August 2006 Manufacturing ISM Report On Business®

FOR RELEASE: September 1, 2006

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

PMI at 54.5%

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 2006.

New Orders, Production Growing
Employment, Inventories Growing
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector grew in August for the 39th consecutive month, while the overall economy grew for the 58th 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 at a very strong pace in August. Though the rate of growth was slightly under that of July, the sector continues to enjoy strength in new orders and production. In August we also saw an uptick in manufacturing employment. The major concerns in manufacturing at this point are the continued upward pricing pressure that has existed for the past 13 months, and some industries are experiencing a degree of inventory buildup."

TOP PERFORMING INDUSTRIES

The nine industries reporting growth in August — listed in order — are: Electrical Equipment, Appliances & Components; Fabricated Metal Products; Miscellaneous Manufacturing; Chemical Products; Computer & Electronic Products; Primary Metals; Food, Beverage & Tobacco Products; Furniture & Related Products; and Paper Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Business has leveled off slightly in the last three months. We still expect to see a record year in sales and new development." (Computer & Electronic Products)
  • "Holiday orders starting to come in, however not as strong as last year." (Fabricated Metal Products)
  • "Almost everything we purchase is increasing in price. Delivery times are extending." (Nonmetallic Mineral Products)
  • "Business has picked up markedly in the last month. Our shop is booked through March '07, and we are looking to outsource..." (Machinery)
  • "Business is okay at present, but we have concerns for balance of the year based on raw materials." (Plastics & Rubber Products)
MANUFACTURING AT A GLANCE
AUGUST 2006


Index
Series
Index
August
Series
Index
July
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 54.5 54.7 -0.2 Growing Slower 39
New Orders 54.2 56.1 -1.9 Growing Slower 40
Production 56.6 57.6 -1.0 Growing Slower 40
Employment 54.0 50.7 +3.3 Growing Faster 2
Supplier Deliveries 55.0 55.4 -0.4 Slowing Slower 38
Inventories 50.2 50.5 -0.3 Growing Slower 2
Customers' Inventories 46.0 44.5 +1.5 Too Low Slower 63
Prices 73.0 78.5 -5.5 Increasing Slower 13
Backlog of Orders 51.5 50.5 +1.0 Growing Faster 8
Exports 55.7 51.9 +3.8 Growing Faster 45
Imports 54.0 57.5 -3.5 Growing Slower 56
             
OVERALL ECONOMY Growing Slower 58
Manufacturing Sector Growing Slower 39

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Copper Products (9); Corrugated Containers (10); Electrical Wire; Energy (2); Freight (6); Fuel Oil (2); Gasoline; Natural Gas; Natural Rubber; Nickel (2); Oil (3); Plastic Products; Propylene; Pulp; Stainless Steel (4); Steel (6); and Zinc (2).

Commodities Down in Price

Caustic Soda.

Commodities in Short Supply

Nickel (2); Stainless Steel; and Steel (5).

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



AUGUST 2006 MANUFACTURING INDEX SUMMARIES


PMI

The PMI indicates that the manufacturing economy grew in August for the 39th consecutive month as it registered 54.5 percent, a decrease of 0.2 percentage point when compared to July's reading of 54.7 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 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 (55.2 percent) corresponds to a 4.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for August (54.5 percent) is annualized, it corresponds to a 4.3 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Aug 2006 54.5   Feb 2006 56.7
Jul 2006 54.7   Jan 2006 54.8
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
Average for 12 months – 55.9
High – 58.1
Low – 53.8

New Orders

ISM's New Orders Index registered 54.2 percent in August. The index is 1.9 percentage points lower than the 56.1 percent registered in July. August is the 40th 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). Seven industries reported increases during August: Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; Paper Products; and Primary Metals.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Aug 2006 27 51 22 +5 54.2
Jul 2006 29 52 19 +10 56.1
Jun 2006 34 48 18 +16 57.9
May 2006 31 49 20 +11 53.7

Production

ISM's Production Index registered 56.6 percent in August, 1 percentage point lower than the 57.6 percent reported in July. August is the 40th 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: Electrical Equipment, Appliances & Components; Primary Metals; Computer & Electronic Products; Miscellaneous Manufacturing; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Machinery; and Furniture & Related Products.


Production
%
Better
%
Same
%
Worse

Net

Index
Aug 2006 23 61 16 +7 56.6
Jul 2006 27 56 17 +10 57.6
Jun 2006 27 56 17 +10 55.1
May 2006 32 53 15 +17 57.2

Employment

ISM's Employment Index registered 54 percent in August, an increase of 3.3 percentage points when compared to July's reading of 50.7 percent. This is the second consecutive month of growth in employment. 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 eight industries reporting growth in employment during August are: Electrical Equipment, Appliances & Components; Chemical Products; Nonmetallic Mineral Products; Fabricated Metal Products; Furniture & Related Products; Primary Metals; Paper Products; and Food, Beverage & Tobacco Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Aug 2006 19 66 15 +4 54.0
Jul 2006 16 70 14 +2 50.7
Jun 2006 17 69 14 +3 48.7
May 2006 20 72 8 +12 52.9

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 38th consecutive month in August. ISM's Supplier Deliveries Index for August registered 55 percent, a decrease of 0.4 percentage point when compared to July's reading of 55.4 percent. A reading above 50 percent indicates slower deliveries. The 10 industries reporting slower supplier deliveries in August are: Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Primary Metals; Furniture & Related Products; Chemical Products; Fabricated Metal Products; Transportation Equipment; and Miscellaneous Manufacturing.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Aug 2006 16 80 4 +12 55.0
Jul 2006 16 80 4 +12 55.4
Jun 2006 15 82 3 +12 55.0
May 2006 20 77 3 +17 57.6

Inventories

Manufacturers' inventories expanded slightly again in August as ISM's Inventories Index registered 50.2 percent, a 0.3 percentage point decrease when compared to July's reading of 50.5 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 August are: Plastics & Rubber Products; Furniture & Related Products; Miscellaneous Manufacturing; Computer & Electronic Products; Chemical Products; Paper Products; and Fabricated Metal Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Aug 2006 20 62 18 +2 50.2
Jul 2006 13 70 17 -4 50.5
Jun 2006 15 65 20 -5 46.9
May 2006 13 71 16 -3 48.0

Customers' Inventories*

The ISM Customers' Inventories Index is at 46 percent in August, which is 1.5 percentage points higher than the 44.5 percent reported in July. 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 63rd consecutive month that the index has registered below 50 percent. Two industries reported higher customers' inventories during August: Food, Beverage & Tobacco Products; and Transportation Equipment.

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

Net

Index
Aug 2006 75 10 72 18 -8 46.0
Jul 2006 73 12 65 23 -11 44.5
Jun 2006 75 12 67 21 -9 45.5
May 2006 74 11 66 23 -12 44.0

Prices*

In August, the ISM Prices Index was 73 percent, indicating manufacturers are paying higher prices on average when compared to July. While 46 percent of supply executives reported paying the same prices and 4 percent reported paying lower prices, 50 percent of respondents 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 August, 13 industries reported paying higher prices: Paper Products; Furniture & Related Products; Plastics & Rubber Products; Transportation Equipment; Chemical Products; Miscellaneous Manufacturing; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; and Electrical Equipment, Appliances & Components.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Aug 2006 50 46 4 +46 73.0
Jul 2006 59 39 2 +57 78.5
Jun 2006 57 39 4 +53 76.5
May 2006 56 42 2 +54 77.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 51.5 percent, indicating manufacturers' backlogs in August are expanding at a faster rate when compared to July. The index is 1 percentage point higher than the 50.5 percent reported in July. Of the 83 percent of respondents who report their backlog of orders, 19 percent reported greater backlogs, 16 percent reported smaller backlogs, and 65 percent reported no change from July. The eight industries reporting an increase in order backlogs in August are: Electrical Equipment, Appliances & Components; Paper Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Computer & Electronic Products; Primary Metals; Chemical Products; and Plastics & Rubber Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Aug 2006 83 19 65 16 +3 51.5
Jul 2006 88 19 63 18 +1 50.5
Jun 2006 84 28 52 20 +8 54.0
May 2006 84 23 60 17 +6 53.0

New Export Orders

ISM's New Export Orders Index registered 55.7 percent in August, an increase of 3.8 percentage points when compared to July's index of 51.9 percent. This is the 45th consecutive month of growth in export orders. The eight industries reporting growth in new export orders in August are: Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Primary Metals; Miscellaneous Manufacturing; Machinery; Fabricated Metal Products; and Chemical Products.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Aug 2006 77 14 81 5 +9 55.7
Jul 2006 79 10 83 7 +3 51.9
Jun 2006 75 17 79 4 +13 55.4
May 2006 79 18 77 5 +13 55.7

Imports*

Imports of materials by manufacturers grew during August as the Imports Index registered 54 percent. The index is 3.5 percentage points lower when compared to July. The eight industries reporting growth in import activity for August are: Nonmetallic Mineral Products; Wood Products; Furniture & Related Products; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; and Machinery.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Aug 2006 81 15 78 7 +8 54.0
Jul 2006 83 22 71 7 +15 57.5
Jun 2006 81 19 75 6 +13 56.5
May 2006 82 17 79 4 +13 56.5

* 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 remained at 116 days. Average leadtime for Production Materials decreased 6 days to 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 4 days to 23 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Aug 2006 25 7 11 22 22 13 116
Jul 2006 19 12 13 21 23 12 116
Jun 2006 22 11 11 20 23 13 117
May 2006 23 8 12 21 22 14 120
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Aug 2006 19 40 25 10 6 0 48
Jul 2006 18 38 28 8 6 2 54
Jun 2006 21 33 29 12 4 1 50
May 2006 23 35 27 10 3 2 49
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Aug 2006 49 35 14 2 0 0 23
Jul 2006 48 36 12 3 0 1 27
Jun 2006 55 26 14 5 0 0 23
May 2006 50 33 12 4 1 0 25

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 purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

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 September 2006 data will be released at 10:00 a.m. (ET) on Monday, October 2, 2006.