January 2007 Manufacturing ISM Report On Business®

FOR RELEASE: February 1, 2007


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

PMI at 49.3%

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 January 2007.

This report reflects the U.S. Department of Commerce's recently completed annual adjustment to the seasonal factors used to calculate the indexes.


New Orders Growing
Production, Employment and Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector contracted in January following a one-month expansion, while the overall economy grew for the 63rd 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. "After a slight rebound in December, the manufacturing sector failed to grow in January. While New Orders remained positive, the signals are clear that there is relatively little change taking place in the sector as the PMI has averaged 50.5 percent for the past four months. In overall terms, manufacturing lost momentum in the second half of 2006, and is starting 2007 in a less than robust fashion. Also, results show a significant decline in the Inventories Index to the lowest level since February 2002, indicating that a significant liquidation is taking place in many supply chains. This is the largest month-to-month decrease since July/August 1984."

TOP PERFORMING INDUSTRIES

The seven industries reporting growth in January — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; Transportation Equipment; and Paper Products.

WHAT RESPONDENTS ARE SAYING ...
  • "General organic chemical pricing and availability has improved greatly." (Chemical Products)
  • "We are forecasting another record year of sales as the commercial construction business continues to be strong." (Fabricated Metal Products)
  • "Business is generally slower. We attribute much of it in our business to the slowing housing and construction market." (Paper Products)
  • "Initial indication of a bit stronger metal demand than we thought at the end of 2006." (Primary Metals)
  • "Suppliers are increasing leadtimes due to increased backlog." (Transportation Equipment)
MANUFACTURING AT A GLANCE
JANUARY 2007


Index
Series
Index
January
Series
Index
December
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 49.3 51.4 -2.1 Contracting From Growing 1
New Orders 50.3 51.9 -1.6 Growing Slower 2
Production 49.6 52.4 -2.8 Contracting From Growing 1
Employment 49.5 49.4 +0.1 Contracting Slower 3
Supplier Deliveries 52.7 53.3 -0.6 Slowing Slower 43
Inventories 39.9 48.5 -8.6 Contracting Faster 6
Customers' Inventories 52.0 50.5 +1.5 Too High Faster 4
Prices 53.0 47.5 +5.5 Increasing From Decreasing 1
Backlog of Orders 43.5 45.0 -1.5 Contracting Faster 5
Exports 52.5 54.3 -1.8 Growing Slower 50
Imports 54.5 55.5 -1.0 Growing Slower 61
             
OVERALL ECONOMY Growing Slower 63
Manufacturing Sector Contracting From Growing 1

*Number of months moving in current direction
Indexes reflect newly released seasonal adjustment factors.


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (2); Corn Products (3); Nickel (3); Stainless Steel; and Stainless Steel Sheet.

Commodities Down in Price

Copper (2); Copper Products; High Density Polyethylene Resin (2); Low Density Polyethylene Resin; Natural Gas; and Steel (2).

Commodities in Short Supply

Aluminum is the only commodity reported in short supply.

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



JANUARY 2007 MANUFACTURING INDEX SUMMARIES


PMI

The manufacturing economy failed to grow in January as the PMI registered 49.3 percent, a decrease of 2.1 percentage points when compared to December's seasonally adjusted reading of 51.4 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 41.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the January PMI indicates that the overall economy is growing and the manufacturing sector is contracting. "The past relationship between the PMI and the overall economy indicates that the PMI for January (49.3 percent) corresponds to a 2.3 percent increase in real gross domestic product (GDP) annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Jan 2007 49.3   Jul 2006 54.4
Dec 2006 51.4   Jun 2006 54.0
Nov 2006 49.9   May 2006 54.7
Oct 2006 51.5   Apr 2006 56.9
Sep 2006 52.7   Mar 2006 55.3
Aug 2006 54.3   Feb 2006 56.1
Average for 12 months – 53.4
High – 56.9
Low – 49.3

New Orders

ISM's New Orders Index registered 50.3 percent in January. The index is 1.6 percentage points lower than the seasonally adjusted 51.9 percent reported in December. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars). Ten industries reported increases during January: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Transportation Equipment; Food, Beverage & Tobacco Products; Paper Products; and Fabricated Metal Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Jan 2007 27 45 28 -1 50.3
Dec 2006 30 37 33 -3 51.9
Nov 2006 22 51 27 -5 49.7
Oct 2006 26 47 27 -1 52.1

Production

ISM's Production Index registered 49.6 percent in January, 2.8 percentage points lower than the seasonally adjusted 52.4 percent reported in December. Manufacturers' production is contracting after a one-month expansion in December. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the industries reporting in January, five registered growth: Apparel, Leather & Allied Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; and Transportation Equipment.


Production
%
Better
%
Same
%
Worse

Net

Index
Jan 2007 22 53 25 -3 49.6
Dec 2006 27 46 27 0 52.4
Nov 2006 18 60 22 -4 49.3
Oct 2006 22 58 20 +2 52.7

Employment

ISM's Employment Index registered 49.5 percent in January, an increase of 0.1 percentage point when compared to December's seasonally adjusted reading of 49.4 percent. This is the third consecutive month that manufacturing employment has contracted. An Employment Index above 49.2 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 January are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Paper Products; Plastics & Rubber Products; Chemical Products; and Furniture & Related Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Jan 2007 14 68 18 -4 49.5
Dec 2006 14 68 18 -4 49.4
Nov 2006 17 63 20 -3 48.9
Oct 2006 17 63 20 -3 50.6

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 43rd consecutive month in January. ISM's Supplier Deliveries Index registered 52.7 percent in January, a decrease of 0.6 percentage point when compared to December's seasonally adjusted reading of 53.3 percent. A reading above 50 percent indicates slower deliveries. The seven industries reporting slower supplier deliveries in January are: Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Transportation Equipment; Chemical Products; and Furniture & Related Products.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Jan 2007 7 88 5 +2 52.7
Dec 2006 8 88 4 +4 53.3
Nov 2006 9 86 5 +4 52.8
Oct 2006 9 83 8 +1 50.6

Inventories

Manufacturers' inventories contracted at a significantly faster rate in January as ISM's Inventories Index registered 39.9 percent, an 8.6 percentage point decrease when compared to December's reading of 48.5 percent (seasonally adjusted). This is the largest point decrease in the Inventories Index since August 1984 when the index dropped from 57.8 percent to 49.1 percent, a decrease of 8.7 percentage points. An Inventories Index greater than 42.4 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 three industries reporting higher inventories in January are: Apparel, Leather & Allied Products; Primary Metals; and Miscellaneous Manufacturing.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Jan 2007 12 57 31 -19 39.9
Dec 2006 20 55 25 -5 48.5
Nov 2006 15 65 20 -5 49.1
Oct 2006 17 61 22 -5 49.3

Customers' Inventories*

The ISM Customers' Inventories Index registered 52 percent in January, 1.5 percentage points higher than the 50.5 percent reported in December. 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 fourth month of growth in this index following 64 consecutive months in which the index registered below 50 percent. Five industries reported higher customers' inventories during January: Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Fabricated Metal Products; and Chemical Products.

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

Net

Index
Jan 2007 75 19 66 15 +4 52.0
Dec 2006 79 18 65 17 +1 50.5
Nov 2006 72 14 73 13 +1 50.5
Oct 2006 74 19 66 15 +4 52.0

Prices*

In January, the ISM Prices Index registered 53 percent, indicating manufacturers are paying higher prices on average when compared to December. While 24 percent of respondents reported paying higher prices and 18 percent reported paying lower prices, 58 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In January, 10 industries reported paying higher prices: Textile Mills; Miscellaneous Manufacturing; Transportation Equipment; Paper Products; Nonmetallic Mineral Products; Primary Metals; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Machinery.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Jan 2007 24 58 18 +6 53.0
Dec 2006 19 57 24 -5 47.5
Nov 2006 23 61 16 +7 53.5
Oct 2006 18 58 24 -6 47.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 43.5 percent, indicating manufacturers' backlogs in January are contracting for the fifth consecutive month. The index is 1.5 percentage points lower than the 45 percent reported in December. Of the 87 percent of respondents who reported their backlog of orders, 17 percent reported greater backlogs, 30 percent reported smaller backlogs, and 53 percent reported no change from December. The six industries reporting an increase in order backlogs in January are: Apparel, Leather & Allied Products; Transportation Equipment; Miscellaneous Manufacturing; Chemical Products; Plastics & Rubber Products; and Furniture & Related Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Jan 2007 87 17 53 30 -13 43.5
Dec 2006 86 21 48 31 -10 45.0
Nov 2006 86 17 59 24 -7 46.5
Oct 2006 85 14 61 25 -11 44.5

New Export Orders*

ISM's New Export Orders Index registered 52.5 percent in January, a decrease of 1.8 percentage points when compared to December's index of 54.3 percent. This is the 50th consecutive month of growth in export orders. The seven industries reporting growth in new export orders in January are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Primary Metals; Transportation Equipment; and Paper Products. Beginning with the January 2007 report, the New Export Orders Index no longer meets the criteria for seasonal adjustments.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jan 2007 79 15 75 10 +5 52.5
Dec 2006 78 16 75 9 +7 54.3
Nov 2006 76 20 74 6 +14 56.9
Oct 2006 80 18 76 6 +12 57.8

Imports*

Imports of materials by manufacturers grew during January as the Imports Index registered 54.5 percent. The index is 1 percentage point lower when compared to December. This is the 61st consecutive month of growth in import orders. The eight industries reporting growth in import activity for January are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Miscellaneous Manufacturing; Machinery; and Computer & Electronic Products.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Jan 2007 84 18 73 9 +9 54.5
Dec 2006 84 20 71 9 +11 55.5
Nov 2006 83 21 71 8 +13 56.5
Oct 2006 85 19 76 5 +14 57.0

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

Buying Policy

Average commitment leadtime for Capital Expenditures decreased 2 days to 108 days. Average leadtime for Production Materials decreased 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
Jan 2007 21 10 16 21 22 10 108
Dec 2006 20 10 17 20 23 10 110
Nov 2006 20 10 17 21 21 11 111
Oct 2006 22 9 14 19 22 14 119
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jan 2007 19 39 26 10 5 1 50
Dec 2006 19 37 27 11 5 1 51
Nov 2006 20 39 29 7 4 1 47
Oct 2006 21 36 23 13 4 3 55
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Jan 2007 49 36 12 3 0 0 23
Dec 2006 50 33 12 4 1 0 25
Nov 2006 44 39 13 4 0 0 25
Oct 2006 52 31 13 3 1 0 24

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 and Inventories) 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 41.9 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.9 percent, it is generally declining. The distance from 50 percent or 41.9 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 February 2007 data will be released at 10:00 a.m. (ET) on Thursday, March 1, 2007.