ISM report: Manufacturing improved in February; PMI at 56.7%

RP news wires, Noria Corporation
Economic activity in the manufacturing sector grew in February for the 33rd consecutive month, while the overall economy grew for the 52nd consecutive month, say the nation's supply executives in the latest Manufacturing Report On Business from the Institute for Supply Management.

The report was issued Wednesday by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.

"The manufacturing sector gained momentum in February as the New Orders, Production, Employment and Inventories indexes contributed to a faster rate of growth in the PMI," said Ore. "On the down side, the Supplier Deliveries Index slowed offsetting a portion of the overall improvement. Prices, driven by volatility in energy markets, continue to be a major source of concern for ISM's survey respondents."

TOP PERFORMING INDUSTRIES

The 17 industries reporting growth in February — listed in order — are: Miscellaneous*; Apparel; Textiles; Transportation & Equipment; Primary Metals; Tobacco; Food; Electronic Components & Equipment; Rubber & Plastic Products; Printing & Publishing; Industrial & Commercial Equipment & Computers; Fabricated Metals; Wood & Wood Products; Instruments & Photographic Equipment; Chemicals; Paper; and Furniture.

WHAT RESPONDENTS ARE SAYING ...
MANUFACTURING AT A GLANCE
FEBRUARY 2006


Index		 Series
Index
February		 Series
Index
January		 Percentage
Point
Change

Direction		 Rate
of
Change
Trend*
(Months)
PMI 56.7 54.8 +1.9 Growing Faster 33
New Orders 61.9 58.0 +3.9 Growing Faster 34
Production 57.4 56.6 +0.8 Growing Faster 34
Employment 55.0 51.3 +3.7 Growing Faster 9
Supplier Deliveries 52.2 55.3 -3.1 Slowing Slower 32
Inventories 49.6 46.5 +3.1 Contracting Slower 11
Customers' Inventories 48.5 46.0 +2.5 Too Low Slower 57
Prices 62.5 65.0 -2.5 Increasing Slower 7
Backlog of Orders 54.5 53.5 +1.0 Growing Faster 2
Exports 57.0 58.5 -1.5 Growing Slower 39
Imports 57.5 57.0 +0.5 Growing Faster 50
             
OVERALL ECONOMY Growing Faster 52
Manufacturing Sector Growing Faster 33

*Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Aluminum (7); Aluminum Products (3); Brass Castings; Chemicals (25); Copper (9); Copper Products (3); Corrugated Containers (4); Linerboard; Natural Gas (43)*; Nickel (2); Petroleum Products (2); Paper (2); Plastics (19); Polypropylene Resin; Stainless Steel; and Sugar.

Commodities Down in Price

Natural Gas (2)* is the only commodity reported down in price.

Commodities in Short Supply

Titanium (2) is the only commodity reported in short supply.

*Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.

FEBRUARY 2006 MANUFACTURING INDEX SUMMARIES

PMI

The PMI indicates that the manufacturing economy grew in February for the 33rd consecutive month as it registered 56.7 percent, an increase of 1.9 percentage points when compared to January's seasonally adjusted reading of 54.8 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 percent, over a period of time, generally indicates an expansion of the overall economy. The February PMI indicates that both the overall economy and the manufacturing sector are growing. "The past relationship between the PMI and the overall economy indicates that the average PMI for January and February (55.8 percent) corresponds to a 4.7 percent increase in real gross domestic product (GDP). In addition, if the PMI for February (56.7 percent) is annualized, it corresponds to a 5.1 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI   Month PMI
Feb 2006 56.7   Aug 2005 53.5
Jan 2006 54.8   Jul 2005 56.4
Dec 2005 55.6   Jun 2005 54.0
Nov 2005 57.3   May 2005 51.8
Oct 2005 58.1   Apr 2005 53.8
Sep 2005 58.0   Mar 2005 55.3
Average for 12 months – 55.4
High – 58.1
Low – 51.8

New Orders

ISM's New Orders Index grew in February with a reading of 61.9 percent. The index is 3.9 percentage points higher than the seasonally adjusted 58 percent registered in January. February is the 34th consecutive month the index has exceeded 50 percent. A New Orders Index above 51.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars). Fifteen industries reported increases during February: Textiles; Apparel; Primary Metals; Miscellaneous*; Transportation & Equipment; Rubber & Plastic Products; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; Paper; Fabricated Metals; Printing & Publishing; Food; Wood & Wood Products; Instruments & Photographic Equipment; and Chemicals.

New
Orders		 %
Better		 %
Same		 %
Worse
Net
Index
Feb 2006 38 51 11 +27 61.9
Jan 2006 30 54 16 +14 58.0
Dec 2005 30 50 20 +10 59.1
Nov 2005 30 54 16 +14 58.5

Production

ISM's Production Index registered 57.4 percent in February, 0.8 percentage point higher than the seasonally adjusted 56.6 percent reported in January. February is the 34th consecutive month of growth in the index. An index above 50 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Of the industries reporting in February, 17 registered growth: Tobacco; Miscellaneous*; Apparel; Transportation & Equipment; Textiles; Wood & Wood Products; Glass, Stone & Aggregate; Primary Metals; Food; Electronic Components & Equipment; Furniture; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Chemicals; Printing & Publishing; Rubber & Plastic Products; and Fabricated Metals.


Production		 %
Better		 %
Same		 %
Worse
Net
Index
Feb 2006 34 50 16 +18 57.4
Jan 2006 29 55 16 +13 56.6
Dec 2005 27 58 15 +12 57.8
Nov 2005 30 59 11 +19 60.2

Employment

ISM's Employment Index expanded for the ninth consecutive month in February. The index registered 55 percent in February compared to the seasonally adjusted 51.3 percent in January, an increase of 3.7 percentage points. An Employment Index above 48.9 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The nine industries reporting growth in employment during February are: Apparel; Miscellaneous*; Transportation & Equipment; Primary Metals; Food; Electronic Components & Equipment; Rubber & Plastic Products; Chemicals; and Fabricated Metals.


Employment		 %
Higher		 %
Same		 %
Lower
Net
Index
Feb 2006 22 65 13 +9 55.0
Jan 2006 13 76 11 +2 51.3
Dec 2005 12 80 8 +4 53.6
Nov 2005 19 72 9 +10 56.0

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower for the 32nd consecutive month in February. ISM's Supplier Deliveries Index for February registered 52.2 percent, a decrease of 3.1 percentage points when compared to January's seasonally adjusted reading of 55.3 percent. A reading above 50 percent indicates slower deliveries. The nine industries reporting slower supplier deliveries in February are: Printing & Publishing; Primary Metals; Miscellaneous*; Furniture; Paper; Transportation & Equipment; Instruments & Photographic Equipment; Electronic Components & Equipment; and Food.

Supplier
Deliveries		 %
Slower		 %
Same		 %
Faster
Net
Index
Feb 2006 11 82 7 +4 52.2
Jan 2006 11 85 4 +7 55.3
Dec 2005 12 79 9 +3 52.9
Nov 2005 19 74 7 +12 56.9

Inventories

Manufacturers' inventories declined in February for the 11th consecutive month as ISM's Inventories Index registered 49.6 percent, indicating a slower rate of liquidation when compared to January's reading of 46.5 percent (seasonally adjusted). February's index represents a 3.1 percentage point increase from January's index. An Inventories Index greater than 42.2 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 February are: Textiles; Furniture; Fabricated Metals; Food; Instruments & Photographic Equipment; Transportation & Equipment; Chemicals; and Industrial & Commercial Equipment & Computers.


Inventories		 %
Higher		 %
Same		 %
Lower
Net
Index
Feb 2006 16 72 12 +4 49.6
Jan 2006 13 69 18 -5 46.5
Dec 2005 12 69 19 -7 47.3
Nov 2005 15 64 21 -6 49.3

Customers' Inventories**

The February Customers' Inventories Index is at 48.5 percent, 2.5 percentage points higher than the 46 percent reported in January. The index indicates that respondents believe their customers do not have sufficient inventories on hand (inventories are too low) at this time. This is the 57th consecutive month that the index has registered below 50 percent. Five industries reported higher customers' inventories during February: Paper; Furniture; Instruments & Photographic Equipment; Food; and Printing & Publishing.

Customers'
Inventories		 %
Reporting		 %Too
High		 %About
Right		 %Too
Low
Net
Index
Feb 2006 75 15 67 18 -3 48.5
Jan 2006 75 9 74 17 -8 46.0
Dec 2005 76 13 70 17 -4 48.0
Nov 2005 72 9 69 22 -13 43.5

Prices**

In February, the ISM Prices Index was 62.5 percent, indicating manufacturers are paying higher prices on average when compared to January. While 36 percent of supply executives reported paying higher prices and 11 percent reported paying lower prices, the majority of respondents (53 percent) reported that prices were unchanged from the preceding month.

A Prices Index above 47.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. In February, 13 industries reported paying higher prices: Printing & Publishing; Transportation & Equipment; Rubber & Plastic Products; Primary Metals; Furniture; Textiles; Fabricated Metals; Miscellaneous*; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Food; Instruments & Photographic Equipment; and Wood & Wood Products.


Prices		 %
Higher		 %
Same		 %
Lower
Net
Index
Feb 2006 36 53 11 +25 62.5
Jan 2006 38 54 8 +30 65.0
Dec 2005 37 52 11 +26 63.0
Nov 2005 53 42 5 +48 74.0

Backlog of Orders**

ISM's Backlog of Orders Index registered 54.5 percent, indicating manufacturers' backlogs in February are expanding when compared to January. The index is 1 percentage point higher than the 53.5 percent reported in January. Of the 88 percent of respondents who report their backlog of orders, 29 percent reported greater backlogs, 20 percent reported smaller backlogs, and 51 percent reported no change from January. The nine industries reporting an increase in order backlogs during the month are: Miscellaneous*; Paper; Furniture; Primary Metals; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Wood & Wood Products; Food; and Fabricated Metals.

Backlog of
Orders		 %
Reporting		 %
Greater		 %
Same		 %
Less
Net
Index
Feb 2006 88 29 51 20 +9 54.5
Jan 2006 85 23 61 16 +7 53.5
Dec 2005 86 22 55 23 -1 49.5
Nov 2005 83 24 58 18 +6 53.0

New Export Orders

ISM's New Export Orders Index for November registered 59.2 percent, an increase of 4.4 percentage points when compared to October's index of 54.8 percent. This is the 47th consecutive month of growth in export orders. The 12 industries reporting growth in new export orders in November are: Textiles; Apparel; Miscellaneous*; Paper; Instruments & Photographic Equipment; Printing & Publishing; Chemicals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Fabricated Metals; Rubber & Plastic Products; and Food.

New Export
Orders		 %
Reporting		 %
Higher		 %
Same		 %
Lower
Net
Index
Feb 2006 79 19 75 6 +13 57.0
Jan 2006 77 19 79 2 +17 58.5
Dec 2005 76 12 83 5 +7 54.3
Nov 2005 74 19 78 3 +16 57.9

Imports

Imports of materials by manufacturers grew during February as the Imports Index registered 57.5 percent. The index increased 0.5 percentage point when compared to January's index of 57 percent, indicating a faster rate of growth. The 11 industries reporting growth in import activity for February are: Glass, Stone & Aggregate; Furniture; Paper; Fabricated Metals; Rubber & Plastic Products; Instruments & Photographic Equipment; Food; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Chemicals; and Transportation & Equipment. (Beginning with the January 2006 report, the Imports Index no longer meets the criteria for seasonal adjustments.)


Imports		 %
Reporting		 %
Higher		 %
Same		 %
Lower
Net
Index
Feb 2006 80 21 73 6 +15 57.5
Jan 2006 81 20 74 6 +14 57.0
Dec 2005 80 13 79 8 +5 52.8
Nov 2005 78 15 77 8 +7 54.1

*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.
**The Backlog of Orders, Prices, Customers' Inventories and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment leadtime for Capital Expenditures increased 6 days to 118 days. Average leadtime for Production Materials decreased 3 days to 50 days. Average leadtime 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
Feb 2006 21 9 14 18 26 12 118
Jan 2006 22 9 16 15 29 9 112
Dec 2005 22 11 13 18 25 11 113
Nov 2005 24 9 16 17 24 10 108
 

Production
Materials		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Feb 2006 19 40 27 9 3 2 50
Jan 2006 18 39 25 12 4 2 53
Dec 2005 20 36 27 11 5 1 51
Nov 2005 16 41 27 11 4 1 50
 

MRO
Supplies		 Hand-
to-
Mouth
30
Days
60
Days
90
Days
6
Months
1
Year+
Average
Days
Feb 2006 52 34 9 4 1 0 24
Jan 2006 53 33 11 3 0 0 22
Dec 2005 51 31 12 5 0 1 27
Nov 2005 55 30 12 3 0 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 monthly replies to questions asked of purchasing and supply executives in approximately 400 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry's contribution to gross domestic product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee. The 20 manufacturing Standard Industry Classification codes are: Food; Tobacco; Textiles; Apparel; Wood & Wood Products; Furniture; Paper; Printing & Publishing; Chemicals; Petroleum; Rubber & Plastic Products; Leather; Glass, Stone & Aggregate; Primary Metals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Transportation & Equipment; Instruments & Photographic Equipment; and Miscellaneous (a preponderance of jewelry, toys, sporting goods and musical instruments).

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, Inventories and New Export Orders) 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 42.0 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.0 percent, it is generally declining. The distance from 50 percent or 42.0 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 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. 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 March 2006 data will be released at 10:00 a.m. (ET) on April 3.