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June 2006 Manufacturing ISM Report On Business®

FOR RELEASE: July 3, 2006

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

PMI at 53.8%

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 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 June 2006.

New Orders, Production Expanding
Employment, Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in June for the 37th consecutive month, while the overall economy grew for the 56th 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. "Manufacturing growth continued in June, and although the rate of growth slowed slightly, renewed strength in June's New Orders Index provides encouragement for the third quarter. The sector is benefiting from the weaker dollar and business investment. While energy and raw material prices are still a concern, our members indicate that they are coping with the challenges, and generally see their businesses in a continuing growth mode."

TOP PERFORMING INDUSTRIES

The 14 industries reporting growth in June — listed in order — are: Petroleum; Miscellaneous*; Tobacco; Instruments & Photographic Equipment; Furniture; Chemicals; Wood & Wood Products; Paper; Primary Metals; Industrial & Commercial Equipment & Computers; Fabricated Metals; Food; Transportation & Equipment; and Electronic Components & Equipment.

WHAT RESPONDENTS ARE SAYING ...
  • "New orders have increased and many are from new customers." (Chemicals)
  • "Sales were off the mark in May, which changed the direction of the year as the first four months were extremely positive." (Fabricated Metals)
  • "Business activity in the construction industry has slowed down considerably." (Glass, Stone & Aggregate)
  • "General conditions remain strong." (Paper)
  • "Trucking is getting tighter, and we are spending a lot of time trying to find carriers to pick up loads in a timely manner." (Transportation & Equipment)
MANUFACTURING AT A GLANCE
JUNE 2006


Index
Series
Index
June
Series
Index
May
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 53.8 54.4 -0.6 Growing Slower 37
New Orders 57.9 53.7 +4.2 Growing Faster 38
Production 55.1 57.2 -2.1 Growing Slower 38
Employment 48.7 52.9 -4.2 Contracting From Growing 1
Supplier Deliveries 55.0 57.6 -2.6 Slowing Slower 36
Inventories 46.9 48.0 -1.1 Contracting Faster 2
Customers' Inventories 45.5 44.0 +1.5 Too Low Slower 61
Prices 76.5 77.0 -0.5 Increasing Slower 11
Backlog of Orders 54.0 53.0 +1.0 Growing Faster 6
Exports 55.4 55.7 -0.3 Growing Slower 43
Imports 56.5 56.5 Unchanged Growing Same 54
             
OVERALL ECONOMY Growing Slower 56
Manufacturing Sector Growing Slower 37

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (11); Aluminum Sheet; Brass Castings; Caustic Soda; Chemicals (3); Copper (13); Copper Products* (7); Corrugated Containers (8); Freight (4): Gasoline (3); Linerboard (2); Oil; Paper (6); Paperboard; Particle Board (4); Plastics (3); Rubber — Natural; Rubber — Synthetic; Stainless Steel (2); Steel (4); Steel — Galvanized; and Zinc Oxide.

Commodities Down in Price

Copper Products* and Natural Gas (6).

Commodities in Short Supply

Particle Board (2) and Steel (3).

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


JUNE 2006 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in June for the 37th consecutive month as it registered 53.8 percent, a decrease of 0.6 percentage point when compared to May's reading of 54.4 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 percent, over a period of time, generally indicates an expansion of the overall economy. The June 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 June (55.4 percent) corresponds to a 4.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (53.8 percent) is annualized, it corresponds to a 4 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Jun 2006 53.8   Dec 2005 55.6
May 2006 54.4   Nov 2005 57.3
Apr 2006 57.3   Oct 2005 58.1
Mar 2006 55.2   Sep 2005 58.0
Feb 2006 56.7   Aug 2005 53.5
Jan 2006 54.8   Jul 2005 56.4
Average for 12 months – 55.9
High – 58.1
Low – 53.5

New Orders

ISM's New Orders Index registered 57.9 percent in June. The index is 4.2 percentage points higher than the 53.7 percent registered in May. June is the 38th 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). Fourteen industries reported increases during June: Petroleum; Miscellaneous*; Instruments & Photographic Equipment; Furniture; Chemicals; Paper; Industrial & Commercial Equipment & Computers; Primary Metals; Wood & Wood Products; Rubber & Plastic Products; Food; Fabricated Metals; Transportation & Equipment; and Electronic Components & Equipment.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Jun 2006 34 48 18 +16 57.9
May 2006 31 49 20 +11 53.7
Apr 2006 35 53 12 +23 57.6
Mar 2006 37 51 12 +25 58.4

Production

ISM's Production Index registered 55.1 percent in June, 2.1 percentage points lower than the 57.2 percent reported in May. June is the 38th 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 June, 12 registered growth: Tobacco; Instruments & Photographic Equipment; Chemicals; Miscellaneous*; Wood & Wood Products; Furniture; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Paper; Fabricated Metals; Food; and Primary Metals.


Production
%
Better
%
Same
%
Worse

Net

Index
Jun 2006 27 56 17 +10 55.1
May 2006 32 53 15 +17 57.2
Apr 2006 35 57 8 +27 60.4
Mar 2006 34 52 14 +20 57.5

Employment

ISM's Employment Index contracted in June following 12 consecutive months of growth. The index registered 48.7 percent in June compared to 52.9 percent in May, a decrease of 4.2 percentage points. An Employment Index above 48.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The 11 industries reporting growth in employment during June are: Petroleum; Miscellaneous*; Wood & Wood Products; Furniture; Primary Metals; Printing & Publishing; Electronic Components & Equipment; Food; Fabricated Metals; Chemicals; and Industrial & Commercial Equipment & Computers.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Jun 2006 17 69 14 +3 48.7
May 2006 20 72 8 +12 52.9
Apr 2006 24 66 10 +14 55.8
Mar 2006 19 70 11 +8 52.5

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 36th consecutive month in June. ISM's Supplier Deliveries Index for June registered 55 percent, a decrease of 2.6 percentage points when compared to May's reading of 57.6 percent. A reading above 50 percent indicates slower deliveries. The 13 industries reporting slower supplier deliveries in June are: Petroleum; Wood & Wood Products; Glass, Stone & Aggregate; Miscellaneous*; Paper; Transportation & Equipment; Furniture; Primary Metals; Electronic Components & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; and Fabricated Metals.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Jun 2006 15 82 3 +12 55.0
May 2006 20 77 3 +17 57.6
Apr 2006 19 77 4 +15 57.7
Mar 2006 14 80 6 +8 53.1

Inventories

Manufacturers' inventories contracted in June as ISM's Inventories Index registered 46.9 percent, a 1.1 percentage point decrease when compared to May's reading of 48 percent. An Inventories Index greater than 42.2 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 June are: Miscellaneous*; Rubber & Plastic Products; Paper; Furniture; Fabricated Metals; Electronic Components & Equipment; and Printing & Publishing.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Jun 2006 15 65 20 -5 46.9
May 2006 13 71 16 -3 48.0
Apr 2006 19 65 16 +3 51.3
Mar 2006 18 64 18 0 48.7

Customers' Inventories**

The ISM Customers' Inventories Index is at 45.5 percent in June, 1.5 percentage points higher than the 44 percent reported in May. The index indicates that respondents believe their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 61st consecutive month that the index has registered below 50 percent. Five industries reported higher customers' inventories during June: Furniture; Glass, Stone & Aggregate; Miscellaneous*; Rubber & Plastic Products; and Instruments & Photographic Equipment.

Customers'
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low

Net

Index
Jun 2006 75 12 67 21 -9 45.5
May 2006 74 11 66 23 -12 44.0
Apr 2006 72 13 67 20 -7 46.5
Mar 2006 68 14 68 18 -4 48.0

Prices**

In June, the ISM Prices Index was 76.5 percent, indicating manufacturers are paying higher prices on average when compared to May. While 39 percent of supply executives reported paying the same prices and 4 percent reported paying lower prices, the majority of respondents (57 percent) reported that prices were higher than 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 June, 18 industries reported paying higher prices: Petroleum; Primary Metals; Miscellaneous*; Furniture; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Transportation & Equipment; Fabricated Metals; Paper; Textiles; Apparel; Glass, Stone & Aggregate; Food; Electronic Components & Equipment; Instruments & Photographic Equipment; Chemicals; Wood & Wood Products; and Printing & Publishing.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Jun 2006 57 39 4 +53 76.5
May 2006 56 42 2 +54 77.0
Apr 2006 53 37 10 +43 71.5
Mar 2006 42 49 9 +33 66.5

Backlog of Orders**

ISM's Backlog of Orders Index registered 54 percent, indicating manufacturers' backlogs in June are expanding at a faster rate when compared to May. The index is 1 percentage point higher than the 53 percent reported in May. Of the 84 percent of respondents who report their backlog of orders, 28 percent reported greater backlogs, 20 percent reported smaller backlogs, and 52 percent reported no change from May. The nine industries reporting an increase in order backlogs in June are: Miscellaneous*; Primary Metals; Furniture; Fabricated Metals; Instruments & Photographic Equipment; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Paper; and Food.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Jun 2006 84 28 52 20 +8 54.0
May 2006 84 23 60 17 +6 53.0
Apr 2006 86 28 58 14 +14 57.0
Mar 2006 85 34 51 15 +19 59.5

New Export Orders

ISM's New Export Orders Index registered 55.4 percent in June, a decrease of 0.3 percentage point when compared to May's index of 55.7 percent. This is the 43rd consecutive month of growth in export orders. The nine industries reporting growth in new export orders in June are: Furniture; Instruments & Photographic Equipment; Miscellaneous*; Transportation & Equipment; Food; Paper; Industrial & Commercial Equipment & Computers; Chemicals; and Electronic Components & Equipment.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jun 2006 75 17 79 4 +13 55.4
May 2006 79 18 77 5 +13 55.7
Apr 2006 79 16 78 6 +10 53.4
Mar 2006 79 21 77 2 +19 57.3

Imports**

Imports of materials by manufacturers grew during June as the Imports Index registered 56.5 percent. The index is unchanged when compared to May, which indicates the same rate of growth in June as in May. The 12 industries reporting growth in import activity for June are: Miscellaneous*; Apparel; Furniture; Paper; Printing & Publishing; Fabricated Metals; Transportation & Equipment; Chemicals; Food; Electronic Components & Equipment; Instruments & Photographic Equipment; and Industrial & Commercial Equipment & Computers.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jun 2006 81 19 75 6 +13 56.5
May 2006 82 17 79 4 +13 56.5
Apr 2006 82 21 76 3 +18 59.0
Mar 2006 82 19 76 5 +14 57.0

*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.

**The Backlog of Orders, Prices, Customers' Inventories and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures decreased 3 days to 117 days. Average leadtime for Production Materials increased 1 day to 50 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 2 days to 23 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jun 2006 22 11 11 20 23 13 117
May 2006 23 8 12 21 22 14 120
Apr 2006 23 9 16 14 27 11 114
Mar 2006 24 9 11 15 30 11 118
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jun 2006 21 33 29 12 4 1 50
May 2006 23 35 27 10 3 2 49
Apr 2006 18 39 27 10 4 2 52
Mar 2006 19 39 23 12 4 3 55
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jun 2006 55 26 14 5 0 0 23
May 2006 50 33 12 4 1 0 25
Apr 2006 50 35 11 4 0 0 23
Mar 2006 48 34 11 5 1 1 29

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 approximately 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 for those meeting the criteria for seasonal adjustments (PMI, New Orders, Production, Employment, Supplier Deliveries, Inventories and New Export Orders) 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 42.0 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.0 percent, it is generally declining. The distance from 50 percent or 42.0 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 July 2006 data will be released at 10:00 a.m. (ET) on Tuesday, August 1, 2006.



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