August Manufacturing ISM Report On Business®;PMI at 52.9%;New Orders and Production Growing;Employment and Inventories Contracting;Supplier Deliveries Slower

TEMPE, Ariz.--Economic activity in the manufacturing sector expanded in August, following 18 consecutive months of contraction, and the overall economy grew for the fourth 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, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July. While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9 percent is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9 percent, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand.”

PERFORMANCE BY INDUSTRY

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

WHAT RESPONDENTS ARE SAYING …

“Production is picking up as demand [for] orders is being accelerated.” (Nonmetallic Mineral Products)
“Demand from automotive manufacturers increasing thanks to ‘Cash for Clunkers.’” (Fabricated Metal Products)
“In addition to improved business come the complications of a supply chain drained of inventory.” (Paper Products)
“The sudden increase in customer demand, plus the low inventories held at services centers, is causing a shortage in the supply of raw steel.” (Transportation Equipment)
“[It] appears customers’ inventories are getting low, and they are cautiously placing orders.” (Apparel, Leather & Allied Products)

MANUFACTURING AT A GLANCE

AUGUST 2009

Index

Series
Index
August

Series
Index
July

Percentage
Point
Change

Direction

Rate of
Change

Trend(a)
(Months)

PMI

52.9

48.9

+4.0

Growing

From Contracting

New Orders

64.9

55.3

+9.6

Growing

Faster

Production

61.9

57.9

+4.0

Growing

Faster

Employment

46.4

45.6

+0.8

Contracting

Slower

Supplier Deliveries

57.1

52.0

+5.1

Slowing

Faster

Inventories

34.4

33.5

+0.9

Contracting

Slower

Customers’ Inventories

39.0

42.5

-3.5

Too Low

Faster

Prices

65.0

55.0

+10.0

Increasing

Faster

Backlog of Orders

52.5

50.0

+2.5

Growing

From Unchanged

Exports

55.5

50.5

+5.0

Growing

Faster

Imports

49.5

50.0

-0.5

Contracting

From Unchanged

OVERALL ECONOMY

Manufacturing Sector

Growing

Faster

Growing

From Contracting

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (2); Aluminum Based Products; Brass Products; Copper (3); Copper Based Products (2); Corn; Nickel (2); Plastic Resins (2); Polypropylene (2); Stainless Steel; Stainless Steel Products; Steel (2); Steel Products (2); and Steel Scrap.

Commodities Down in Price

Caustic Soda (6); and Natural Gas (2).

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.

AUGUST 2009 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing’s 18 consecutive months of decline ended in August as the PMI registered 52.9 percent, which is 4 percentage points higher than the 48.9 percent reported in July. This is the highest reading since June 2007, when the index also registered 52.9 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 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the fourth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the first time since January 2008. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (42.2 percent) corresponds to a 0.3 percent increase in real gross domestic product (GDP). However, if the PMI for August (52.9 percent) is annualized, it corresponds to a 3.7 percent increase in real GDP annually."

THE LAST 12 MONTHS

Month	PMI	Month	PMI

Aug 2009	52.9	Feb 2009	35.8
Jul 2009	48.9	Jan 2009	35.6
Jun 2009	44.8	Dec 2008	32.9
May 2009	42.8	Nov 2008	36.6
Apr 2009	40.1	Oct 2008	38.7
Mar 2009	36.3	Sep 2008	43.4
Average for 12 months – 40.7 High – 52.9 Low – 32.9

New Orders

ISM’s New Orders Index registered 64.9 percent in August, 9.6 percentage points higher than the 55.3 percent registered in July. This represents the second consecutive month of growth in the index and the highest reading since December 2004, when it registered 66.3 percent. 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 13 industries reporting growth in new orders in August — listed in order — are: Textile Mills; Paper Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Wood Products; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; Transportation Equipment; and Machinery. The three industries reporting decreases in new orders in August are: Furniture & Related Products; Primary Metals; and Food, Beverage & Tobacco Products.

New Orders	%Better	%Same	%Worse	Net	Index

Aug 2009	43	41	16	+27	64.9
Jul 2009	33	45	22	+11	55.3
Jun 2009	28	48	24	+4	49.2
May 2009	27	54	19	+8	51.1

Production

ISM’s Production Index registered 61.9 percent in August, which is an increase of 4 percentage points from July’s reading of 57.9 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 third consecutive month the Production Index has registered above 50 percent, following nine consecutive months of contraction.

The 13 industries reporting growth in production during the month of August — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products; Primary Metals; and Machinery. The four industries reporting decreases in production in August are: Furniture & Related Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Wood Products.

Production	%Better	%Same	%Worse	Net	Index

Aug 2009	43	39	18	+25	61.9
Jul 2009	33	50	17	+16	57.9
Jun 2009	32	46	22	+10	52.5
May 2009	23	52	25	-2	46.0

Employment

ISM’s Employment Index registered 46.4 percent in August, which is 0.8 percentage point higher than the 45.6 percent reported in July. This is the 13th 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.

Four of the 18 manufacturing industries reported growth in employment in August: Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The nine industries that reported decreases in employment during August — listed in order — are: Furniture & Related Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Wood Products.

Employment	%Higher	%Same	%Lower	Net	Index

Aug 2009	13	68	19	-6	46.4
Jul 2009	11	70	19	-8	45.6
Jun 2009	9	66	25	-16	40.7
May 2009	8	56	36	-28	34.3

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in August as the Supplier Deliveries Index registered 57.1 percent, which is 5.1 percentage points higher than the 52 percent registered in July. This is the third consecutive month the Supplier Deliveries Index has been above 50 percent, following eight months of faster delivery performance. A reading above 50 percent indicates slower deliveries.

The nine industries reporting slower supplier deliveries in August — listed in order — are: Printing & Related Support Activities; Fabricated Metal Products; Plastics & Rubber Products; Computer & Electronic Products; Paper Products; Machinery; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products. The only industry reporting faster deliveries in August is Food, Beverage & Tobacco Products.

Supplier Deliveries	%Slower	%Same	%Faster	Net	Index

Aug 2009	18	79	3	+15	57.1
Jul 2009	14	80	6	+8	52.0
Jun 2009	8	87	5	+3	50.6
May 2009	8	86	6	+2	49.8

Inventories

Manufacturers’ inventories contracted in August as the Inventories Index registered 34.4 percent, which is 0.9 percentage point higher than July’s reading of 33.5 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).

Three of the 18 manufacturing industries reported higher inventories in August: Nonmetallic Mineral Products; Furniture & Related Products; and Food, Beverage & Tobacco Products. The 11 industries that reported decreases in August — listed in order — are: Plastics & Rubber Products; Primary Metals; Wood Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Machinery; Paper Products; Fabricated Metal Products; Printing & Related Support Activities; Miscellaneous Manufacturing; and Chemical Products.

Inventories	%Higher	%Same	%Lower	Net	Index

Aug 2009	14	44	42	-28	34.4
Jul 2009	5	55	40	-35	33.5
Jun 2009	8	46	46	-38	30.8
May 2009	10	46	44	-34	32.9

Customers’ Inventories(b)

The ISM Customers’ Inventories Index registered 39 percent in August, 3.5 percentage points lower than the 42.5 percent reported in July. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the fifth consecutive month the Customers’ Inventories Index has been below 50 percent, following eight months above 50 percent.

Two industries reported higher customers’ inventories during August: Furniture & Related Products; and Food, Beverage & Tobacco Products. The 11 industries that reported lower customers’ inventories during August — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; Primary Metals; Plastics & Rubber Products; Chemical Products; Wood Products; Transportation Equipment; and Electrical Equipment, Appliances & Components.

Customers’ Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index

Aug 2009	75	12	54	34	-22	39.0
Jul 2009	77	15	55	30	-15	42.5
Jun 2009	74	15	57	28	-13	43.5
May 2009	72	23	46	31	-8	46.0

Prices(b)

The ISM Prices Index registered 65 percent in August, 10 percentage points higher than the 55 percent reported in July. This is the second consecutive month that the Prices Index has registered above 50 percent. While 38 percent of respondents reported paying higher prices and 8 percent reported paying lower prices, 54 percent of supply executives reported paying the same prices as in July. 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.

The 11 industries reporting paying increased prices during the month of August — listed in order — are: Primary Metals; Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Transportation Equipment; Machinery; Printing & Related Support Activities; Miscellaneous Manufacturing; Chemical Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products. The three industries that reported paying lower prices during August are: Furniture & Related Products; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.

Prices	%Higher	%Same	%Lower	Net	Index

Aug 2009	38	54	8	+30	65.0
Jul 2009	28	54	18	+10	55.0
Jun 2009	22	56	22	0	50.0
May 2009	10	67	23	-13	43.5

Backlog of Orders(b)

ISM’s Backlog of Orders Index registered 52.5 percent in August, 2.5 percentage points higher than the 50 percent reported in July. Of the 85 percent of respondents who reported their backlog of orders, 28 percent reported greater backlogs, 23 percent reported smaller backlogs, and 49 percent reported no change from July.

The five industries reporting increased order backlogs in August are: Paper Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Transportation Equipment. The six industries that reported decreases in order backlogs during August — listed in order — are: Furniture & Related Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Machinery; Fabricated Metal Products; and Wood Products.

Backlog of Orders	% Reporting	%Greater	%Same	%Less	Net	Index

Aug 2009	85	28	49	23	+5	52.5
Jul 2009	86	21	58	21	0	50.0
Jun 2009	84	21	53	26	-5	47.5
May 2009	85	19	58	23	-4	48.0

New Export Orders(b)

ISM’s New Export Orders Index registered 55.5 percent in August, 5 percentage points higher than the 50.5 percent reported in July. This is the second consecutive month of growth in the New Export Orders Index, following nine consecutive months of contraction.

The eight industries reporting growth in new export orders in August — listed in order — are: Apparel, Leather & Allied Products; Paper Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The five industries that reported decreases in new export orders in August are: Primary Metals; Furniture & Related Products; Plastics & Rubber Products; Transportation Equipment; and Machinery.

New Export Orders	% Reporting	%Higher	%Same	%Lower	Net	Index

Aug 2009	74	24	63	13	+11	55.5
Jul 2009	76	16	69	15	+1	50.5
Jun 2009	75	12	75	13	-1	49.5
May 2009	77	7	82	11	-4	48.0

Imports(b)

Imports of materials by manufacturers contracted in August as the Imports Index registered 49.5 percent, 0.5 percentage point lower than the 50 percent reported in July. Imports have contracted in 18 of the last 19 months.

The seven industries reporting growth in imports during the month of August — listed in order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; and Fabricated Metal Products. The six industries that reported decreases in imports in August — listed in order — are: Primary Metals; Plastics & Rubber Products; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products.

Imports	% Reporting	%Higher	%Same	%Lower	Net	Index

Aug 2009	81	15	69	16	-1	49.5
Jul 2009	83	13	74	13	0	50.0
Jun 2009	81	7	78	15	-8	46.0
May 2009	83	12	61	27	-15	42.5

(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 lead time for Capital Expenditures decreased 1 day to 101 days. Average lead time for Production Materials increased 4 days to 47 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies increased 2 days to 24 days.

Percent Reporting

Capital Expenditures	Hand-to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days

Aug 2009	38	6	10	13	22	11	101
Jul 2009	32	9	10	18	20	11	102
Jun 2009	29	10	12	15	23	11	106
May 2009	30	9	13	12	23	13	111

Production Materials	Hand-to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days

Aug 2009	27	40	20	8	2	3	47
Jul 2009	31	42	15	6	4	2	43
Jun 2009	30	39	16	10	2	3	46
May 2009	31	38	21	4	3	3	45

MRO Supplies	Hand-to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days

Aug 2009	51	36	12	0	0	1	24
Jul 2009	53	35	9	2	1	0	22
Jun 2009	49	38	11	2	0	0	22
May 2009	52	33	12	2	1	0	23

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 equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.

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 41.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 41.2 percent, it is generally declining. The distance from 50 percent or 41.2 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 lead time, 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 September 2009 data will be released at 10:00 a.m. (ET) on Thursday, October 1, 2009.