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October 2005 Manufacturing ISM Report On Business®

FOR RELEASE: November 1, 2005

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