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August 2005 Manufacturing ISM Report On Business®

FOR RELEASE: September 1, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
PMI at 53.6%

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 contain primarily regional data from their local vicinities. 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 2005.


New Orders, Production Expanding
Employment Growing
Prices Increasing Significantly

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in August for the 27th consecutive month, while the overall economy grew for the 46th 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. "The manufacturing sector grew for the 27th consecutive month in August based on the ISM data. While not as strong as in July, the PMI still indicates significant economic growth in both manufacturing and the overall economy. Both New Orders and Production continue at relatively strong levels. This month's comments from supply managers indicate great concern over recent new highs in the energy commodities. Many express concerns as to whether current business strength can be sustained if high energy prices persist."

TOP PERFORMING INDUSTRIES

The 12 industries reporting growth in August — listed in order — are: Miscellaneous*; Textiles; Electronic Components & Equipment; Glass, Stone & Aggregate; Primary Metals; Wood & Wood Products; Furniture; Paper; Food; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Instruments & Photographic Equipment.

WHAT RESPONDENTS ARE SAYING …
  • "Business is extremely strong, but energy volatility is playing havoc with planning and pricing scenarios." (Chemicals)
  • "Concerned with oil prices and the impact on the products that we buy." (Electronic Components & Equipment)
  • "The worry is interest rates and oil prices. Business is very good, but these two items will eventually stall future growth." (Fabricated Metals)
  • "Business continues to be very strong in the construction industry, which is our main demand." (Primary Metals)
  • "Business is very active. Employee pricing in the automotive market has created a ripple effect in the supply chain." (Textiles)
MANUFACTURING AT A GLANCE
AUGUST 2005
Index Series
Index
August
Series
Index
July
Percentage
Point
Change
Direction Rate of
Change
Trend*
(Months)
PMI 53.6 56.6 -3.0 Growing Slower 27
New Orders 56.4 60.6 -4.2 Growing Slower 28
Production 55.9 61.2 -5.3 Growing Slower 28
Employment 52.6 53.2 -0.6 Growing Slower 2
Supplier Deliveries 50.5 51.8 -1.3 Slowing Slower 26
Inventories 45.7 47.5 -1.8 Contracting Faster 5
Customers' Inventories 46.5 44.5 +2.0 Too Low Slower 51
Prices 62.5 48.5 +14.0 Increasing From Decreasing 1
Backlog of Orders 50.5 49.0 +1.5 Growing From Contracting 1
Exports 53.3 55.9 -2.6 Growing Slower 44
Imports 53.4 54.7 -1.3 Growing Slower 45
             
OVERALL ECONOMY Growing Slower 46
Manufacturing Sector Growing Slower 27

*Number of months moving in current direction

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Aluminum; Aluminum Products; Caustic Soda (16); Chemicals (19); Copper (3); Crude Oil; Diesel Fuel (12); Energy (7); Ferrous Scrap; Fuel; Fuel Surcharges (2); Gasoline (2); Natural Gas (37); Oil (4); Plastic Resins (7); Plastics (13); Resins (2); Steel* (23); and Titanium.

Commodities Down in Price

Corrugated Containers (3); Stainless Steel; Steel* (6).

Commodities in Short Supply

Caustic Soda; Hydrochloric Acid; and Titanium.

*Reported as both up and down in price.

Note: The number of consecutive months the commodity is listed is indicated after each item.


AUGUST 2005 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in August for the 27th consecutive month. The PMI for August registered 53.6 percent, a decrease of 3 percentage points when compared to July's reading of 56.6 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. The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (54.5 percent) corresponds to a 4.3 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for August (53.6 percent) is annualized, it corresponds to a 4 percent increase in GDP annually.

THE LAST 12 MONTHS
Month PMI   Month PMI
Aug 2005 53.6   Feb 2005 55.3
Jul 2005 56.6   Jan 2005 56.4
Jun 2005 53.8   Dec 2004 57.3
May 2005 51.4   Nov 2004 57.6
Apr 2005 53.3   Oct 2004 57.5
Mar 2005 55.2   Sep 2004 59.1
Average for 12 months – 55.6
High – 59.1
Low – 51.4

New Orders

ISM's New Orders Index grew in August with a reading of 56.4 percent. The index is 4.2 percentage points lower than the 60.6 percent registered in July, and August is the 28th consecutive month the index has exceeded 50 percent. A New Orders Index above 51.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars). Nine industries reported increases during August: Glass, Stone & Aggregate; Textiles; Miscellaneous*; Electronic Components & Equipment; Paper; Primary Metals; Furniture; Transportation & Equipment; and Food.

New Orders %Better %Same %Worse Net Index
Aug 2005 29 50 21 +8 56.4
Jul 2005 32 53 15 +17 60.6
Jun 2005 33 49 18 +15 57.2
May 2005 32 44 24 +8 51.7

Production

ISM's Production Index is 55.9 percent in August, 5.3 percentage points lower than the 61.2 percent reported in July. August is the 28th consecutive month of growth in the index. An index above 50 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the industries reporting in August, nine registered growth: Textiles; Miscellaneous*; Electronic Components & Equipment; Wood & Wood Products; Food; Paper; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Rubber & Plastic Products.

Production %Better %Same %Worse Net Index
Aug 2005 23 60 17 +6 55.9
Jul 2005 28 59 13 +15 61.2
Jun 2005 30 53 17 +13 55.6
May 2005 28 58 14 +14 54.9

Employment

ISM's Employment Index registered growth in August for the second consecutive month. The index registered 52.6 percent in August compared to 53.2 percent in July, a decrease of 0.6 percentage point. An Employment Index above 48.5 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 August are: Miscellaneous*; Electronic Components & Equipment; Instruments & Photographic Equipment; Furniture; Primary Metals; Transportation & Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.

Employment %Higher %Same %Lower Net Index
Aug 2005 16 70 14 +2 52.6
Jul 2005 18 71 11 +7 53.2
Jun 2005 20 67 13 +7 49.9
May 2005 19 66 15 +4 48.8

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 26th consecutive month in August. ISM's Supplier Deliveries Index for August registered 50.5 percent, a decrease of 1.3 percentage points when compared to July's reading of 51.8 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in August are: Textiles; Primary Metals; Furniture; Electronic Components & Equipment; Chemicals; Food; Industrial & Commercial Equipment & Computers; and Rubber & Plastic Products.

Supplier
Deliveries
%Slower %Same %Faster Net Index
Aug 2005 8 87 5 +3 50.5
Jul 2005 10 86 4 +6 51.8
Jun 2005 12 84 4 +8 53.1
May 2005 11 82 7 +4 50.5

NOTE: A list of commodities in short supply is available on page 2 of this report.

Inventories

Manufacturers' inventories declined in August for the fifth consecutive month as ISM's Inventories Index registered 45.7 percent, indicating a faster rate of liquidation when compared to July. An Inventories Index greater than 42.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars). The seven industries reporting higher inventories in August are: Miscellaneous*; Wood & Wood Products; Textiles; Paper; Printing & Publishing; Instruments & Photographic Equipment; and Fabricated Metals.

Inventories %Higher %Same %Lower Net Index
Aug 2005 16 62 22 -6 45.7
Jul 2005 14 63 23 -9 47.5
Jun 2005 19 58 23 -4 47.8
May 2005 17 63 20 -3 47.8

Customers' Inventories**

The August Customers' Inventories Index is at 46.5 percent, 2 percentage points higher than the 44.5 percent reported in July. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 51st consecutive month that the index has registered below 50 percent. Six industries reported higher customers' inventories during August and they are: Rubber & Plastic Products; Paper; Furniture; Chemicals; Printing & Publishing; and Instruments & Photographic Equipment.

Customers'
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low
Net Index
Aug 2005 72 13 67 20 -7 46.5
Jul 2005 72 11 67 22 -11 44.5
Jun 2005 73 10 68 22 -12 44.0
May 2005 73 14 67 19 -5 47.5

Prices**

After two months of moderation, the ISM's Prices Index jumped in August as the Prices Index rose to 62.5 percent, up from 48.5 percent in July. In August, 36 percent of supply executives reported paying higher prices and 11 percent reported paying lower prices, while 53 percent reported that prices were unchanged from the preceding month.

A Prices Index above 47.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In August, 13 industries reported paying higher prices: Tobacco; Glass, Stone & Aggregate; Electronic Components & Equipment; Chemicals; Paper; Rubber & Plastic Products; Miscellaneous*; Fabricated Metals; Primary Metals; Food; Wood & Wood Products; Textiles; and Transportation & Equipment.

Prices %Higher %Same %Lower Net Index
Aug 2005 36 53 11 +25 62.5
Jul 2005 24 49 27 -3 48.5
Jun 2005 22 57 21 +1 50.5
May 2005 32 52 16 +16 58.0

NOTE: A list of commodities up in price and down in price is available on page 2 of this report.

Backlog of Orders**

ISM's Backlog of Orders Index registered 50.5 percent, indicating manufacturers' backlogs in August are growing when compared to July. This represents a 1.5 percentage point increase compared to the 49 percent reported in July. Of the 87 percent of respondents who report their backlog of orders, 23 percent reported greater backlogs, 22 percent reported smaller backlogs, and 55 percent reported no change from July. The nine industries reporting an increase in order backlogs during the month are: Furniture; Textiles; Electronic Components & Equipment; Paper; Glass, Stone & Aggregate; Miscellaneous*; Primary Metals; Industrial & Commercial Equipment & Computers; and Wood & Wood Products.

Backlog of
Orders
%
Reporting
%Greater %Same %Less Net Index
Aug 2005 87 23 55 22 +1 50.5
Jul 2005 86 21 56 23 -2 49.0
Jun 2005 87 22 58 20 +2 51.0
May 2005 86 25 52 23 +2 51.0

New Export Orders

ISM's New Export Orders Index for August registered 53.3 percent, a decrease of 2.6 percentage points when compared to July's index of 55.9 percent. This is the 44th consecutive month of growth in export orders. The eight industries reporting growth in new export orders in August are: Electronic Components & Equipment; Textiles; Primary Metals; Rubber & Plastic Products; Food; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Chemicals.

New Export
Orders
%
Reporting
%Higher %Same %Lower Net Index
Aug 2005 78 14 79 7 +7 53.3
Jul 2005 76 16 79 5 +11 55.9
Jun 2005 76 12 81 7 +5 50.4
May 2005 75 18 76 6 +12 54.9

Imports

Imports of materials by manufacturers grew during August as the Imports Index registered 53.4 percent. The index decreased 1.3 percentage points when compared to July's index of 54.7 percent, indicating a slightly slower rate of growth. The 11 industries reporting growth in import activity for August are: Tobacco; Miscellaneous*; Textiles; Fabricated Metals; Wood & Wood Products; Furniture; Rubber & Plastic Products; Transportation & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; and Electronic Components & Equipment.

Imports %
Reporting
%Higher %Same %Lower Net Index
Aug 2005 77 16 75 9 +7 53.4
Jul 2005 77 17 76 7 +10 54.7
Jun 2005 76 15 81 4 +11 54.2
May 2005 78 17 76 7 +10 53.9

*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 increased 10 days to 119 days. Average leadtime for Production Materials increased 3 days to 51 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 1 day to 23 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Aug 2005 22 10 10 21 24 13 119
Jul 2005 24 9 12 19 27 9 109
June 2005 22 9 17 16 25 11 113
May 2005 24 8 9 20 28 11 117
 
Production
Materials
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Aug 2005 22 38 23 11 4 2 51
Jul 2005 22 40 20 13 4 1 48
June 2005 24 36 23 13 2 2 48
May 2005 25 37 23 10 3 2 48
 
MRO
Supplies
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Aug 2005 50 37 9 4 0 0 23
Jul 2005 53 33 11 3 0 0 22
June 2005 55 33 9 3 0 0 21
May 2005 49 37 10 4 0 0 23

About this Report

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 and 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 indexes for five of the indicators with varying weights: New Orders – 30%; Production – 25%; Employment – 20%; Supplier Deliveries – 15%; and Inventories – 10%.

Diffusion indexes 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 indicates that it is generally declining. A PMI in excess of 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 largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education. This 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 2005 data will be released at 10:00 a.m. (ET) on October 3, 2005.



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