reported greater backlogs, 15 percent reported smaller backlogs, and 52 percent reported no change from October. The 13 industries reporting an increase in order backlogs during the month are: Instruments & Photographic Equipment; Furniture; Electronic Components & Equipment; Primary Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Wood & Wood Products; Rubber & Plastic Products; Fabricated Metals; Glass, Stone, & Aggregate; Printing & Publishing; Food; and Chemicals.

Backlog
of Orders
%
Reporting
%
Greater
%
Same
%
Less
Net Index
November 2003 86 33 52 15 +18 59.0
October 2003 87 27 53 20 +7 53.5
September 2003 89 23 59 18 +5 52.5
August 2003 87 22 59 19 +3 51.5

New Export Orders

ISM's New Export Orders Index for November registered 57.9 percent, a decrease of 1.7 percentage points when compared to October's index of 59.6 percent. This is the 23rd consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in November are: Instruments & Photographic Equipment; Apparel; Industrial & Commercial Equipment & Computers; Textiles; Miscellaneous*; Rubber & Plastic Products; Furniture; Fabricated Metals; Transportation & Equipment; Paper; and Electronic Components & Equipment.

New Export
Orders
%
Reporting
%
Better
%
Same
%
Worse
Net Index
November 2003 77 20 74 6 +14 57.9
October 2003 77 20 75 5 +15 59.6
September 2003 77 16 76 8 +8 52.9
August 2003 76 19 74 7 +12 55.3

Imports

Imports of materials by manufacturers grew during November as the Imports Index registered 62.4 percent. The index increased 5.1 percentage points when compared to October's index of 57.3 percent. The 16 industries reporting growth in import activity for November are: Textiles; Apparel; Furniture; Instruments & Photographic Equipment; Electronic Components & Equipment; Wood & Wood Products; Printing & Publishing; Glass, Stone, & Aggregate; Paper; Industrial & Commercial Equipment & Computers; Fabricated Metals; Miscellaneous*; Food; Rubber & Plastic Products; Transportation & Equipment; and Chemicals.

Imports %
Reporting
%
Higher
%
Same
%
Lower
Net Index
November 2003 78 26 69 5 +21 62.4
October 2003 78 19 76 5 +14 57.3
September 2003 79 29 67 4 +25 60.7
August 2003 79 17 77 6 +11 55.1

*Miscellaneous is a preponderance of jewelry, toys, sporting goods, and musical instruments.
**The Backlog of Orders, Prices, and Customers' Inventories Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures is unchanged at 103 days. Average leadtime for Production Materials decreased 3 days to 43 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies decreased 1 day to 21 days.

  Percent Reporting
  Hand
to
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures
November 2003 25 7 17 21 21 9 103
October 2003 24 10 15 20 22 9 103
September 2003 21 14 16 20 21 8 99
August 2003 25 10 16 20 22 7 97
Production Materials
November 2003 25 44 19 7 4 1 43
October 2003 25 39 21 9 5 1 46
September 2003 23 44 18 10 4 1 45
August 2003 24 41 19 12 3 1 45
MRO Supplies
November 2003 57 34 5 3 1 0 21
October 2003 54 35 7 3 1 0 22
September 2003 54 33 8 4 1 0 23
August 2003 55 35 6 3 1 0 21

In Short Supply

Plywood — 2nd month.

Up in Price

Aluminum; Beef — 2nd month; Brass; Caustic Soda*; Copper — 4th month; Electrical Components; Lumber — 3rd month; Natural Gas* — 16th month; Nickel — 4th month; Plastic Resins — 2nd month; Plywood; Polyethylene; Resin; Stainless Steel — 2nd month; and Steel — 2nd month.

Down in Price

Caustic Soda* — 4th month; Corrugated Cartons — 9th month; Natural Gas* — 8th 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 December 2003 data will be released at 10:00 a.m. (ET) on January 2, 2004.



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