May Manufacturing ISM Report On Business PMI at 42.8%;New Orders Growing;Production, Employment and Inventories Contracting;Prices Falling;Supplier Deliveries Faster

TEMPE, Ariz.--Economic activity in the manufacturing sector failed to grow in May for the 16th consecutive month, while the overall economy grew for the first time following seven months of decline, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement. May is the first month of growth in the New Orders Index since November 2007, with nine of 18 industries reporting growth. New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008. Also, the Customers’ Inventories Index remained below 50 percent for the second consecutive month, offering encouragement that supply chains are starting to free themselves of excess inventories as nine industries report their customers’ inventories as ‘too low’. The prices that manufacturers pay for raw materials and services continued to decline, but at a slower rate than in April.”

PERFORMANCE BY INDUSTRY

Five of the 18 manufacturing industries reported growth in May. These industries — listed in order — are: Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; and Printing & Related Support Activities. The industries reporting contraction in May — listed in order — are: Textile Mills; Furniture & Related Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; Wood Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Chemical Products; Petroleum & Coal Products; and Paper Products.

WHAT RESPONDENTS ARE SAYING …

  • “Some amount of havoc is about to erupt, with companies pushing for increased capacity when suppliers have taken capacity offline.” (Computer & Electronic Products)
  • “Business is actually better than plan.” (Food, Beverage & Tobacco Products)
  • “Realistically, we don’t see any of our major customers looking to place business until mid-2010 at the earliest.” (Machinery)
  • “April was flat on sales. May looking better.” (Primary Metals)
  • “Business still trending downward, but not as fast.” (Chemical Products)

MANUFACTURING AT A GLANCE
MAY 2009

Index

Series
Index
May

Series
Index
April

Percentage
Point
Change

Direction

Rate of
Change

Trend(a)
(Months)

PMI 42.8 40.1 +2.7 Contracting Slower 16
New Orders 51.1 47.2 +3.9 Growing From Contracting 1
Production 46.0 40.4 +5.6 Contracting Slower 9
Employment 34.3 34.4 -0.1 Contracting Faster 10
Supplier Deliveries 49.8 44.9 +4.9 Faster Slower 8
Inventories 32.9 33.6 -0.7 Contracting Faster 37
Customers’ Inventories 46.0 49.5 -3.5 Too Low Faster 2
Prices 43.5 32.0 +11.5 Decreasing Slower 8
Backlog of Orders 48.0 40.5 +7.5 Contracting Slower 13
Exports 48.0 44.0 +4.0 Contracting Slower 8
Imports 42.5 42.0 +0.5 Contracting Slower 16
OVERALL ECONOMY

Manufacturing Sector

Growing From Contracting 1
Contracting Slower 16

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

#2 Fuel Oil and Natural Gas(b) are the only commodities reported up in price.

Commodities Down in Price

Aluminum Based Products (2); Caustic Soda (3); Corrugated Containers (5); Natural Gas(b) (10); Stainless Steel Related Products; Steel (9); and Steel Products (4).

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.

(b) Reported as both up and down in price.

MAY 2009 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing contracted in May as the PMI registered 42.8 percent, which is 2.7 percentage points higher than the 40.1 percent reported in April. This is the 16th consecutive month of contraction in the manufacturing sector. 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 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth in the overall economy following seven months of decline, and continuing contraction in the manufacturing sector. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (38.1 percent) corresponds to a 1 percent decrease in real gross domestic product (GDP). In addition, if the PMI for May (42.8 percent) is annualized, it corresponds to a 0.5 percent increase in real GDP annually."

THE LAST 12 MONTHS

Month PMI Month PMI
May 2009 42.8 Nov 2008 36.6
Apr 2009 40.1 Oct 2008 38.7
Mar 2009 36.3 Sep 2008 43.4
Feb 2009 35.8 Aug 2008 49.3
Jan 2009 35.6 Jul 2008 49.5
Dec 2008 32.9 Jun 2008 49.5
Average for 12 months – 40.9

High – 49.5

Low – 32.9

New Orders

ISM’s New Orders Index registered 51.1 percent in May, 3.9 percentage points higher than the 47.2 percent registered in April. This is the first month the New Orders Index has moved above 50 percent, following 17 consecutive months of contraction. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The nine industries reporting growth in new orders in May — listed in order — are: Plastics & Rubber Products; Paper Products; Primary Metals; Printing & Related Support Activities; Machinery; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products; and Miscellaneous Manufacturing. The industries contracting in May — listed in order — are: Textile Mills; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Petroleum & Coal Products; and Wood Products.

New Orders %Better %Same %Worse Net Index
May 2009 27 54 19 +8 51.1
Apr 2009 31 40 29 +2 47.2
Mar 2009 28 31 41 -13 41.2
Feb 2009 13 43 44 -31 33.1

Production

ISM’s Production Index registered 46 percent in May, which is an increase of 5.6 percentage points from April’s reading of 40.4 percent. An index above 50.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. This is the ninth consecutive month of decline in production.

The eight industries reporting growth in production during the month of May — listed in order — are: Printing & Related Support Activities; Plastics & Rubber Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Machinery; Paper Products; Electrical Equipment, Appliances & Components; and Chemical Products. The industries that reported decreases in production in May — listed in order — are: Textile Mills; Furniture & Related Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; and Wood Products.

Production %Better %Same %Worse Net Index
May 2009 23 52 25 -2 46.0
Apr 2009 21 45 34 -13 40.4
Mar 2009 17 39 44 -27 36.4
Feb 2009 16 40 44 -28 36.3

Employment

ISM’s Employment Index registered 34.3 percent in May, which is 0.1 percentage point lower than the 34.4 percent reported in April. This is the 10th consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Two of the 18 manufacturing industries reported growth in employment in May: Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The industries that reported decreases in employment during May — listed in order — are: Wood Products; Primary Metals; Furniture & Related Products; Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; Paper Products; Miscellaneous Manufacturing; Petroleum & Coal Products; Printing & Related Support Activities; Chemical Products; Machinery; and Computer & Electronic Products.

Employment %Higher %Same %Lower Net Index
May 2009 8 56 36 -28 34.3
Apr 2009 7 58 35 -28 34.4
Mar 2009 8 41 51 -43 28.1
Feb 2009 6 40 54 -48 26.1

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was faster for the eighth consecutive month in May as the Supplier Deliveries Index registered 49.8 percent, which is 4.9 percentage points higher than the 44.9 percent registered in April. A reading above 50 percent indicates slower deliveries.

The six industries reporting slower supplier deliveries in May are: Wood Products; Computer & Electronic Products; Nonmetallic Mineral Products; Machinery; Transportation Equipment; and Miscellaneous Manufacturing. The industries reporting faster deliveries in May are: Chemical Products and Fabricated Metal Products.

Supplier Deliveries %Slower %Same %Faster Net Index
May 2009 8 86 6 +2 49.8
Apr 2009 5 80 15 -10 44.9
Mar 2009 7 73 20 -13 43.6
Feb 2009 6 78 16 -10 46.7

Inventories

Manufacturers’ inventories contracted in May as the Inventories Index registered 32.9 percent, which is 0.7 percentage point lower than April’s reading of 33.6 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

None of the 18 manufacturing industries reported higher inventories in May. The industries that reported decreases in May — listed in order — are: Electrical Equipment, Appliances & Components; Computer & Electronic Products; Primary Metals; Furniture & Related Products; Apparel, Leather & Allied Products; Textile Mills; Fabricated Metal Products; Paper Products; Petroleum & Coal Products; Printing & Related Support Activities; Wood Products; Plastics & Rubber Products; Machinery; Chemical Products; Miscellaneous Manufacturing; Transportation Equipment; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.

Inventories %Higher %Same %Lower Net Index
May 2009 10 46 44 -34 32.9
Apr 2009 11 47 42 -31 33.6
Mar 2009 9 48 43 -34 32.2
Feb 2009 19 38 43 -24 37.0

Customers’ Inventories(c)

The ISM Customers’ Inventories Index registered 46 percent in May, 3.5 percentage points lower than the 49.5 percent reported in April. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the second consecutive month the Customers’ Inventories Index has been below 50 percent, following eight months above 50 percent.

Five industries reported higher customers’ inventories during May: Textile Mills; Furniture & Related Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Fabricated Metal Products. The industries that reported lower customers’ inventories during May are: Plastics & Rubber Products; Chemical Products; Primary Metals; Nonmetallic Mineral Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Machinery; and Wood Products.

Customers’ Inventories

%
Reporting

%Too
High

%About
Right

%Too
Low

Net Index
May 2009 72 23 46 31 -8 46.0
Apr 2009 80 21 57 22 -1 49.5
Mar 2009 78 29 50 21 +8 54.0
Feb 2009 80 28 46 26 +2 51.0

Prices(c)

The ISM Prices Index registered 43.5 percent in May, 11.5 percentage points higher than the 32 percent reported in April. Since the index is below the mid-point of 50, this indicates that manufacturers continue to pay lower prices on average when compared to the previous month. While 10 percent of respondents reported paying higher prices and 23 percent reported paying lower prices, 67 percent of supply executives reported paying the same prices as in April. A Prices Index above 47.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

In May, Plastics & Rubber Products is the only industry reporting paying increased prices. The industries that reported paying lower prices during May — listed in order — are: Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Wood Products.

Prices %Higher %Same %Lower Net Index
May 2009 10 67 23 -13 43.5
Apr 2009 7 50 43 -36 32.0
Mar 2009 7 48 45 -38 31.0
Feb 2009 7 44 49 -42 29.0

Backlog of Orders(c)

ISM’s Backlog of Orders Index registered 48 percent in May, 7.5 percentage points higher than the 40.5 percent reported in April. Of the 85 percent of respondents who reported their backlog of orders, 19 percent reported greater backlogs, 23 percent reported smaller backlogs, and 58 percent reported no change from April.

The six industries reporting increased order backlogs in May — listed in order — are: Plastics & Rubber Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Paper Products; Machinery; and Miscellaneous Manufacturing. The industries that reported decreases in order backlogs during May — listed in order — are: Petroleum & Coal Products; Wood Products; Fabricated Metal Products; Furniture & Related Products; Transportation Equipment; Chemical Products; and Computer & Electronic Products.

Backlog of Orders

%
Reporting

%Greater %Same %Less Net Index
May 2009 85 19 58 23 -4 48.0
Apr 2009 86 13 55 32 -19 40.5
Mar 2009 83 11 49 40 -29 35.5
Feb 2009 86 8 46 46 -38 31.0

New Export Orders(c)

ISM’s New Export Orders Index registered 48 percent in May, 4 percentage points higher than the 44 percent reported in April. This is the eighth consecutive month of contraction in the New Export Orders Index.

The three industries reporting growth in new export orders in May are: Machinery; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The industries that reported decreases in new export orders in May — listed in order — are: Nonmetallic Mineral Products; Textile Mills; Transportation Equipment; Fabricated Metal Products; Miscellaneous Manufacturing; and Computer & Electronic Products.

New Export Orders

%
Reporting

%Higher %Same %Lower Net Index
May 2009 77 7 82 11 -4 48.0
Apr 2009 77 13 62 25 -12 44.0
Mar 2009 80 9 60 31 -22 39.0
Feb 2009 79 7 61 32 -25 37.5

Imports(c)

Imports of materials by manufacturers contracted during May as the Imports Index registered 42.5 percent, 0.5 percentage point higher than the 42 percent reported in April. This is the 16th consecutive month of contraction in imports.

Four of the 18 manufacturing industries reported growth in imports during the month of May: Machinery; Fabricated Metal Products; Chemical Products; and Miscellaneous Manufacturing. The industries that reported decreases in imports — listed in order — are: Textile Mills; Computer & Electronic Products; Primary Metals; Transportation Equipment; Furniture & Related Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Nonmetallic Mineral Products.

Imports

%
Reporting

%Higher %Same %Lower Net Index
May 2009 83 12 61 27 -15 42.5
Apr 2009 85 10 64 26 -16 42.0
Mar 2009 85 5 56 39 -34 33.0
Feb 2009 80 7 50 43 -36 32.0

(c) 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 lead time for Capital Expenditures increased 10 days to 111 days. Average lead time for Production Materials increased 1 day to 45 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased 1 day to 23 days.

Percent Reporting

Capital Expenditures

Hand-to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days

May 2009 30 9 13 12 23 13 111
Apr 2009 36 7 11 12 24 10 101
Mar 2009 30 11 14 11 23 11 104
Feb 2009 36 6 12 11 23 12 105
Production Materials

Hand-to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days

May 2009 31 38 21 4 3 3 45
Apr 2009 31 38 21 4 4 2 44
Mar 2009 35 35 20 3 5 2 43
Feb 2009 30 44 15 4 4 3 45
MRO Supplies

Hand-to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days

May 2009 52 33 12 2 1 0 23
Apr 2009 59 28 8 3 2 0 22
Mar 2009 56 33 7 3 1 0 21
Feb 2009 58 30 8 2 1 1 24

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