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November 2006 Manufacturing ISM Report On Business®

FOR RELEASE: December 1, 2006

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

PMI at 49.5%

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 November 2006.

New Orders, Production,
Employment and Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in November for the first time following 41 consecutive months of growth, while the overall economy grew for the 61st 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. "In November, manufacturing activity declined to its lowest level in 42 months as the PMI fell to 49.5 percent. The last time the PMI registered below 50 percent was April 2003 (46.5 percent). New Orders and Production both ended growth cycles at 42 months during November. On the positive side, growth in New Export Orders continued as the weaker dollar continues to fuel that segment."

TOP PERFORMING INDUSTRIES

The eight industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Computer & Electronic Products; Printing & Related Support Activities; and Chemical Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Sales have leveled off, but we will have a record year. Second [year] in a row." (Computer & Electronic Products)
  • "Business has softened in the past 60 days. Down about 20 percent." (Fabricated Metal Products)
  • "Housing market slowed down." (Furniture & Related Products)
  • "We have hit another slow period in receiving new contracts. Quoting activity is fair." (Machinery)
  • "We are still trying to hire new maintenance techs, but find it difficult to find qualified people." (Nonmetallic Mineral Products)
MANUFACTURING AT A GLANCE
NOVEMBER 2006


Index
Series
Index
November
Series
Index
October
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 49.5 51.2 -1.7 Contracting From Growing 1
New Orders 48.7 52.1 -3.4 Contracting From Growing 1
Production 48.5 51.9 -3.4 Contracting From Growing 1
Employment 49.2 50.8 -1.6 Contracting From Growing 1
Supplier Deliveries 52.8 50.2 +2.6 Slowing Faster 41
Inventories 49.7 49.4 +0.3 Contracting Slower 3
Customers' Inventories 50.5 52.0 -1.5 Too High Slower 2
Prices 53.5 47.0 +6.5 Increasing From Decreasing 1
Backlog of Orders 46.5 44.5 +2.0 Contracting Slower 3
Exports 56.9 57.8 -0.9 Growing Slower 48
Imports 56.5 57.0 -0.5 Growing Slower 59
             
OVERALL ECONOMY Growing Slower 61
Manufacturing Sector Contracting From Growing 1

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Copper Products; Corn; Natural Gas*; Nickel; and Zinc.

Commodities Down in Price

Caustic Soda; Energy; Fuel (2); Gasoline (3); Natural Gas (3)*; Oil; and Petroleum Products.

Commodities in Short Supply

Titanium (2).

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

* Reported as both up and down in price.



NOVEMBER 2006 MANUFACTURING INDEX SUMMARIES


PMI

The manufacturing economy failed to grow in November as the PMI registered 49.5 percent, a decrease of 1.7 percentage points when compared to October's reading of 51.2 percent. This is the lowest reading since April 2003 (46.5 percent) when the PMI was last below the 50 percent level. 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. Therefore, the November PMI indicates that the overall economy is continuing to grow while the manufacturing sector has now entered a period of contraction. "The past relationship between the PMI and the overall economy indicates that the average PMI for January through November (54.1 percent) corresponds to a 4.1 percent increase in real gross domestic product (GDP). In addition, if the PMI for November (49.5 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Nov 2006 49.5   May 2006 54.4
Oct 2006 51.2   Apr 2006 57.3
Sep 2006 52.9   Mar 2006 55.2
Aug 2006 54.5   Feb 2006 56.7
Jul 2006 54.7   Jan 2006 54.8
Jun 2006 53.8   Dec 2005 55.6
Average for 12 months – 54.2
High – 57.3
Low – 49.5

New Orders

ISM's New Orders Index registered 48.7 percent in November. The index is 3.4 percentage points lower than the 52.1 percent reported in October. November ends a string of 42 consecutive months above 50 percent for this index. 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). Five industries reported increases during November: Apparel, Leather & Allied Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Nov 2006 22 51 27 -5 48.7
Oct 2006 26 47 27 -1 52.1
Sep 2006 28 54 18 +10 54.2
Aug 2006 27 51 22 +5 54.2

Production

ISM's Production Index registered 48.5 percent in November, 3.4 percentage points lower than the 51.9 percent reported in October. November's contraction ends 42 consecutive months 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 November, eight registered growth: Apparel, Leather & Allied Products; Plastics & Rubber Products; Primary Metals; Printing & Related Support Activities; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Paper Products.


Production
%
Better
%
Same
%
Worse

Net

Index
Nov 2006 18 60 22 -4 48.5
Oct 2006 22 58 20 +2 51.9
Sep 2006 28 59 13 +15 56.1
Aug 2006 23 61 16 +7 56.6

Employment

ISM's Employment Index registered 49.2 percent in November, a decrease of 1.6 percentage points when compared to October's reading of 50.8 percent. 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 six industries reporting growth in employment during November are: Apparel, Leather & Allied Products; Primary Metals; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Paper Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Nov 2006 17 63 20 -3 49.2
Oct 2006 17 63 20 -3 50.8
Sep 2006 12 72 16 -4 49.4
Aug 2006 19 66 15 +4 54.0

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 41st consecutive month in November. ISM's Supplier Deliveries Index for November registered 52.8 percent, an increase of 2.6 percentage points when compared to October's reading of 50.2 percent. A reading above 50 percent indicates slower deliveries. The eight industries reporting slower supplier deliveries in November are: Computer & Electronic Products; Paper Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; and Machinery.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Nov 2006 9 86 5 +4 52.8
Oct 2006 9 83 8 +1 50.2
Sep 2006 13 82 5 +8 54.1
Aug 2006 16 80 4 +12 55.0

Inventories

Manufacturers' inventories contracted at a slower rate in November as ISM's Inventories Index registered 49.7 percent, a 0.3 percentage point increase when compared to October's reading of 49.4 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 six industries reporting higher inventories in November are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Paper Products; and Chemical Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Nov 2006 15 65 20 -5 49.7
Oct 2006 17 61 22 -5 49.4
Sep 2006 14 66 20 -6 46.4
Aug 2006 20 62 18 +2 50.2

Customers' Inventories*

The ISM Customers' Inventories Index registered 50.5 percent in November, which is 1.5 percentage points lower than the 52 percent reported in October. The index indicates that respondents believe their customers have more than sufficient inventories on hand (inventories are too high) at this time. This is the second month of growth following 64 consecutive months in which the index registered below 50 percent. Seven industries reported higher customers' inventories during November: Wood Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Machinery; Fabricated Metal Products; Miscellaneous Manufacturing; and Chemical Products.

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

Net

Index
Nov 2006 72 14 73 13 +1 50.5
Oct 2006 74 19 66 15 +4 52.0
Sep 2006 71 15 68 17 -2 49.0
Aug 2006 75 10 72 18 -8 46.0

Prices*

In November, the ISM Prices Index registered 53.5 percent, indicating manufacturers are paying higher prices on average when compared to October. While 61percent of supply executives reported paying the same prices and 16 percent reported paying lower prices, 23 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 November, eight industries reported paying higher prices: Printing & Related Support Activities; Food, Beverage & Tobacco Products; Machinery; Transportation Equipment; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; and Nonmetallic Mineral Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Nov 2006 23 61 16 +7 53.5
Oct 2006 18 58 24 -6 47.0
Sep 2006 36 50 14 +22 61.0
Aug 2006 50 46 4 +46 73.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 46.5 percent, indicating manufacturers' backlogs in November are contracting for the third consecutive month. The index is 2 percentage points higher than the 44.5 percent reported in October. Of the 86 percent of respondents who reported their backlog of orders, 17 percent reported greater backlogs, 24 percent reported smaller backlogs, and 59 percent reported no change from October. The five industries reporting an increase in order backlogs in November are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; and Computer & Electronic Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Nov 2006 86 17 59 24 -7 46.5
Oct 2006 85 14 61 25 -11 44.5
Sep 2006 83 14 65 21 -7 46.5
Aug 2006 83 19 65 16 +3 51.5

New Export Orders

ISM's New Export Orders Index registered 56.9 percent in November, a decrease of 0.9 percentage point when compared to October's index of 57.8 percent. This is the 48th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in November are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Transportation Equipment; Computer & Electronic Products; Furniture & Related Products; Paper Products; Fabricated Metal Products; and Chemical Products.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Nov 2006 76 20 74 6 +14 56.9
Oct 2006 80 18 76 6 +12 57.8
Sep 2006 77 14 80 6 +8 55.3
Aug 2006 77 14 81 5 +9 55.7

Imports*

Imports of materials by manufacturers grew during November as the Imports Index registered 56.5 percent. The index is 0.5 percentage point lower when compared to October. The 10 industries reporting growth in import activity for November are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Machinery; and Transportation Equipment.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Nov 2006 83 21 71 8 +13 56.5
Oct 2006 85 19 76 5 +14 57.0
Sep 2006 81 18 76 6 +12 56.0
Aug 2006 81 15 78 7 +8 54.0

* 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 8 days to 111 days. Average leadtime for Production Materials decreased 8 days to 47 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 1 day to 25 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Nov 2006 20 10 17 21 21 11 111
Oct 2006 22 9 14 19 22 14 119
Sep 2006 26 8 14 18 23 11 109
Aug 2006 25 7 11 22 22 13 116
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Nov 2006 20 39 29 7 4 1 47
Oct 2006 21 36 23 13 4 3 55
Sep 2006 19 43 22 12 3 1 47
Aug 2006 19 40 25 10 6 0 48
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Nov 2006 44 39 13 4 0 0 25
Oct 2006 52 31 13 3 1 0 24
Sep 2006 50 37 10 3 0 0 22
Aug 2006 49 35 14 2 0 0 23

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 December 2006 data will be released at 10:00 a.m. (ET) on Tuesday, January 2, 2007.


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