ISM - Media Release: October 2005 Manufacturing ISM Report On Business®

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FOR RELEASE: November 1, 2005

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

October 2005 Manufacturing ISM Report On Business®

PMI at 59.1%

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 October 2005.

New Orders, Production Expanding
Employment Growing, Deliveries Slowing
Prices Increasing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in October for the 29th consecutive month, while the overall economy grew for the 48th 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 29th consecutive month in October based on the ISM data. The PMI continued its strong performance supported by continuing growth in New Orders and Production. Rising prices, and energy costs in particular, are of major concern as manufacturers are struggling to control costs."

TOP PERFORMING INDUSTRIES

The 15 industries reporting growth in October — listed in order — are: Electronic Components & Equipment; Apparel; Food; Paper; Glass, Stone & Aggregate; Miscellaneous*; Wood & Wood Products; Fabricated Metals; Chemicals; Instruments & Photographic Equipment; Furniture; Transportation & Equipment; Primary Metals; Printing & Publishing; and Industrial & Commercial Equipment & Computers.

WHAT RESPONDENTS ARE SAYING …

"We are seeing an increase in the number of chemical products being placed on allocation and order control." (Chemicals)
"Concern over the price of oil and its effect on the future prices of commodities. Existing inventories are being depleted and we are seeing some significant price increases in some commodities." (Electronic Components & Equipment)
"New business (signed contracts) is sluggish. Quoting activity is high." (Industrial & Commercial Equipment & Computers)
"Most price increase letters I have ever seen." (Instruments & Photographic Equipment)
"Refrigerated freight a significant issue - unable to find available trucks. Sugar prices are skyrocketing." (Food)

MANUFACTURING AT A GLANCE OCTOBER 2005
Index	Series Index October	Series Index September	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	59.1	59.4	-0.3	Growing	Slower	29
New Orders	61.7	63.8	-2.1	Growing	Slower	30
Production	62.0	63.1	-1.1	Growing	Slower	30
Employment	55.0	53.1	+1.9	Growing	Faster	4
Supplier Deliveries	61.7	59.3	+2.4	Slowing	Faster	28
Inventories	48.1	49.6	-1.5	Contracting	Faster	7
Customers' Inventories	41.0	44.5	-3.5	Too Low	Faster	53
Prices	84.0	78.0	+6.0	Increasing	Faster	3
Backlog of Orders	55.5	55.0	+0.5	Growing	Faster	3
Exports	54.8	56.9	-2.1	Growing	Slower	46
Imports	58.2	53.4	+4.8	Growing	Faster	47

OVERALL ECONOMY				Growing	Slower	48
Manufacturing Sector				Growing	Slower	29

*Number of months moving in current direction

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

Commodities Up in Price

Alcohol; Aluminum (3); Aluminum Extrusions; Butadiene; Caustic Soda (18); Chemicals (21); Copper (5); Copper Products; Diesel Fuel (14); Electric Components; Electricity; Energy (9); Freight (2); Fuel Oil (2); Fuel Surcharges (4); Gasoline (4); High Density Polyethylene; Natural Gas (39); Oil (6); Paper; Plastics (15); Plastic Resins (9); Polyethylene; Polyethylene Film; Polypropylene; PVC; Resins (4); Specialty Chemicals; Steel (25); Sugar; and Transportation (2).

Commodities Down in Price

Nickel.

Commodities in Short Supply

Copper; Fuel Oil (2); Natural Gas; Polyethylene; Polyethylene Resin; Resins (2); Steel; and Tires.

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

OCTOBER 2005 MANUFACTURING INDEX SUMMARIES

PMI

The PMI indicates that the manufacturing economy grew in October for the 29th consecutive month. The PMI for October registered 59.1 percent, a decrease of 0.3 percentage point when compared to September's reading of 59.4 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 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 October (55.4 percent) corresponds to a 4.6 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for October (59.1 percent) is annualized, it corresponds to a 5.9 percent increase in GDP annually.

THE LAST 12 MONTHS

Month	PMI	Month	PMI
Oct 2005	59.1	Apr 2005	53.3
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
Average for 12 months – 55.8 High – 59.4 Low – 51.4

New Orders

ISM's New Orders Index grew in October with a reading of 61.7 percent. The index is 2.1 percentage points lower than the 63.8 percent registered in September, and October is the 30th 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 October: Glass, Stone & Aggregate; Electronic Components & Equipment; Paper; Food; Apparel; Printing & Publishing; Instruments & Photographic Equipment; Miscellaneous*; Fabricated Metals; Wood & Wood Products; Primary Metals; Chemicals; and Transportation & Equipment.

New Orders	%Better	%Same	%Worse	Net	Index
Oct 2005	30	54	16	+14	61.7
Sep 2005	35	53	12	+23	63.8
Aug 2005	29	50	21	+8	56.4
Jul 2005	32	53	15	+17	60.6

Production

ISM's Production Index registered 62 percent in October, 1.1 percentage points lower than the 63.1 percent reported in September. October is the 30th 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 October, 14 registered growth: Electronic Components & Equipment; Wood & Wood Products; Apparel; Transportation & Equipment; Food; Instruments & Photographic Equipment; Textiles; Paper; Furniture; Miscellaneous*; Fabricated Metals; Industrial & Commercial Equipment & Computers; Printing & Publishing; and Primary Metals.

Production	%Better	%Same	%Worse	Net	Index
Oct 2005	31	57	12	+19	62.0
Sep 2005	37	52	11	+26	63.1
Aug 2005	23	60	17	+6	55.9
Jul 2005	28	59	13	+15	61.2

Employment

ISM's Employment Index registered growth in October for the fourth consecutive month. The index registered 55 percent in October compared to 53.1 percent in September, an increase of 1.9 percentage points. 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 October are: Miscellaneous*; Electronic Components & Equipment; Apparel; Glass, Stone & Aggregate; Food; Furniture; Fabricated Metals; and Chemicals.

Employment	%Higher	%Same	%Lower	Net	Index
Oct 2005	18	69	13	+5	55.0
Sep 2005	19	65	16	+3	53.1
Aug 2005	16	70	14	+2	52.6
Jul 2005	18	71	11	+7	53.2

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 28th consecutive month in October. ISM's Supplier Deliveries Index for October registered 61.7 percent, an increase of 2.4 percentage points when compared to September's reading of 59.3 percent. A reading above 50 percent indicates slower deliveries. The 14 industries reporting slower supplier deliveries in October are: Chemicals; Paper; Rubber & Plastic Products; Instruments & Photographic Equipment; Apparel; Wood & Wood Products; Food; Textiles; Glass, Stone & Aggregate; Primary Metals; Electronic Components & Equipment; Furniture; Fabricated Metals; and Transportation & Equipment.

Supplier Deliveries	%Slower	%Same	%Faster	Net	Index
Oct 2005	26	70	4	+22	61.7
Sep 2005	21	75	4	+17	59.3
Aug 2005	8	87	5	+3	50.5
Jul 2005	10	86	4	+6	51.8

Inventories

Manufacturers' inventories declined in October for the seventh consecutive month as ISM's Inventories Index registered 48.1 percent, indicating a faster rate of liquidation when compared to September's reading of 49.6. 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 six industries reporting higher inventories in October are: Apparel; Printing & Publishing; Miscellaneous*; Industrial & Commercial Equipment & Computers; Food; and Paper.

Inventories	%Higher	%Same	%Lower	Net	Index
Oct 2005	13	67	20	-7	48.1
Sep 2005	17	65	18	-1	49.6
Aug 2005	16	62	22	-6	45.7
Jul 2005	14	63	23	-9	47.5

Customers' Inventories**

The October Customers' Inventories Index is at 41 percent, 3.5 percentage points lower than the 44.5 percent reported in September. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 53rd consecutive month that the index has registered below 50 percent. Three industries reported higher customers' inventories during October and they are: Furniture; Chemicals; and Paper.

Customers' Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index
Oct 2005	79	8	66	26	-18	41.0
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

Prices**

Prices grew significantly again in October as the Prices Index rose to 84 percent, up six percentage points from 78 percent in September. In October, 70 percent of supply executives reported paying higher prices and 2 percent reported paying lower prices, while 28 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 October, 18 industries reported paying higher prices: Textiles; Furniture; Petroleum; Rubber & Plastic Products; Glass, Stone & Aggregate; Chemicals; Primary Metals; Paper; Fabricated Metals; Transportation & Equipment; Food; Apparel; Instruments & Photographic Equipment; Miscellaneous*; Industrial & Commercial Equipment & Computers; Printing & Publishing; Electronic Components & Equipment; and Wood & Wood Products.

Prices	%Higher	%Same	%Lower	Net	Index
Oct 2005	70	28	2	+68	84.0
Sep 2005	60	36	4	+56	78.0
Aug 2005	36	53	11	+25	62.5
Jul 2005	24	49	27	-3	48.5

Backlog of Orders**

ISM's Backlog of Orders Index registered 55.5 percent, indicating manufacturers' backlogs in October are growing when compared to September. This represents a 0.5 percentage point increase compared to the 55 percent reported in September. Of the 85 percent of respondents who report their backlog of orders, 29 percent reported greater backlogs, 18 percent reported smaller backlogs, and 53 percent reported no change from September. The 10 industries reporting an increase in order backlogs during the month are: Electronic Components & Equipment; Food; Printing & Publishing; Glass, Stone & Aggregate; Fabricated Metals; Miscellaneous*; Wood & Wood Products; Furniture; Paper; and Chemicals.

Backlog of Orders	% Reporting	%Greater	%Same	%Less	Net	Index
Oct 2005	85	29	53	18	+11	55.5
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

New Export Orders

ISM's New Export Orders Index for October registered 54.8 percent, a decrease of 2.1 percentage points when compared to September's index of 56.9 percent. This is the 46th consecutive month of growth in export orders. The six industries reporting growth in new export orders in October are: Food; Electronic Components & Equipment; Instruments & Photographic Equipment; Transportation & Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.

New Export Orders	% Reporting	%Higher	%Same	%Lower	Net	Index
Oct 2005	76	15	77	8	+7	54.8
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

Imports

Imports of materials by manufacturers grew during October as the Imports Index registered 58.2 percent. The index increased 4.8 percentage points when compared to September's index of 53.4 percent, indicating a faster rate of growth. The 10 industries reporting growth in import activity for October are: Furniture; Rubber & Plastic Products; Electronic Components & Equipment; Miscellaneous*; Transportation & Equipment; Wood & Wood Products; Paper; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; and Chemicals.

Imports	% Reporting	%Higher	%Same	%Lower	Net	Index
Oct 2005	78	20	72	8	+12	58.2
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

*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 4 days to 110 days. Average leadtime for Production Materials increased 3 days to 50 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 2 days to 24 days.

Percent Reporting
Capital Expenditures	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Oct 2005	25	8	13	18	26	10	110
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

Production Materials	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Oct 2005	22	36	25	12	3	2	50
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

MRO Supplies	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Oct 2005	51	32	13	3	1	0	24
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

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

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