January Manufacturing ISM Report On Business(R); PMI at 49.3%; New Orders Growing; Production, Employment and Inventories Contracting; Deliveries Slowing

 David Lammers
  1st-Feb-2007
 1693
TEMPE, Ariz.---Economic activity in the manufacturing sector contracted in January following a one-month expansion, while the overall economy grew for the 63rd consecutive month, say the nations 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. After a slight rebound in December, the manufacturing sector failed to grow in January. While New Orders remained positive, the signals are clear that there is relatively little change taking place in the sector as the PMI has averaged 50.5 percent for the past four months. In overall terms, manufacturing lost momentum in the second half of 2006, and is starting 2007 in a less than robust fashion. Also, results show a significant decline in the Inventories Index to the lowest level since February 2002, indicating that a significant liquidation is taking place in many supply chains. This is the largest month-to-month decrease since July/August 1984.
TOP PERFORMING INDUSTRIES
The seven industries reporting growth in January listed in order are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; Transportation Equipment; and Paper Products.
WHAT RESPONDENTS ARE SAYING
· General organic chemical pricing and availability has improved greatly. (Chemical Products)
· We are forecasting another record year of sales as the commercial construction business continues to be strong. (Fabricated Metal Products)
· Business is generally slower. We attribute much of it in our business to the slowing housing and construction market. (Paper Products)
· Initial indication of a bit stronger metal demand than we thought at the end of 2006. (Primary Metals)
· Suppliers are increasing leadtimes due to increased backlog. (Transportation Equipment)

MANUFACTURING AT A GLANCE
JANUARY 2007
Index
Series
Index
Jan.
Series
Index
Dec.
Percentage
Point
Change
Direction
Rate of
Change
Trend(a)
(Months)
PMI
49.3
51.4
-2.1
Contracting
From Growing
1
New Orders
50.3
51.9
-1.6
Growing
Slower
2
Production
49.6
52.4
-2.8
Contracting
From Growing
1
Employment
49.5
49.4
+0.1
Contracting
Slower
3
Supplier Deliveries
52.7
53.3
-0.6
Slowing
Slower
43
Inventories
39.9
48.5
-8.6
Contracting
Faster
6
Customers Inventories
52.0
50.5
+1.5
Too High
Faster
4
Prices
53.0
47.5
+5.5
Increasing
From
Decreasing
1
Backlog of Orders
43.5
45.0
-1.5
Contracting
Faster
5
Exports
52.5
54.3
-1.8
Growing
Slower
50
Imports
54.5
55.5
-1.0
Growing
Slower
61
OVERALL ECONOMY
Manufacturing Sector
Growing
Slower
63
Contracting
From
Growing
1

(a) Number of months moving in current direction
Indexes reflect newly released seasonal adjustment factors.
COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY
Commodities Up in Price
Aluminum (2); Corn Products (3); Nickel (3); Stainless Steel; and Stainless Steel Sheet.
Commodities Down in Price
Copper (2); Copper Products; High Density Polyethylene Resin (2); Low Density Polyethylene Resin; Natural Gas; and Steel (2).
Commodities in Short Supply
Aluminum is the only commodity reported in short supply.
Note: The number of consecutive months the commodity is listed is indicated after each item.
JANUARY 2007 MANUFACTURING INDEX SUMMARIES
PMI
Themanufacturing economy failed to grow in January as the PMI registered 49.3 percent, a decrease of 2.1 percentage points when compared to Decembers seasonally adjusted reading of 51.4 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 January PMI indicates that the overall economy is growing and the manufacturing sector is contracting. The past relationship between the PMI and the overall economy indicates that the PMI for January (49.3 percent) corresponds to a 2.3 percent increase in real gross domestic product (GDP) annually.

THE LAST 12 MONTHS
Month
PMI
Month
PMI
Jan 2007
49.3
Jul 2006
54.4
Dec 2006
51.4
Jun 2006
54.0
Nov 2006
49.9
May 2006
54.7
Oct 2006
51.5
Apr 2006
56.9
Sep 2006
52.7
Mar 2006
55.3
Aug 2006
54.3
Feb 2006
56.1
Average for 12 months 53.4
High 56.9
Low 49.3

New Orders
ISMs New Orders Index registered 50.3 percent in January. The index is 1.6 percentage points lower than the seasonally adjusted 51.9 percent reported in December. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureaus series on manufacturing orders (in constant 2000 dollars). Ten industries reported increases during January: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Transportation Equipment; Food, Beverage & Tobacco Products; Paper Products; and Fabricated Metal Products.

New Orders
%Better
%Same
%Worse
Net
Index
Jan 2007
27
45
28
-1
50.3
Dec 2006
30
37
33
-3
51.9
Nov 2006
22
51
27
-5
49.7
Oct 2006
26
47
27
-1
52.1

Production
ISMs Production Index registered 49.6 percent in January, 2.8 percentage points lower than the seasonally adjusted 52.4 percent reported in December. Manufacturers production is contracting after a one-month expansion in December. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Boards Industrial Production figures. Of the industries reporting in January, five registered growth: Apparel, Leather & Allied Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; and Transportation Equipment.

Production
%Better
%Same
%Worse
Net
Index
Jan 2007
22
53
25
-3
49.6
Dec 2006
27
46
27
0
52.4
Nov 2006
18
60
22
-4
49.3
Oct 2006
22
58
20
+2
52.7

Employment
ISMs Employment Index registered 49.5 percent in January, an increase of 0.1 percentage point when compared to Decembers seasonally adjusted reading of 49.4 percent. This is the third consecutive month that manufacturing employment has contracted. 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 six industries reporting growth in employment during January are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Paper Products; Plastics & Rubber Products; Chemical Products; and Furniture & Related Products.

Employment
%Higher
%Same
%Lower
Net
Index
Jan 2007
14
68
18
-4
49.5
Dec 2006
14
68
18
-4
49.4
Nov 2006
17
63
20
-3
48.9
Oct 2006
17
63
20
-3
50.6

Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower for the 43rd consecutive month in January. ISMs Supplier Deliveries Index registered 52.7 percent in January, a decrease of 0.6 percentage point when compared to Decembers seasonally adjusted reading of 53.3 percent. A reading above 50 percent indicates slower deliveries. The seven industries reporting slower supplier deliveries in January are: Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Transportation Equipment; Chemical Products; and Furniture & Related Products.

Supplier Deliveries
%Slower
%Same
%Faster
Net
Index
Jan 2007
7
88
5
+2
52.7
Dec 2006
8
88
4
+4
53.3
Nov 2006
9
86
5
+4
52.8
Oct 2006
9
83
8
+1
50.6

Inventories
Manufacturers inventories contracted at a significantly faster rate in January as ISMs Inventories Index registered 39.9 percent, an 8.6 percentage point decrease when compared to Decembers reading of 48.5 percent (seasonally adjusted). This is the largest point decrease in the Inventories Index since August 1984 when the index dropped from 57.8 percent to 49.1 percent, a decrease of 8.7 percentage points. 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 three industries reporting higher inventories in January are: Apparel, Leather & Allied Products; Primary Metals; and Miscellaneous Manufacturing.

Inventories
%Higher
%Same
%Lower
Net
Index
Jan 2007
12
57
31
-19
39.9
Dec 2006
20
55
25
-5
48.5
Nov 2006
15
65
20
-5
49.1
Oct 2006
17
61
22
-5
49.3

Customers’ Inventories(b)
The ISM Customers Inventories Index registered 52 percent in January, 1.5 percentage points higher than the 50.5 percent reported in December. The index indicates that respondents believe their customers have more than sufficient inventories on hand (inventories are too high) at this time. This is the fourth month of growth in this index following 64 consecutive months in which the index registered below 50 percent. Five industries reported higher customers inventories during January: Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Fabricated Metal Products; and Chemical Products.

Customers Inventories
%
Reporting
% Too
High
% About
Right
% Too
Low
Net
Index
Jan 2007
75
19
66
15
+4
52.0
Dec 2006
79
18
65
17
+1
50.5
Nov 2006
72
14
73
13
+1
50.5
Oct 2006
74
19
66
15
+4
52.0

Prices(b)
In January, the ISM Prices Index registered 53 percent, indicating manufacturers are paying higher prices on average when compared to December. While 24 percent of respondents reported paying higher prices and 18 percent reported paying lower prices, 58 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 January, 10 industries reported paying higher prices: Textile Mills; Miscellaneous Manufacturing; Transportation Equipment; Paper Products; Nonmetallic Mineral Products; Primary Metals; Computer & Electronic Products; Food, Beverage & Tobacco Products; Chemical Products; and Machinery.

Prices
%Higher
%Same
%Lower
Net
Index
Jan 2007
24
58
18
+6
53.0
Dec 2006
19
57
24
-5
47.5
Nov 2006
23
61
16
+7
53.5
Oct 2006
18
58
24
-6
47.0

Backlog of Orders(b)
ISMs Backlog of Orders Index registered 43.5 percent, indicating manufacturers backlogs in January are contracting for the fifth consecutive month. The index is 1.5 percentage points lower than the 45 percent reported in December. Of the 87 percent of respondents who reported their backlog of orders, 17 percent reported greater backlogs, 30 percent reported smaller backlogs, and 53 percent reported no change from December. The six industries reporting an increase in order backlogs in January are: Apparel, Leather & Allied Products; Transportation Equipment; Miscellaneous Manufacturing; Chemical Products; Plastics & Rubber Products; and Furniture & Related Products.

Backlog of Orders
%
Reporting
%Greater
%Same
%Less
Net
Index
Jan 2007
87
17
53
30
-13
43.5
Dec 2006
86
21
48
31
-10
45.0
Nov 2006
86
17
59
24
-7
46.5
Oct 2006
85
14
61
25
-11
44.5

New Export Orders(b)
ISMs New Export Orders Index registered 52.5 percent in January, a decrease of 1.8 percentage points when compared to Decembers index of 54.3 percent. This is the 50th consecutive month of growth in export orders. The seven industries reporting growth in new export orders in January are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Primary Metals; Transportation Equipment; and Paper Products. Beginning with the January 2007 report, the New Export Orders Index no longer meets the criteria for seasonal adjustments.

New Export Orders
%
Reporting
%Higher
%Same
%Lower
Net
Index
Jan 2007
79
15
75
10
+5
52.5
Dec 2006
78
16
75
9
+7
54.3
Nov 2006
76
20
74
6
+14
56.9
Oct 2006
80
18
76
6
+12
57.8

Imports(b)
Imports of materials by manufacturers grew during January as the Imports Index registered 54.5 percent. The index is 1 percentage point lower when compared to December. This is the 61st consecutive month of growth in import orders. The eight industries reporting growth in import activity for January are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Miscellaneous Manufacturing; Machinery; and Computer & Electronic Products.

Imports
%
Reporting
%Higher
%Same
%Lower
Net
Index
Jan 2007
84
18
73
9
+9
54.5
Dec 2006
84
20
71
9
+11
55.5
Nov 2006
83
21
71
8
+13
56.5
Oct 2006
85
19
76
5
+14
57.0

(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 leadtime for Capital Expenditures decreased 2 days to 108 days. Average leadtime for Production Materials decreased 1 day to 50 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies decreased 2 days to 23 days.

Percent Reporting
Capital
Expenditures
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Jan 2007
21
10
16
21
22
10
108
Dec 2006
20
10
17
20
23
10
110
Nov 2006
20
10
17
21
21
11
111
Oct 2006
22
9
14
19
22
14
119

Production
Materials
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Jan 2007
19
39
26
10
5
1
50
Dec 2006
19
37
27
11
5
1
51
Nov 2006
20
39
29
7
4
1
47
Oct 2006
21
36
23
13
4
3
55

MRO
Supplies
Hand-to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Jan 2007
49
36
12
3
0
0
23
Dec 2006
50
33
12
4
1
0
25
Nov 2006
44
39
13
4
0
0
25
Oct 2006
52
31
13
3
1
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 ManufacturingISM 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 industrys 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 months 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. ISMs 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 ManufacturingISM Report On Business®is posted on ISMs Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).
The next ManufacturingISM Report On Business® featuring the February 2007 data will be released at 10:00 a.m. (ET) on Thursday, March 1, 2007.
Domain: Electronics
Category: Semiconductors
Contact Person Address: Institue for Supply Management
Posted By: David Lammers and Contact David Lammers

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