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Economic activity fails to grow; new orders increase; supplier deliveries faster, according to the latest Manufacturing ISM Report On Business®.

Economic activity in the manufacturing sector failed to grow in May for the 16th consecutive month, while the overall economy grew for the first time following seven months of decline, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.
The report was issued this week by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement. May is the first month of growth in the New Orders Index since November 2007, with nine of 18 industries reporting growth. New orders are considered a leading indicator, and the index has risen rapidly after bottoming at 23.1 percent in December 2008. Also, the Customers’ Inventories Index remained below 50 percent for the second consecutive month, offering encouragement that supply chains are starting to free themselves of excess inventories as nine industries report their customers’ inventories as ‘too low.’ The prices that manufacturers pay for raw materials and services continued to decline, but at a slower rate than in April.”

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

What respondents are saying:

  • “Some amount of havoc is about to erupt, with companies pushing for increased capacity when suppliers have taken capacity offline.” (Computer & Electronic Products)
  • “Business is actually better than plan.” (Food, Beverage & Tobacco Products)
  • “Realistically, we don’t see any of our major customers looking to place business until mid-2010 at the earliest.” (Machinery)
  • “April was flat on sales. May looking better.” (Primary Metals)
  • “Business still trending downward, but not as fast.” (Chemical Products)

Manufacturing contracted in May as the PMI registered 42.8 percent, which is 2.7 percentage points higher than the 40.1 percent reported in April. This is the 16th consecutive month of contraction in the manufacturing sector. 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 in the overall economy following seven months of decline, and continuing contraction in the manufacturing sector. Ore said, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through May (38.1 percent) corresponds to a 1 percent decrease in real gross domestic product (GDP). In addition, if the PMI for May (42.8 percent) is annualized, it corresponds to a 0.5 percent increase in real GDP annually.”

New Orders
ISM’s New Orders Index registered 51.1 percent in May, 3.9 percentage points higher than the 47.2 percent registered in April. This is the first month the New Orders Index has moved above 50 percent, following 17 consecutive months of contraction. 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 May, listed in order, are: Plastics & Rubber Products; Paper Products; Primary Metals; Printing & Related Support Activities; Machinery; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products; and Miscellaneous Manufacturing. The industries contracting in May, listed in order, are: Textile Mills; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Petroleum & Coal Products; and Wood Products.

Production
ISM’s Production Index registered 46 percent in May, which is an increase of 5.6 percentage points from April’s reading of 40.4 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 ninth consecutive month of decline in production.

The eight industries reporting growth in production during the month of May, listed in order, are: Printing & Related Support Activities; Plastics & Rubber Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Machinery; Paper Products; Electrical Equipment, Appliances & Components; and Chemical Products. The industries that reported decreases in production in May, listed in order, are: Textile Mills; Furniture & Related Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; and Wood Products.

Supplier deliveries
The delivery performance of suppliers to manufacturing organizations was faster for the eighth consecutive month in May as the Supplier Deliveries Index registered 49.8 percent, which is 4.9 percentage points higher than the 44.9 percent registered in April. A reading above 50 percent indicates slower deliveries.

The six industries reporting slower supplier deliveries in May are: Wood Products; Computer & Electronic Products; Nonmetallic Mineral Products; Machinery; Transportation Equipment; and Miscellaneous Manufacturing. The industries reporting faster deliveries in May are: Chemical Products and Fabricated Metal Products.

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).

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. Visit: www.ism.ws

Volume:
6
Issue:
5
Year:
2009


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