August Manufacturing ISM Report On Business PMI at 50.6%;Employment and Inventories Growing;Supplier Deliveries Slower;New Orders and Production Contracting

TEMPE, Ariz.--Economic activity in the manufacturing sector expanded in August for the 25th consecutive month, and the overall economy grew for the 27th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business^Ž.

“Current headwinds in the national and international economic environment have increased uncertainty, and are affecting our customers' willingness to commit to high-dollar equipment purchases.”

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The PMI registered 50.6 percent, a decrease of 0.3 percentage point from July, indicating expansion in the manufacturing sector for the 25th consecutive month, at a slightly slower rate. The Production Index registered 48.6 percent, indicating contraction for the first time since May of 2009, when it registered 45 percent. The New Orders and Backlog of Orders Indexes edged up slightly from July, but both indexes are indicating contraction in August at slower rates than in July. The rate of increase in prices slowed for the fourth consecutive month, dropping another 3.5 percentage points in August to 55.5 percent. The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term."

PERFORMANCE BY INDUSTRY

Of the 18 manufacturing industries, 10 are reporting growth in August, in the following order: Wood Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Fabricated Metal Products; Paper Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Machinery. The six industries reporting contraction in August -- listed in order -- are: Plastics & Rubber Products; Textile Mills; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; and Primary Metals.

WHAT RESPONDENTS ARE SAYING €Ś

"Earlier chemical price increases are beginning to soften." (Chemical Products)
"Business is soft, confidence is down, and we are cutting inventory and expenses." (Machinery)
"Exports continue to be strong -- domestic weak." (Computer & Electronic Products)
"Domestic sales are showing small improvements. International sales are showing larger improvements." (Fabricated Metal Products)
"Demand remains constant and strong." (Paper Products)
"Current headwinds in the national and international economic environment have increased uncertainty, and are affecting our customers' willingness to commit to high-dollar equipment purchases." (Transportation Equipment)
"We continue to post solid numbers, but the situation seems tenuous." (Plastics & Rubber Products)
"Automotive business (represents 52 percent of our sales portfolio) continues to be strong. Core business has pulled back slightly." (Apparel, Leather & Allied Products)
"Sales continue to be sluggish." (Furniture & Related Products)

MANUFACTURING AT A GLANCE AUGUST 2011

Index	Series Index Aug	Series Index Jul	Percentage Point Change	Direction	Rate of Change	Trend(a) (Months)

PMI	50.6	50.9	-0.3	Growing	Slower	25
New Orders	49.6	49.2	+0.4	Contracting	Slower	2
Production	48.6	52.3	-3.7	Contracting	From Growing	1
Employment	51.8	53.5	-1.7	Growing	Slower	23
Supplier Deliveries	50.6	50.4	+0.2	Slowing	Faster	27
Inventories	52.3	49.3	+3.0	Growing	From Contracting	1
Customers' Inventories	46.5	44.0	+2.5	Too Low	Slower	29
Prices	55.5	59.0	-3.5	Increasing	Slower	26
Backlog of Orders	46.0	45.0	+1.0	Contracting	Slower	3
Exports	50.5	54.0	-3.5	Growing	Slower	26
Imports	55.5	53.5	+2.0	Growing	Faster	24
OVERALL ECONOMY Manufacturing Sector				Growing	Slower	27
OVERALL ECONOMY Manufacturing Sector				Growing	Slower	25

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (12); Aluminum Products; Butadiene; Caustic Soda; Copper(b) (13); Copper Based Products (10); Corn; Diesel Fuel; Electric/Electronic Components (2); Freight Rates; Glycol Ether; Hydraulic Components/Motors; Paper; Rubber; Rubber Products (7); Silver; Stainless Steel; and Steel(b) (12).

Commodities Down in Price

Cold Rolled Steel; Copper(b); Natural Gas; Plastic Products; Plastic Resins; Polyethylene Resin; Polypropylene Resin; and Steel(b) (4).

Commodities in Short Supply

Electric/Electronic Components (8); Hydraulic Components/Motors/Pumps; and Titanium Dioxide.

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

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

AUGUST 2011 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing continued its growth in August as the PMI registered 50.6 percent, a decrease of 0.3 percentage point when compared to July's reading of 50.9 percent. The PMI registered the lowest reading since July 2009, when it registered 49 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 42.5 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the 27th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 25th consecutive month. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (56.8 percent) corresponds to a 5 percent increase in real gross domestic product (GDP). In addition, if the PMI for August (50.6 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually."

THE LAST 12 MONTHS

Month	PMI	Month	PMI

Aug 2011	50.6	Feb 2011	61.4
Jul 2011	50.9	Jan 2011	60.8
Jun 2011	55.3	Dec 2010	58.5
May 2011	53.5	Nov 2010	58.2
Apr 2011	60.4	Oct 2010	56.9
Mar 2011	61.2	Sep 2010	55.3
Average for 12 months €“ 56.9 High €“ 61.4 Low €“ 50.6

New Orders

ISM's New Orders Index registered 49.6 percent in August, which is an increase of 0.4 percentage point when compared to the 49.2 percent reported in July. This is the second consecutive month of contraction in the New Orders Index, following 24 months of growth. The last time the index contracted was in June of 2009, when the New Orders Index registered 48.9 percent. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The seven industries reporting growth in new orders in August -- listed in order -- are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Paper Products; Fabricated Metal Products; and Transportation Equipment. The seven industries reporting decreases in new orders in August -- listed in order -- are: Electrical Equipment, Appliances & Components; Textile Mills; Nonmetallic Mineral Products; Machinery; Chemical Products; Computer & Electronic Products; and Plastics & Rubber Products.

New Orders	%Better	%Same	%Worse	Net	Index

Aug 2011	22	53	25	-3	49.6
Jul 2011	24	53	23	+1	49.2
Jun 2011	34	43	23	+11	51.6
May 2011	30	54	16	+14	51.0

Production

ISM's Production Index registered 48.6 percent in August, which is a decrease of 3.7 percentage points when compared to the July reading of 52.3 percent. This is the first month of contraction in the Production Index, following 26 months of growth, and the lowest reading since May 2009 when it registered 45 percent. An index above 51 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The seven industries reporting growth in production during the month of August -- listed in order -- are: Apparel, Leather & Allied Products; Paper Products; Fabricated Metal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Transportation Equipment; and Computer & Electronic Products. The six industries reporting a decrease in production in August -- listed in order -- are: Plastics & Rubber Products; Nonmetallic Mineral Products; Textile Mills; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; and Machinery. Five industries reported no change in production in August compared to July.

Production	%Better	%Same	%Worse	Net	Index

Aug 2011	19	62	19	0	48.6
Jul 2011	22	60	18	+4	52.3
Jun 2011	35	46	19	+16	54.5
May 2011	30	56	14	+16	54.0

Employment

ISM's Employment Index registered 51.8 percent in August, which is 1.7 percentage points lower than the 53.5 percent reported in July. While this month represents the 23rd consecutive month of growth in manufacturing employment, the August reading is also the lowest reading since November 2009, when the index registered 50.4 percent. An Employment Index above 50.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, eight reported growth in employment in August in the following order: Wood Products; Paper Products; Primary Metals; Fabricated Metal Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; and Chemical Products. The six industries reporting a decrease in employment in August -- listed in order -- are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Printing & Related Support Activities; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Employment	%Higher	%Same	%Lower	Net	Index

Aug 2011	22	63	15	+7	51.8
Jul 2011	24	63	13	+11	53.5
Jun 2011	34	56	10	+24	59.9
May 2011	31	60	9	+22	58.2

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was nominally slower in August as the Supplier Deliveries Index registered 50.6 percent, which is 0.2 percentage point higher than the 50.4 percent registered in July. This is the 27th consecutive month the Supplier Deliveries Index has been above 50 percent. A reading above 50 percent indicates slower deliveries.

The 10 industries reporting slower supplier deliveries in August -- listed in order -- are: Wood Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; Machinery; and Transportation Equipment. The three industries reporting faster deliveries in August are: Primary Metals; Plastics & Rubber Products; and Paper Products. Five industries reported no change in supplier deliveries in August compared to July.

Supplier Deliveries	%Slower	%Same	%Faster	Net	Index

Aug 2011	12	81	7	+5	50.6
Jul 2011	13	80	7	+6	50.4
Jun 2011	18	78	4	+14	56.3
May 2011	22	70	8	+14	55.7

Inventories

The Inventories Index registered 52.3 percent in August, 3 percentage points higher than the 49.3 percent reported in July. An Inventories Index greater than 42.7 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 eight industries reporting higher inventories in August -- listed in order -- are: Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Chemical Products; Printing & Related Support Activities; Transportation Equipment; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The seven industries reporting decreases in inventories in August -- listed in order -- are: Plastics & Rubber Products; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Textile Mills; Miscellaneous Manufacturing; Paper Products; and Petroleum & Coal Products.

Inventories	%Higher	%Same	%Lower	Net	Index

Aug 2011	23	63	14	+9	52.3
Jul 2011	18	60	22	-4	49.3
Jun 2011	23	61	16	+7	54.1
May 2011	20	57	23	-3	48.7

Customers' Inventories(c)

The ISM Customers' Inventories Index registered 46.5 percent in August, 2.5 percentage points higher than in July when the index registered 44 percent. This is the 29th consecutive month the Customers' Inventories Index has been below 50 percent, indicating that respondents believe their customers' inventories are too low at this time.

The two manufacturing industries reporting customers' inventories as being too high during August are: Apparel, Leather & Allied Products; and Computer & Electronic Products. The nine industries reporting customers' inventories as too low during August -- listed in order -- are: Nonmetallic Mineral Products; Paper Products; Textile Mills; Primary Metals; Printing & Related Support Activities; Transportation Equipment; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; and Fabricated Metal Products. Six industries reported no change in customers' inventories for the month of August compared to July.

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

Aug 2011	73	15	63	22	-7	46.5
Jul 2011	72	11	66	23	-12	44.0
Jun 2011	70	13	68	19	-6	47.0
May 2011	72	6	67	27	-21	39.5

Prices(c)

The ISM Prices Index registered 55.5 percent in August, 3.5 percentage points lower than the 59 percent reported in July. This is the fourth consecutive month the Prices Index has registered below 80 percent since December 2010, and is the 26th consecutive month the index has registered above 50 percent. While 29 percent of respondents reported paying higher prices and 18 percent reported paying lower prices, 53 percent of supply executives reported paying the same prices as in July. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, 12 report paying increased prices during the month of August, in the following order: Textile Mills; Transportation Equipment; Petroleum & Coal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Chemical Products; Nonmetallic Mineral Products; Primary Metals; Printing & Related Support Activities; Paper Products; Electrical Equipment, Appliances & Components; and Machinery. The four manufacturing industries reporting paying lower prices on average in August are: Apparel, Leather & Allied Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Computer & Electronic Products.

Prices	%Higher	%Same	%Lower	Net	Index

Aug 2011	29	53	18	+11	55.5
Jul 2011	35	48	17	+18	59.0
Jun 2011	48	40	12	+36	68.0
May 2011	58	37	5	+53	76.5

Backlog of Orders(c)

ISM's Backlog of Orders Index registered 46 percent in August, which is 1 percentage point higher than the 45 percent reported in July. Of the 86 percent of respondents who reported their backlog of orders, 15 percent reported greater backlogs, 23 percent reported smaller backlogs, and 62 percent reported no change from July.

The five industries reporting increased order backlogs in August are: Plastics & Rubber Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; and Paper Products. The six industries reporting decreases in order backlogs during August -- listed in order -- are: Chemical Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; and Food, Beverage & Tobacco Products. Seven industries reported no change in backlog of orders for the month of August compared to July.

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

Aug 2011	86	15	62	23	-8	46.0
Jul 2011	81	16	58	26	-10	45.0
Jun 2011	84	24	50	26	-2	49.0
May 2011	85	21	59	20	+1	50.5

New Export Orders(c)

ISM's New Export Orders Index registered 50.5 percent in August, which is 3.5 percentage points lower than the 54 percent reported in July. This is the 26th consecutive month of growth in the New Export Orders Index.

The seven industries reporting growth in new export orders in August -- listed in order -- are: Apparel, Leather & Allied Products; Paper Products; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Transportation Equipment. The five industries reporting a decrease in new export orders during August are: Textile Mills; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Machinery. Five industries reported no change in exports in August compared to July.

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

Aug 2011	76	16	69	15	+1	50.5
Jul 2011	77	19	70	11	+8	54.0
Jun 2011	76	17	73	10	+7	53.5
May 2011	79	20	70	10	+10	55.0

Imports(c)

Imports of materials by manufacturers continued to expand in August as the Imports Index registered 55.5 percent, 2 percentage points higher than the 53.5 percent reported in July. This is the 24th consecutive month of growth in imports.

The nine industries reporting growth in imports during the month of August -- listed in order -- are: Nonmetallic Mineral Products; Paper Products; Primary Metals; Fabricated Metal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; and Machinery. The two industries reporting a decrease in imports during August are: Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. Six industries reported no change in imports in August compared to July.

Imports	% Reporting	%Higher	%Same	%Lower	Net	Index

Aug 2011	77	18	75	7	+11	55.5
Jul 2011	74	17	73	10	+7	53.5
Jun 2011	76	15	72	13	+2	51.0
May 2011	78	17	75	8	+9	54.5

(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 leadtime for Capital Expenditures increased 2 days to 114 days. Average leadtime for Production Materials decreased 3 days to 52 days. Average leadtime for Maintenance, Repair and Operating (MRO) Supplies increased 2 days to 26 days.

Percent Reporting

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

Aug 2011	28	8	8	19	25	12	114
Jul 2011	30	9	10	15	23	13	112
Jun 2011	30	10	13	13	24	10	103
May 2011	30	9	11	16	24	10	104

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

Aug 2011	14	46	22	13	3	2	52
Jul 2011	16	38	27	12	5	2	55
Jun 2011	19	37	25	12	5	2	54
May 2011	15	36	28	12	6	3	61

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

Aug 2011	45	39	12	3	1	0	26
Jul 2011	44	43	9	4	0	0	24
Jun 2011	44	43	10	3	0	0	24
May 2011	46	37	13	2	1	1	28

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^Ž 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 42.5 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.5 percent, it is generally declining. The distance from 50 percent or 42.5 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^Ž 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^Žis 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^Ž featuring the September 2011 data will be released at 10:00 a.m. (ET) on Monday, October 3, 2011.