February 2007 Manufacturing ISM Report On Business®

FOR RELEASE: March 1, 2007


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

PMI at 52.3%

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 February 2007.


New Orders, Production and Employment Growing
Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in February following a decline in January, while the overall economy grew for the 64th 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. "February proved to be a good month in the manufacturing sector as New Orders, Production and Employment contributed to a solid growth scenario. The Inventories Index showed significant reduction in manufacturers' inventories for the second consecutive month, and the Backlog of Orders Index is growing once again. While the prices manufacturers pay reached their highest level in five months, concern about prices is still minimal due to the small number of commodities indicated as up in price. The trend in manufacturing, as well as the overall economy, is for slow but continuing growth."

TOP PERFORMING INDUSTRIES

The 13 industries reporting growth in February — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Computer & Electronic Products; Chemical Products; Wood Products; Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; Paper Products; Food, Beverage & Tobacco Products; and Machinery.

WHAT RESPONDENTS ARE SAYING ...
  • "Business is booming in the fertilizer business." (Chemical Products)
  • "Business continues to be strong but flat. Goals were all met for the month except inventory is too high according to budget." (Fabricated Metal Products)
  • "Our business has continued at a fairly level pace since September 2006." (Computer & Electronic Products)
  • "Although our business is still depressed, we are seeing increased order activity for single pieces of equipment compared to complete system solutions as in the past." (Machinery)
  • "Business has slowed a little. Leadtimes for MRO parts are still longer than a year ago." (Nonmetallic Mineral Products)
MANUFACTURING AT A GLANCE
FEBRUARY 2007


Index
Series
Index
February
Series
Index
January
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 52.3 49.3 +3.0 Growing From Contracting 1
New Orders 54.9 50.3 +4.6 Growing Faster 3
Production 54.1 49.6 +4.5 Growing From Contracting 1
Employment 51.1 49.5 +1.6 Growing From Contracting 1
Supplier Deliveries 50.8 52.7 -1.9 Slowing Slower 44
Inventories 44.6 39.9 +4.7 Contracting Slower 7
Customers' Inventories 53.0 52.0 +1.0 Too High Faster 5
Prices 59.0 53.0 +6.0 Increasing Faster 2
Backlog of Orders 51.5 43.5 +8.0 Growing From Contracting 1
Exports 54.0 52.5 +1.5 Growing Faster 51
Imports 61.5 54.5 +7.0 Growing Faster 62
             
OVERALL ECONOMY Growing Faster 64
Manufacturing Sector Growing From Contracting 1

*Number of months moving in current direction


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (3); Corn Products (4); Gasoline; Natural Gas; Nickel (4); Stainless Steel (2); and Stainless Steel Sheet (2).

Commodities Down in Price

Caustic Soda and Copper (3).

Commodities in Short Supply

Electronic Components is the only commodity reported in short supply.

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



FEBRUARY 2007 MANUFACTURING INDEX SUMMARIES


PMI

The manufacturing economy returned to growth in February as the PMI registered 52.3 percent, an increase of 3 percentage points when compared to January's seasonally adjusted reading of 49.3 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 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 PMI average for January and February (50.8 percent) corresponds to a 2.8 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for February (52.3) is annualized, it corresponds to a 3.2 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Feb 2007 52.3   Aug 2006 54.3
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
Average for 12 months – 53.1
High – 56.9
Low – 49.3

New Orders

ISM's New Orders Index registered 54.9 percent in February. The index is 4.6 percentage points higher than the seasonally adjusted 50.3 percent reported in January. 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). Thirteen industries reported increases during February: Apparel, Leather & Allied Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Textile Mills; Wood Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Paper Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Feb 2007 36 43 21 +15 54.9
Jan 2007 27 45 28 -1 50.3
Dec 2006 30 37 33 -3 51.9
Nov 2006 22 51 27 -5 49.7

Production

ISM's Production Index registered 54.1 percent in February, 4.5 percentage points higher than the seasonally adjusted 49.6 percent reported in January. Manufacturers' production is now growing following a one-month contraction in February. 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 February, 11 registered growth: Apparel, Leather & Allied Products; Plastics & Rubber Products; Textile Mills; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Chemical Products; Machinery; Paper Products; Transportation Equipment; Computer & Electronic Products; and Food, Beverage & Tobacco Products.


Production
%
Better
%
Same
%
Worse

Net

Index
Feb 2007 28 54 18 +10 54.1
Jan 2007 22 53 25 -3 49.6
Dec 2006 27 46 27 0 52.4
Nov 2006 18 60 22 -4 49.3

Employment

ISM's Employment Index registered 51.1 percent in February as the Index increased 1.6 percentage points when compared to January's seasonally adjusted reading of 49.5 percent. February's Index reverses a three-month trend of contraction in manufacturing employment. 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 eight industries reporting growth in employment during February are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Chemical Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Paper Products; Computer & Electronic Products; and Transportation Equipment.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Feb 2007 21 62 17 +4 51.1
Jan 2007 14 68 18 -4 49.5
Dec 2006 14 68 18 -4 49.4
Nov 2006 17 63 20 -3 48.9

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 44th consecutive month in February. ISM's Supplier Deliveries Index registered 50.8 percent in February, a decrease of 1.9 percentage points when compared to January's seasonally adjusted reading of 52.7 percent. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in February are: Nonmetallic Mineral Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Feb 2007 7 87 6 +1 50.8
Jan 2007 7 88 5 +2 52.7
Dec 2006 8 88 4 +4 53.3
Nov 2006 9 86 5 +4 52.8

Inventories

Manufacturers' inventories contracted for the seventh consecutive month in February as ISM's Inventories Index registered 44.6 percent, a 4.7 percentage point increase when compared to January's reading of 39.9 percent (seasonally adjusted). 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 seven industries reporting higher inventories in February are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Computer & Electronic Products; Furniture & Related Products; Primary Metals; and Machinery.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Feb 2007 16 62 22 -6 44.6
Jan 2007 12 57 31 -19 39.9
Dec 2006 20 55 25 -5 48.5
Nov 2006 15 65 20 -5 49.1

Customers' Inventories*

The ISM Customers' Inventories Index registered 53 percent in February, 1 percentage point higher than the 52 percent reported in January. 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 fifth month of growth in this index following 64 consecutive months in which the index registered below 50 percent. Eight industries reported higher customers' inventories during February: Furniture & Related Products; Printing & Related Support Activities; Paper Products; Nonmetallic Mineral Products; Fabricated Metal Products; Miscellaneous Manufacturing; Machinery; and Computer & Electronic Products.

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

Net

Index
Feb 2007 74 17 72 11 +6 53.0
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

Prices*

In February, the ISM Prices Index registered 59 percent, indicating manufacturers are paying higher prices on average when compared to January. While 32 percent of respondents reported paying higher prices and 14 percent reported paying lower prices, 54 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 February, 13 industries reported paying higher prices: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; Transportation Equipment; Furniture & Related Products; Fabricated Metal Products; Machinery; Chemical Products; and Primary Metals.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Feb 2007 32 54 14 +18 59.0
Jan 2007 24 58 18 +6 53.0
Dec 2006 19 57 24 -5 47.5
Nov 2006 23 61 16 +7 53.5

Backlog of Orders*

ISM's Backlog of Orders Index registered 51.5 percent, 8 percentage points higher than the 43.5 percent reported in January. The Index indicates manufacturers' order backlogs are now growing after five consecutive months of contraction. Of the 85 percent of respondents who reported their backlog of orders, 26 percent reported greater backlogs, 23 percent reported smaller backlogs, and 51 percent reported no change from January. The 12 industries reporting an increase in order backlogs in February are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Textile Mills; Wood Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Paper Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Feb 2007 85 26 51 23 +3 51.5
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

New Export Orders*

ISM's New Export Orders Index registered 54 percent in February, an increase of 1.5 percentage points when compared to January's index of 52.5 percent. This is the 51st consecutive month of growth in export orders. The seven industries reporting growth in new export orders in February are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Computer & Electronic Products; and Chemical Products. (Beginning with the January 2007 report, the New Export Orders Index no longer meets the criteria for seasonal adjustment.)

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Feb 2007 78 19 70 11 +8 54.0
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

Imports*

Imports of materials by manufacturers grew during February as the Imports Index registered 61.5 percent. The index is seven percentage points higher when compared to January. This is the 62nd consecutive month of growth in import orders. The 11 industries reporting growth in import activity for February are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Furniture & Related Products; Fabricated Metal Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Chemical Products.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Feb 2007 78 29 65 6 +23 61.5
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

* 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 increased 7 days to 115 days. Average leadtime for Production Materials decreased 2 days to 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 1 day to 24 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Feb 2007 15 11 17 22 25 10 115
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
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Feb 2007 21 36 29 9 4 1 48
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
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Feb 2007 49 34 13 4 0 0 24
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

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 March 2007 data will be released at 10:00 a.m. (ET) on Monday, April 2, 2007.

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