May Manufacturing ISM Report On Business®; PMI at 55%; New Orders, Production and Employment Growing; Inventories Contracting; Deliveries Slowing

TEMPE, Ariz.--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(a) (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   Manufacturing Sector								Growing		Faster		67
								Growing		Faster		4

(a) 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(b)

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(b)

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(b)

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(b)

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(b)

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

(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 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.