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September 2005 Manufacturing ISM Report On Business®

FOR RELEASE: October 3, 2005

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
  E-mail: rgoupil@ism.ws
PMI at 59.4%

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 September 2005.


New Orders, Production Expanding
Employment Growing
Prices Increasing Significantly

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in September for the 28th consecutive month, while the overall economy grew for the 47th 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 28th consecutive month in September based on the ISM data. The PMI made a strong move to the upside as New Orders and Production rose significantly. This move was supported by slower deliveries and growing order backlogs. While energy prices and the impact from Hurricane Katrina are major concerns, the manufacturing sector has regained significant momentum."

TOP PERFORMING INDUSTRIES

The 16 industries reporting growth in September — listed in order — are: Paper; Wood & Wood Products; Electronic Components & Equipment; Apparel; Tobacco; Furniture; Chemicals; Instruments & Photographic Equipment; Transportation & Equipment; Food; Primary Metals; Textiles; Rubber & Plastic Products; Fabricated Metals; Printing & Publishing; and Industrial & Commercial Equipment & Computers.

WHAT RESPONDENTS ARE SAYING …
  • "Hurricane Katrina has presented some real challenges in getting raw materials, some of which are manufactured in the region and others that are transported through the port of New Orleans." (Chemicals)
  • "Record sales in August 2005 and increased backlog. Expect increased orders from the rebuilding." (Electronic Components & Equipment)
  • "Business levels remain slightly stronger than projected — both domestic and international demand." (Industrial & Commercial Equipment & Computers)
  • "Hurricane Katrina clean-up and reconstruction will have a huge impact on our business. Customer orders have begun to increase substantially." (Instruments & Photographic Equipment )
  • "Due to demand in the automotive marketplace, business conditions are very strong." (Textiles)
MANUFACTURING AT A GLANCE
SEPTEMBER 2005
Index Series
Index
September
Series
Index
August
Percentage
Point
Change
Direction Rate of
Change
Trend*
(Months)
PMI 59.4 53.6 +5.8 Growing Faster 28
New Orders 63.8 56.4 +7.4 Growing Faster 29
Production 63.1 55.9 +7.2 Growing Faster 29
Employment 53.1 52.6 +0.5 Growing Faster 3
Supplier Deliveries 59.3 50.5 +8.8 Slowing Faster 27
Inventories 49.6 45.7 +3.9 Contracting Slower 6
Customers' Inventories 44.5 46.5 -2.0 Too Low Faster 52
Prices 78.0 62.5 +15.5 Increasing Faster 2
Backlog of Orders 55.0 50.5 +4.5 Growing Faster 2
Exports 56.9 53.3 +3.6 Growing Faster 45
Imports 53.4 53.4 0.0 Growing Same Rate 46
             
OVERALL ECONOMY Growing Faster 47
Manufacturing Sector Growing Faster 28

*Number of months moving in current direction

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

Commodities Up in Price

Adhesives; Aluminum (2); Aluminum Products (2); Caustic Soda (17); Chemicals (20); Copper (4); Crude Oil (2); Diesel Fuel (13); Energy (8); Freight; Fuel (2); Fuel Oil; Fuel Surcharges (3); Gasoline (3); Natural Gas (38); Oil (5); PET; Petrochemicals; Petroleum-Based Raw Materials; Plastic Resins (8); Plastics (14); Plywood; Propylene; Resins (3); Steel* (24); Transportation; and Yeast.

Commodities Down in Price

Corrugated Containers (4); Linerboard; Steel* (7); and Wheat.

Commodities in Short Supply

Castings; Fuel Oil; Hydrochloric Acid (2); Hydrogen; and Resins.

*Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.


SEPTEMBER 2005 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in September for the 28th consecutive month. The PMI for September registered 59.4 percent, an increase of 5.8 percentage points when compared to August's reading of 53.6 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 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 (55 percent) corresponds to a 4.5 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for September (59.4 percent) is annualized, it corresponds to a 6.1 percent increase in GDP annually.

THE LAST 12 MONTHS
Month PMI   Month PMI
Sep 2005 59.4   Mar 2005 55.2
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
Average for 12 months – 55.6
High – 59.4
Low – 51.4

New Orders

ISM's New Orders Index grew in September with a reading of 63.8 percent. The index is 7.4 percentage points higher than the 56.4 percent registered in August, and September is the 29th 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). Thirteen industries reported increases during September: Paper; Apparel; Wood & Wood Products; Electronic Components & Equipment; Furniture; Food; Chemicals; Printing & Publishing; Transportation & Equipment; Rubber & Plastic Products; Primary Metals; Instruments & Photographic Equipment; and Fabricated Metals.

New Orders %Better %Same %Worse Net Index
Sep 2005 35 53 12 +23 63.8
Aug 2005 29 50 21 +8 56.4
Jul 2005 32 53 15 +17 60.6
Jun 2005 33 49 18 +15 57.2

Production

ISM's Production Index is 63.1 percent in September, 7.2 percentage points higher than the 55.9 percent reported in August. September is the 29th 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 September, 15 registered growth: Tobacco; Paper; Electronic Components & Equipment; Apparel; Instruments & Photographic Equipment; Wood & Wood Products; Chemicals; Primary Metals; Food; Textiles; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Furniture; Printing & Publishing; and Fabricated Metals.

Production %Better %Same %Worse Net Index
Sep 2005 37 52 11 +26 63.1
Aug 2005 23 60 17 +6 55.9
Jul 2005 28 59 13 +15 61.2
Jun 2005 30 53 17 +13 55.6

Employment

ISM's Employment Index registered growth in September for the third consecutive month. The index registered 53.1 percent in September compared to 52.6 percent in August, an increase of 0.5 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 nine industries reporting growth in employment during September are: Furniture; Instruments & Photographic Equipment; Miscellaneous*; Electronic Components & Equipment; Transportation & Equipment; Wood & Wood Products; Food; Primary Metals; and Fabricated Metals.

Employment %Higher %Same %Lower Net Index
Sep 2005 19 65 16 +3 53.1
Aug 2005 16 70 14 +2 52.6
Jul 2005 18 71 11 +7 53.2
Jun 2005 20 67 13 +7 49.9

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 27th consecutive month in September. ISM's Supplier Deliveries Index for September registered 59.3 percent, an increase of 8.8 percentage points when compared to August's reading of 50.5 percent. A reading above 50 percent indicates slower deliveries. The 12 industries reporting slower supplier deliveries in September are: Textiles; Rubber & Plastic Products; Chemicals; Wood & Wood Products; Furniture; Paper; Fabricated Metals; Food; Primary Metals; Industrial & Commercial Equipment & Computers; Transportation & Equipment; and Printing & Publishing.

Supplier
Deliveries
%Slower %Same %Faster Net Index
Sep 2005 21 75 4 +17 59.3
Aug 2005 8 87 5 +3 50.5
Jul 2005 10 86 4 +6 51.8
Jun 2005 12 84 4 +8 53.1

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

Inventories

Manufacturers' inventories declined in September for the sixth consecutive month as ISM's Inventories Index registered 49.6 percent, indicating a faster rate of liquidation when compared to August. 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 five industries reporting higher inventories in September are: Rubber & Plastic Products; Paper; Transportation & Equipment; Industrial & Commercial Equipment & Computers; and Printing & Publishing.

Inventories %Higher %Same %Lower Net Index
Sep 2005 17 65 18 -1 49.6
Aug 2005 16 62 22 -6 45.7
Jul 2005 14 63 23 -9 47.5
Jun 2005 19 58 23 -4 47.8

Customers' Inventories**

The September Customers' Inventories Index is at 44.5 percent, 2 percentage points lower than the 46.5 percent reported in August. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 52nd consecutive month that the index has registered below 50 percent. Four industries reported higher customers' inventories during September and they are: Furniture; Paper; Chemicals; and Rubber & Plastic Products.

Customers'
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low
Net Index
Sep 2005 74 9 71 20 -11 44.5
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

Prices**

The ISM's Prices Index jumped again in September as the Prices Index rose to 78 percent, up from 62.5 percent in August. September's jump of 15.5 percentage points follows a jump of 14 percentage points from July to August. In September, 60 percent of supply executives reported paying higher prices and 4 percent reported paying lower prices, while 36 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 September, 18 industries reported paying higher prices: Tobacco; Petroleum; Glass, Stone & Aggregate; Primary Metals; Chemicals; Rubber & Plastic Products; Fabricated Metals; Paper; Transportation & Equipment; Food; Apparel; Printing & Publishing; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Wood & Wood Products; Electronic Components & Equipment; Textiles; and Furniture.

Prices %Higher %Same %Lower Net Index
Sep 2005 60 36 4 +56 78.0
Aug 2005 36 53 11 +25 62.5
Jul 2005 24 49 27 -3 48.5
Jun 2005 22 57 21 +1 50.5

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 55 percent, indicating manufacturers' backlogs in September are growing when compared to August. This represents a 4.5 percentage point increase compared to the 50.5 percent reported in August. Of the 85 percent of respondents who report their backlog of orders, 28 percent reported greater backlogs, 18 percent reported smaller backlogs, and 54 percent reported no change from August. The 11 industries reporting an increase in order backlogs during the month are: Wood & Wood Products; Apparel; Paper; Electronic Components & Equipment; Printing & Publishing; Primary Metals; Food; Fabricated Metals; Furniture; Chemicals; and Rubber & Plastic Products.

Backlog of
Orders
%
Reporting
%Greater %Same %Less Net Index
Sep 2005 85 28 54 18 +10 55.0
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

New Export Orders

ISM's New Export Orders Index for September registered 56.9 percent, an increase of 3.6 percentage points when compared to August's index of 53.3 percent. This is the 45th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in September are: Electronic Components & Equipment; Instruments & Photographic Equipment; Textiles; Primary Metals; Food; Furniture; Paper; Industrial & Commercial Equipment & Computers; Fabricated Metals; Transportation & Equipment; and Chemicals.

New Export
Orders
%
Reporting
%Higher %Same %Lower Net Index
Sep 2005 74 17 78 5 +12 56.9
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

Imports

Imports of materials by manufacturers grew during September as the Imports Index registered 53.4 percent. The index also registered 53.4 percent in August, indicating that imports are growing compared to last month but at the same rate. The 10 industries reporting growth in import activity for September are: Wood & Wood Products; Electronic Components & Equipment; Miscellaneous*; Transportation & Equipment; Furniture; Primary Metals; Fabricated Metals; Paper; Instruments & Photographic Equipment; and Chemicals.

Imports %
Reporting
%Higher %Same %Lower Net Index
Sep 2005 77 16 76 8 +8 53.4
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

*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 decreased 13 days to 106 days. Average leadtime for Production Materials decreased 4 days to 47 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 1 day to 22 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Sep 2005 25 9 14 18 25 9 106
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
 
Production
Materials
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Sep 2005 23 38 26 9 2 2 47
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
 
MRO
Supplies
Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Sep 2005 53 33 11 3 0 0 22
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

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 October 2005 data will be released at 10:00 a.m. (ET) on November 1, 2005.



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