October Manufacturing ISM Report On Business®;PMI at 55.7%;New Orders, Production and Employment Growing;Inventories Contracting;Supplier Deliveries Slower

TEMPE, Ariz.--Economic activity in the manufacturing sector expanded in October for the third consecutive month, and the overall economy grew for the sixth 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 manufacturing sector grew for the third consecutive month in October, and the rate of growth is the highest since April 2006 when the PMI registered 56 percent. The jump in the index was driven by production and employment, with both registering significant gains. Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers. Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode.”

PERFORMANCE BY INDUSTRY

In October, 13 of the 18 manufacturing industries reported growth. The industries — listed in order — are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Furniture & Related Products; Chemical Products; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Fabricated Metal Products; Electrical Equipment, Appliances & Components; and Paper Products. The three industries reporting contraction in October are: Nonmetallic Mineral Products; Primary Metals; and Wood Products.

WHAT RESPONDENTS ARE SAYING …

• “We are beginning to be affected greatly by lead-time increases on semiconductor components.” (Computer & Electronic Products)
• “Still a very difficult environment — commodity increases threaten recovery and don’t seem to correlate with any supply/demand fundamentals.” (Food, Beverage & Tobacco Products)
• “Automotive demand still remains strong even after ‘cash for clunkers.’” (Fabricated Metal Products) [indicated for the second month]
• “After several rather busy months, we are seeing the order intake for early next year soften.” (Transportation Equipment)
• “The improvement seen earlier is not holding.” (Primary Metals)

MANUFACTURING AT A GLANCE OCTOBER 2009
Index		Series Index October			Series Index September			Percentage Point Change			Direction			Rate of Change			Trend(a) (Months)
PMI		55.7			52.6			+3.1			Growing			Faster			3
New Orders		58.5			60.8			-2.3			Growing			Slower			4
Production		63.3			55.7			+7.6			Growing			Faster			5
Employment		53.1			46.2			+6.9			Growing			From Contracting			1
Supplier Deliveries		56.9			58.0			-1.1			Slowing			Slower			5
Inventories		46.9			42.5			+4.4			Contracting			Slower			42
Customers’ Inventories		38.5			39.0			-0.5			Too Low			Faster			7
Prices		65.0			63.5			+1.5			Increasing			Faster			4
Backlog of Orders		53.5			53.5			0.0			Growing			Same			3
Exports		55.5			55.0			+0.5			Growing			Faster			4
Imports		51.0			52.0			-1.0			Growing			Slower			2
OVERALL ECONOMY   Manufacturing Sector											Growing			Faster			6
											Growing			Faster			3

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (4); Caustic Soda; Copper (5); Copper Based Products (4); Natural Gas; Plastics; Plastic Products (2); Polypropylene (4); Stainless Steel (3); Steel (4); and Steel Surcharges.

Commodities Down in Price

Corrugated Containers is the only commodity reported down in price.

Commodities in Short Supply

No commodities reported in short supply.

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

OCTOBER 2009 MANUFACTURING INDEX SUMMARIES

PMI

The recovery in manufacturing strengthened in October as the PMI registered 55.7 percent, which is 3.1 percentage points higher than the 52.6 percent reported in September, and the highest reading for the index since April 2006 (56 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 sixth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the third consecutive month. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (44.6 percent) corresponds to a 1.1 percent increase in real gross domestic product (GDP). However, if the PMI for October (55.7 percent) is annualized, it corresponds to a 4.5 percent increase in real GDP annually."

THE LAST 12 MONTHS
					Month											PMI																Month											PMI
					Oct 2009											55.7																Apr 2009											40.1
					Sep 2009											52.6																Mar 2009											36.3
					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
					Average for 12 months – 42.9 High – 55.7 Low – 32.9

New Orders

ISM’s New Orders Index registered 58.5 percent in October, 2.3 percentage points lower than the 60.8 percent registered in September. This is the fourth consecutive month of growth in the New Orders Index. 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 October — listed in order — are: Furniture & Related Products; Apparel, Leather & Allied Products; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Paper Products; Electrical Equipment, Appliances & Components; Machinery; and Fabricated Metal Products. The four industries reporting decreases in new orders in October are: Nonmetallic Mineral Products; Wood Products; Plastics & Rubber Products; and Primary Metals.

New Orders						%Better					%Same					%Worse					Net					Index
Oct 2009						34					42					24					+10					58.5
Sep 2009						42					38					20					+22					60.8
Aug 2009						43					41					16					+27					64.9
Jul 2009						33					45					22					+11					55.3

Production

ISM’s Production Index registered 63.3 percent in October, which is an increase of 7.6 percentage points from the September reading of 55.7 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 fifth consecutive month the Production Index has registered above 50 percent.

The 11 industries reporting growth in production during the month of October — listed in order — are: Plastics & Rubber Products; Furniture & Related Products; Apparel, Leather & Allied Products; Chemical Products; Computer & Electronic Products; Paper Products; Machinery; Printing & Related Support Activities; Fabricated Metal Products; Transportation Equipment; and Food, Beverage & Tobacco Products. The two industries reporting decreases in production in October are: Nonmetallic Mineral Products and Primary Metals.

Production						%Better					%Same					%Worse					Net					Index
Oct 2009						37					48					15					+22					63.3
Sep 2009						36					46					18					+18					55.7
Aug 2009						43					39					18					+25					61.9
Jul 2009						33					50					17					+16					57.9

Employment

ISM’s Employment Index registered 53.1 percent in October, which is 6.9 percentage points higher than the 46.2 percent reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline. 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.

Eight of the 18 manufacturing industries reported growth in employment in October in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Fabricated Metal Products. The four industries that reported decreases in employment during October are: Primary Metals; Paper Products; Chemical Products; and Plastics & Rubber Products.

Employment						%Higher					%Same					%Lower					Net					Index
Oct 2009						20					64					16					+4					53.1
Sep 2009						15					62					23					-8					46.2
Aug 2009						13					68					19					-6					46.4
Jul 2009						11					70					19					-8					45.6

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in October as the Supplier Deliveries Index registered 56.9 percent, which is 1.1 percentage points lower than the 58 percent registered in September. This is the fifth 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 seven industries reporting slower supplier deliveries in October — listed in order — are: Petroleum & Coal Products; Computer & Electronic Products; Transportation Equipment; Paper Products; Fabricated Metal Products; Machinery; and Chemical Products. The two industries reporting faster deliveries in October are: Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Supplier Deliveries						%Slower					%Same					%Faster					Net					Index
Oct 2009						15					83					2					+13					56.9
Sep 2009						24					71					5					+19					58.0
Aug 2009						18					79					3					+15					57.1
Jul 2009						14					80					6					+8					52.0

Inventories

Manufacturers’ inventories contracted at a slower rate in October as the Inventories Index registered 46.9 percent. The index is 4.4 percentage points higher than the September reading of 42.5 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).

Six of the 18 manufacturing industries reported higher inventories in October in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Chemical Products; Food, Beverage & Tobacco Products; and Transportation Equipment. The six industries that reported decreases in inventories in October — listed in order — are: Paper Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.

Inventories						%Higher					%Same					%Lower					Net					Index
Oct 2009						19					55					26					-7					46.9
Sep 2009						14					55					31					-17					42.5
Aug 2009						14					44					42					-28					34.4
Jul 2009						5					55					40					-35					33.5

Customers’ Inventories(b)

The ISM Customers’ Inventories Index registered 38.5 percent in October, slightly lower than in September when the index registered 39 percent. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the seventh consecutive month the Customers’ Inventories Index has been below 50 percent, following eight months above 50 percent.

Plastics & Rubber Products is the only industry reporting higher customers’ inventories during October. The 11 industries that reported lower customers’ inventories during October — listed in order — are: Wood Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Paper Products; Machinery; and Chemical Products.

Customers’ Inventories			% Reporting			%Too High			%About Right			%Too Low			Net			Index
Oct 2009			75			7			63			30			-23			38.5
Sep 2009			71			9			60			31			-22			39.0
Aug 2009			75			12			54			34			-22			39.0
Jul 2009			77			15			55			30			-15			42.5

Prices(b)

The ISM Prices Index registered 65 percent in October, 1.5 percentage points higher than the 63.5 percent reported in September. This is the fourth consecutive month that the Prices Index has registered above 50 percent. While 37 percent of respondents reported paying higher prices and 7 percent reported paying lower prices, 56 percent of supply executives reported paying the same prices as in September. 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 12 industries reporting paying increased prices during the month of October — listed in order — are: Plastics & Rubber Products; Miscellaneous Manufacturing; Paper Products; Printing & Related Support Activities; Chemical Products; Fabricated Metal Products; Machinery; Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; and Food, Beverage & Tobacco Products. The only industry that reported paying lower prices during October is Nonmetallic Mineral Products.

Prices						%Higher					%Same					%Lower					Net					Index
Oct 2009						37					56					7					+30					65.0
Sep 2009						36					55					9					+27					63.5
Aug 2009						38					54					8					+30					65.0
Jul 2009						28					54					18					+10					55.0

Backlog of Orders(b)

ISM’s Backlog of Orders Index registered 53.5 percent in October, the same as reported in September. Of the 81 percent of respondents who reported their backlog of orders, 27 percent reported greater backlogs, 20 percent reported smaller backlogs, and 53 percent reported no change from September.

The nine industries reporting increased order backlogs in October — listed in order — are: Furniture & Related Products; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Paper Products; Chemical Products; Machinery; Computer & Electronic Products; and Fabricated Metal Products. The six industries that reported decreases in order backlogs during October — listed in order — are: Petroleum & Coal Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Primary Metals; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

Backlog of Orders			% Reporting			%Greater			%Same			%Less			Net			Index
Oct 2009			81			27			53			20			+7			53.5
Sep 2009			82			25			57			18			+7			53.5
Aug 2009			85			28			49			23			+5			52.5
Jul 2009			86			21			58			21			0			50.0

New Export Orders(b)

ISM’s New Export Orders Index registered 55.5 percent in October, 0.5 percentage point higher than the 55 percent reported in September. This is the fourth consecutive month of growth in the New Export Orders Index, following nine consecutive months of contraction.

The seven industries reporting growth in new export orders in October — listed in order — are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Chemical Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Transportation Equipment; and Machinery. The four industries that reported decreases in new export orders in October are: Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products.

New Export Orders			% Reporting			%Higher			%Same			%Lower			Net			Index
Oct 2009			75			24			63			13			+11			55.5
Sep 2009			75			20			70			10			+10			55.0
Aug 2009			74			24			63			13			+11			55.5
Jul 2009			76			16			69			15			+1			50.5

Imports(b)

Imports of materials by manufacturers expanded in October as the Imports Index registered 51 percent, 1 percentage point lower than the 52 percent reported in September. Imports have contracted in 18 of the last 21 months.

The five industries reporting growth in imports during the month of October are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; and Machinery. The five industries that reported decreases in imports in October are: Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products.

Imports			% Reporting			%Higher			%Same			%Lower			Net			Index
Oct 2009			82			14			74			12			+2			51.0
Sep 2009			80			13			78			9			+4			52.0
Aug 2009			81			15			69			16			-1			49.5
Jul 2009			83			13			74			13			0			50.0

(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 lead time for Capital Expenditures increased 4 days to 103 days. Average lead time for Production Materials decreased 5 days to 41 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased 2 days to 21 days.

Percent Reporting
Capital Expenditures			Hand-to- Mouth			30 Days			60 Days			90 Days			6 Months			1 Year+			Average Days
Oct 2009			34			7			10			15			24			10			103
Sep 2009			30			8			15			16			22			9			99
Aug 2009			38			6			10			13			22			11			101
Jul 2009			32			9			10			18			20			11			102

Production Materials			Hand-to- Mouth			30 Days			60 Days			90 Days			6 Months			1 Year+			Average Days
Oct 2009			25			40			26			6			2			1			41
Sep 2009			28			37			19			11			3			2			46
Aug 2009			27			40			20			8			2			3			47
Jul 2009			31			42			15			6			4			2			43

MRO Supplies			Hand-to- Mouth			30 Days			60 Days			90 Days			6 Months			1 Year+			Average Days
Oct 2009			54			32			12			2			0			0			21
Sep 2009			55			28			12			5			0			0			23
Aug 2009			51			36			12			0			0			1			24
Jul 2009			53			35			9			2			1			0			22

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 November 2009 data will be released at 10:00 a.m. (ET) on Tuesday, December 1, 2009.