January Manufacturing ISM Report On Business®; PMI at 49.3%; New Orders Growing;Production, Employment and Inventories Contracting; Deliveries Slowing
TEMPE, Ariz.--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)
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MANUFACTURING AT A GLANCE JANUARY 2007 |
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|
Index |
Series Index Jan. |
Series Index Dec. |
Percentage
Point Change |
Direction |
Rate of Change |
Trend(a) (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 |
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 | ||||||
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OVERALL ECONOMY
Manufacturing Sector |
Growing | Slower | 63 | |||||||||
| Contracting |
From |
1 | ||||||||||
(a) 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.”
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THE LAST 12 MONTHS |
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Month | PMI |
|
Month |
|
PMI | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
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|
|
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 | |||||||||||||||||||||||||||||||||||||
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Average for 12 months – 53.4
High – 56.9 Low – 49.3 |
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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.
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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(b)
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 |
% |
|
% Too |
|
% About |
|
% Too |
|
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(b)
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(b)
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 |
% |
|
%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(b)
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 |
% |
|
%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(b)
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 |
% |
|
%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 |
(b) 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 |
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|
Capital |
Hand-to- |
|
30 |
|
60 |
|
90 |
|
6 |
|
1 |
|
Average |
|
| Jan 2007 |
21 |
10 | 16 | 21 |
22 |
10 |
108 |
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| Dec 2006 | 20 | 10 | 17 | 20 |
23 |
10 |
110 |
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| Nov 2006 | 20 | 10 | 17 | 21 |
21 |
11 |
111 |
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| Oct 2006 | 22 | 9 | 14 | 19 |
22 |
14 |
119 |
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|
Production |
Hand-to- |
|
30 |
|
60 |
|
90 |
|
6 |
|
1 |
|
Average |
|
| 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 |
Hand-to- |
|
30 |
|
60 |
|
90 |
|
6 |
|
1 |
|
Average |
|
| 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.