May 2007 Manufacturing ISM Report On Business®

FOR RELEASE: June 1, 2007


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

PMI at 55%

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 May 2007.


New Orders, Production and Employment Growing
Inventories Contracting
Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in May for the fourth consecutive month, while the overall economy grew for the 67th 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 expanded in May as the PMI rose to its highest level in the last 12 months. Both the New Orders and Production Indexes indicated growth, continuing a trend that is now in its fourth month. The ISM Inventories Index indicates that manufacturers are now in their 10th month of inventory reduction. A major concern of respondents is the rate of price increases covering a wide variety of commodities."

TOP PERFORMING INDUSTRIES

The 12 industries reporting growth in May — listed in order — are: Nonmetallic Mineral Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Petroleum & Coal Products; Computer & Electronic Products; Miscellaneous Manufacturing; Transportation Equipment; Machinery; Wood Products; Textile Mills; and Electrical Equipment, Appliances & Components.

WHAT RESPONDENTS ARE SAYING ...
  • "Pricing in the chemicals market is now being influenced by crude oil price escalation ..." (Chemical Products)
  • "Customers need detailed explanations to justify increases on raw materials." (Fabricated Metal Products)
  • "Slower than expected GDP growth in the 1Q causing some 'pull back' on sales forecast/estimates through the end of 2007." (Plastics & Rubber Products)
  • "Exports remain above plan with a positive outlook for the balance of '07." (Transportation Equipment)
  • "Steady, same as last year at this time." (Furniture & Related Products)
MANUFACTURING AT A GLANCE
MAY 2007


Index
Series
Index
May
Series
Index
April
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI 55.0 54.7 +0.3 Growing Faster 4
New Orders 59.6 58.5 +1.1 Growing Faster 6
Production 58.3 57.3 +1.0 Growing Faster 4
Employment 51.9 53.1 -1.2 Growing Slower 2
Supplier Deliveries 50.3 50.2 +0.1 Slowing Faster 47
Inventories 46.1 46.3 -0.2 Contracting Faster 10
Customers' Inventories 48.0 47.0 +1.0 Too Low Slower 3
Prices 71.0 73.0 -2.0 Increasing Slower 5
Backlog of Orders 52.5 54.5 -2.0 Growing Slower 2
Exports 59.0 57.0 +2.0 Growing Faster 54
Imports 57.5 58.0 -0.5 Growing Slower 65
             
OVERALL ECONOMY Growing Faster 67
Manufacturing Sector Growing Faster 4

*Number of months moving in current direction.


COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (6); Aluminum Extrusions; Chemicals (2); Copper (3); Copper Based Products (2); Corrugated Containers (3); Flour; Fuel (3); Gasoline (2); Natural Gas (4); Nickel (7); Petroleum; Petroleum Based Products; Plastic Resins; Stainless Steel (5); and Steel (3).

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

No commodities are reported in short supply.

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



MAY 2007 MANUFACTURING INDEX SUMMARIES


PMI

Manufacturing growth accelerated in May as the PMI registered 55 percent, an increase of 0.3 percentage point when compared to April'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 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 through May (52.4 percent) corresponds to a 3.3 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for May (55 percent) is annualized, it corresponds to a 4.1 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
May 2007 55.0   Nov 2006 49.9
Apr 2007 54.7   Oct 2006 51.5
Mar 2007 50.9   Sep 2006 52.7
Feb 2007 52.3   Aug 2006 54.3
Jan 2007 49.3   Jul 2006 54.4
Dec 2006 51.4   Jun 2006 54.0
Average for 12 months – 52.5
High – 55.0
Low – 49.3

New Orders

ISM's New Orders Index rose to 59.6 percent in May. The index is 1.1 percentage points higher than the 58.5 percent reported in April. 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). Nine industries reported increases during May: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; Textile Mills; Miscellaneous Manufacturing; Transportation Equipment; and Primary Metals.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
May 2007 33 54 13 +20 59.6
Apr 2007 40 45 15 +25 58.5
Mar 2007 30 51 19 +11 51.6
Feb 2007 36 43 21 +15 54.9

Production

ISM's Production Index registered 58.3 percent in May, which is 1 percentage point higher than the 57.3 percent reported in April. May is the fourth consecutive month of production growth for manufacturers. 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 May, nine registered growth: Petroleum & Coal Products; Nonmetallic Mineral Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; and Machinery.


Production
%
Better
%
Same
%
Worse

Net

Index
May 2007 30 59 11 +19 58.3
Apr 2007 35 52 13 +22 57.3
Mar 2007 29 53 18 +11 53.0
Feb 2007 28 54 18 +10 54.1

Employment

ISM's Employment Index registered 51.9 percent in May, which is a decrease of 1.2 percentage points when compared to April's reading of 53.1 percent. 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 May are: Food, Beverage & Tobacco Products; Wood Products; Miscellaneous Manufacturing; Fabricated Metal Products; Chemical Products; Machinery; Computer & Electronic Products; and Transportation Equipment.


Employment
%
Higher
%
Same
%
Lower

Net

Index
May 2007 22 66 12 +10 51.9
Apr 2007 23 64 13 +10 53.1
Mar 2007 14 72 14 0 48.7
Feb 2007 21 62 17 +4 51.1

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 47th consecutive month in May. ISM's Supplier Deliveries Index registered 50.3 percent in May, an increase of 0.1 percentage point when compared to April's reading of 50.2 percent. A reading above 50 percent indicates slower deliveries. The five industries reporting slower supplier deliveries in May are: Electrical Equipment, Appliances & Components; Computer & Electronic Products; Machinery; Fabricated Metal Products; and Chemical Products.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
May 2007 5 93 2 +3 50.3
Apr 2007 7 87 6 +1 50.2
Mar 2007 5 93 2 +3 51.3
Feb 2007 7 87 6 +1 50.8

Inventories

Manufacturers' inventories registered 46.1 percent in May, a 0.2 percentage point decrease when compared to April's reading of 46.3 percent. This is the 10th consecutive month of inventory liquidation. 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 five industries reporting higher inventories in May are: Nonmetallic Mineral Products; Furniture & Related Products; Chemical Products; Computer & Electronic Products; and Food, Beverage & Tobacco Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
May 2007 15 62 23 -8 46.1
Apr 2007 16 62 22 -6 46.3
Mar 2007 17 64 19 -2 47.5
Feb 2007 16 62 22 -6 44.6

Customers' Inventories*

The ISM Customers' Inventories Index registered 48 percent in May, which is 1 percentage point higher than the 47 percent reported in April. The index indicates that respondents believe their customers have less than sufficient inventories on hand (inventories are too low) at this time. This is the third consecutive month in which manufacturers have reported their customers' inventories to be too low, following five consecutive months that the index registered above 50 percent. Two industries reported higher customers' inventories during May: Furniture & Related Products and Fabricated Metal Products.

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

Net

Index
May 2007 76 9 78 13 -4 48.0
Apr 2007 77 13 68 19 -6 47.0
Mar 2007 75 11 74 15 -4 48.0
Feb 2007 74 17 72 11 +6 53.0

Prices*

In May, the ISM Prices Index registered 71 percent, indicating manufacturers are paying higher prices on average when compared to April. While 45 percent of respondents reported paying higher prices and 3 percent reported paying lower prices, 52 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 May, 15 industries reported paying higher prices: Textile Mills; Petroleum & Coal Products; Plastics & Rubber Products; Fabricated Metal Products; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Chemical Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Machinery; Transportation Equipment; Furniture & Related Products; Primary Metals; and Computer & Electronic Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
May 2007 45 52 3 +42 71.0
Apr 2007 50 46 4 +46 73.0
Mar 2007 36 59 5 +31 65.5
Feb 2007 32 54 14 +18 59.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 52.5 percent in May, 2 percentage points lower than the 54.5 percent reported in April. Of the 87 percent of respondents who reported their backlog of orders, 22 percent reported greater backlogs, 17 percent reported smaller backlogs, and 61 percent reported no change from April. The seven industries reporting an increase in order backlogs in May are: Textile Mills; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; and Computer & Electronic Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
May 2007 87 22 61 17 +5 52.5
Apr 2007 85 26 57 17 +9 54.5
Mar 2007 89 20 54 26 -6 47.0
Feb 2007 85 26 51 23 +3 51.5

New Export Orders*

ISM's New Export Orders Index registered 59 percent in May, an increase of 2 percentage points when compared to April's index of 57 percent. This is the 54th consecutive month of growth in export orders. The nine industries reporting growth in new export orders in May are: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Fabricated Metal Products; Plastics & Rubber Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Machinery.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
May 2007 78 24 70 6 +18 59.0
Apr 2007 82 20 74 6 +14 57.0
Mar 2007 77 18 75 7 +11 55.5
Feb 2007 78 19 70 11 +8 54.0

Imports*

Imports of materials by manufacturers grew during May as the Imports Index registered 57.5 percent, a decrease of 0.5 percentage point when compared to April. This is the 65th consecutive month of growth in import orders. The nine industries reporting growth in import activity for May are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; Chemical Products; Plastics & Rubber Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Miscellaneous Manufacturing.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
May 2007 82 20 75 5 +15 57.5
Apr 2007 84 23 70 7 +16 58.0
Mar 2007 82 24 67 9 +15 57.5
Feb 2007 78 29 65 6 +23 61.5

* 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 4 days to 119 days. Average leadtime for Production Materials remained unchanged at 46 days. Average leadtime for Maintenance, Repair and Operating (MRO) Supplies decreased 3 days to 22 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
May 2007 20 9 12 20 28 11 119
Apr 2007 21 9 12 24 22 12 115
Mar 2007 19 10 17 22 22 10 110
Feb 2007 15 11 17 22 25 10 115
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
May 2007 20 41 24 12 2 1 46
Apr 2007 18 45 25 8 3 1 46
Mar 2007 21 35 29 12 3 0 45
Feb 2007 21 36 29 9 4 1 48
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
May 2007 51 37 9 3 0 0 22
Apr 2007 52 33 11 3 0 1 25
Mar 2007 52 34 10 4 0 0 22
Feb 2007 49 34 13 4 0 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 June 2007 data will be released at 10:00 a.m. (ET) on Monday, July 2, 2007.


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