ISM: U.S. manufacturing PMI declines slightly to 50.8

Institute for Supply Management

Economic activity in the U.S. manufacturing sector expanded in November for the 10th consecutive month, while the overall economy grew for the 73rd consecutive month, say the nation's supply executives in the Institute for Supply Management's latest Manufacturing Report On Business.

The report was issued December 3 by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.

"Manufacturing continued to grow during November, a trend that is now in its 10th month," said Ore. "The rate of growth in the sector was down slightly compared to October. While other segments of the economy are struggling, manufacturing continues to grow due to continuing strength in new orders, and a recovery in production from last month. Prices, driven higher by energy prices, are once again the major concern."

TOP PERFORMING INDUSTRIES

The seven industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Paper Products; Chemical Products; Machinery; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

WHAT RESPONDENTS ARE SAYING ...

"Continued concerns regarding high oil prices, weak dollar and weak housing sector." (Chemical Products)
"Erratic market causing more difficulty in forecasting customer demand." (Computer & Electronic Products)
"Heavy truck market has not started recovering yet." (Fabricated Metal Products)
"Business is off by almost 50 percent over last year in the building products industry." (Non-metallic Mineral Products)
"More inquiries from international customers than domestic." (Machinery)

MANUFACTURING AT A GLANCE NOVEMBER 2007
Index	Series Index November	Series Index October	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	50.8	50.9	-0.1	Growing	Slower	10
New Orders	52.6	52.5	+0.1	Growing	Faster	12
Production	51.9	49.6	+2.3	Growing	From Contracting	1
Employment	47.8	52.0	-4.2	Contracting	From Growing	1
Supplier Deliveries	51.7	50.6	+1.1	Slowing	Faster	3
Inventories	46.9	47.2	-0.3	Contracting	Faster	16
Customers' Inventories	49.0	54.0	-5.0	Too Low	From Too High	1
Prices	67.5	63.0	+4.5	Increasing	Faster	11
Backlog of Orders	41.5	46.0	-4.5	Contracting	Faster	2
Exports	58.5	57.0	+1.5	Growing	Faster	60
Imports	47.5	47.5	0	Contracting	Same	2

OVERALL ECONOMY				Growing	Slower	73
Manufacturing Sector				Growing	Slower	10

*Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda (2); Corrugated Containers (3); Gasoline; LDPE Resins; Methanol (2); Natural Gas; Oil — #2 & #6; Packaging; Plastic Products; Polypropylene Resin; Resins; Soybean Oil; and Sulfuric Acid.

Commodities Down in Price

No commodities are reported down in price.

Commodities in Short Supply

No commodities are reported in short supply.

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

NOVEMBER 2007 MANUFACTURING INDEX SUMMARIES

Purchasing Managers' Index (PMI)

Manufacturing grew at a slightly slower rate in November as the PMI registered 50.8 percent, a decrease of 0.1 percentage point when compared to October's reading of 50.9 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 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 PMI average for January through November (52.6 percent) corresponds to a 3.3 percent increase in real gross domestic product (GDP) annually," said Ore. "In addition, if the PMI for November (50.8 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually."

THE LAST 12 MONTHS

Month	PMI	Month	PMI
Nov 2007	50.8	May 2007	55.0
Oct 2007	50.9	Apr 2007	54.7
Sep 2007	52.0	Mar 2007	50.9
Aug 2007	52.9	Feb 2007	52.3
Jul 2007	53.8	Jan 2007	49.3
Jun 2007	56.0	Dec 2006	51.4
Average for 12 months – 52.5 High – 56.0 Low – 49.3

New Orders

ISM's New Orders Index registered 52.6 percent in November. The index is 0.1 percentage point higher than the 52.5 percent reported in October. A New Orders Index above 49.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Seven industries reported increases during November: Apparel, Leather & Allied Products; Paper Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

New Orders	% Better	% Same	% Worse	Net	Index
Nov 2007	27	46	27	0	52.6
Oct 2007	18	64	18	0	52.5
Sep 2007	29	51	20	+9	53.4
Aug 2007	27	52	21	+6	55.3

Production

ISM's Production Index rebounded to 51.9 percent in November, an increase of 2.3 percentage points, following a slight downturn in October when the index registered 49.6 percent. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Of the industries reporting in November, seven registered growth: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; Primary Metals; and Machinery.

Production	% Better	% Same	% Worse	Net	Index
Nov 2007	23	55	22	+1	51.9
Oct 2007	18	60	22	-4	49.6
Sep 2007	31	53	16	+15	54.6
Aug 2007	26	56	18	+8	56.1

Employment

ISM's Employment Index registered 47.8 percent in November, which is a decrease of 4.2 percentage points when compared to October's reading of 52 percent. 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 eight industries reporting growth in employment during November are: Textile Mills; Petroleum & Coal Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Primary Metals; Machinery; Computer & Electronic Products; and Miscellaneous Manufacturing.

Employment	% Higher	% Same	% Lower	Net	Index
Nov 2007	14	67	19	-5	47.8
Oct 2007	17	66	17	0	52.0
Sep 2007	14	72	14	0	51.7
Aug 2007	10	79	11	-1	51.3

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations continued to slow in November. The Supplier Deliveries Index increased 1.1 percentage points to 51.7 percent. A reading above 50 percent indicates slower deliveries.

The five industries reporting slower supplier deliveries in November are: Printing & Related Support Activities; Chemical Products; Computer & Electronic Products; Transportation Equipment; and Machinery.

Supplier Deliveries	% Slower	% Same	% Faster	Net	Index
Nov 2007	5	92	3	+2	51.7
Oct 2007	7	87	6	+1	50.6
Sep 2007	8	88	4	+4	51.9
Aug 2007	6	90	4	+2	50.0

Inventories

Manufacturers' inventories contracted again in November as the Inventories Index registered 46.9 percent, 0.3 percentage point lower than October's reading of 47.2 percent. This is the 16th consecutive month of inventory liquidation. 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 two industries reporting higher inventories in November are: Apparel, Leather & Allied Products; and Food, Beverage & Tobacco Products.

Inventories	% Higher	% Same	% Lower	Net	Index
Nov 2007	18	55	27	-9	46.9
Oct 2007	17	57	26	-9	47.2
Sep 2007	13	57	30	-17	41.6
Aug 2007	13	67	20	-7	45.4

Customers' Inventories*

The ISM Customers' Inventories Index registered 49 percent in November, a decrease of 5 percentage points when compared to October. The index indicates that respondents believe their customers' inventories are too low at this time.

Five industries reported higher customers' inventories during November: Furniture & Related Products; Chemical Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products.

Customers' Inventories	% Reporting	%Too High	%About Right	%Too Low	Net	Index
Nov 2007	79	13	72	15	-2	49.0
Oct 2007	73	20	68	12	+8	54.0
Sep 2007	76	16	68	16	0	50.0
Aug 2007	70	13	72	15	-2	49.0

Prices*

In November, the ISM Prices Index registered 67.5 percent, indicating manufacturers are paying higher prices on average when compared to October. While 42 percent of respondents reported paying higher prices and 7 percent reported paying lower prices, 51 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 November, 15 industries reported paying higher prices: Textile Mills; Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; Apparel, Leather & Allied Products; Paper Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Furniture & Related Products; Primary Metals; Fabricated Metal Products; and Computer & Electronic Products.

Prices	% Higher	% Same	% Lower	Net	Index
Nov 2007	42	51	7	+35	67.5
Oct 2007	33	60	7	+26	63.0
Sep 2007	30	58	12	+18	59.0
Aug 2007	33	60	7	+26	63.0

Backlog of Orders*

ISM's Backlog of Orders Index registered 41.5 percent in November, 4.5 percentage points lower than the 46 percent reported in October. This marks the second month that the index has declined following six consecutive months of growth. Of the 88 percent of respondents who reported their backlog of orders, 13 percent reported greater backlogs, 30 percent reported smaller backlogs, and 57 percent reported no change from October.

The three industries reporting an increase in order backlogs in November are: Paper Products; Machinery; and Food, Beverage & Tobacco Products.

Backlog of Orders	% Reporting	% Greater	% Same	% Less	Net	Index
Nov 2007	88	13	57	30	-17	41.5
Oct 2007	83	16	60	24	-8	46.0
Sep 2007	84	24	54	22	+2	51.0
Aug 2007	84	19	63	18	+1	50.5

New Export Orders*

ISM's New Export Orders Index registered 58.5 percent in November, an increase of 1.5 percentage points when compared to October's index of 57 percent. This is the 60th consecutive month of growth in export orders.

The nine industries reporting growth in new export orders in November are: Apparel, Leather & Allied Products; Non-metallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products; Miscellaneous Manufacturing; Primary Metals; Electrical Equipment, Appliances & Components; Machinery; and Computer & Electronic Products.

New Export Orders	% Reporting	% Higher	% Same	% Lower	Net	Index
Nov 2007	77	19	79	2	+17	58.5
Oct 2007	77	19	76	5	+14	57.0
Sep 2007	76	16	77	7	+9	54.5
Aug 2007	79	20	74	6	+14	57.0

Imports*

Imports of materials by manufacturers failed to grow again during November as the Imports Index registered 47.5 percent, the same rate of contraction as reported in October. This is the second month of contraction in the Index following 69 consecutive months of growth.

The three industries reporting growth in import activity for November are: Apparel, Leather & Allied Products; Non-metallic Mineral Products; and Chemical Products.

Imports	% Reporting	% Higher	% Same	% Lower	Net	Index
Nov 2007	83	10	75	15	-5	47.5
Oct 2007	77	8	79	13	-5	47.5
Sep 2007	82	16	74	10	+6	53.0
Aug 2007	82	16	73	11	+5	52.5

* 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 3 days to 120 days. Average leadtime for Production Materials is unchanged at 48 days. Average leadtime for Maintenance, Repair and Operating (MRO) Supplies decreased one day to 21 days.

Percent Reporting
Capital Expenditures	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Nov 2007	21	9	13	19	25	13	120
Oct 2007	21	8	12	23	21	15	123
Sep 2007	20	9	10	24	22	15	125
Aug 2007	19	10	16	23	22	10	110

Production Materials	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Nov 2007	20	39	28	8	4	1	48
Oct 2007	21	38	26	10	4	1	48
Sep 2007	21	40	25	9	4	1	47
Aug 2007	20	38	29	8	4	1	48

MRO Supplies	Hand- to- Mouth	30 Days	60 Days	90 Days	6 Months	1 Year+	Average Days
Nov 2007	56	31	10	3	0	0	21
Oct 2007	54	33	9	4	0	0	22
Sep 2007	53	32	8	6	0	1	26
Aug 2007	45	41	11	3	0	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 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; Non-metallic 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 percent; Production — 25 percent; Employment — 20 percent; Supplier Deliveries — 15 percent; and Inventories — 10 percent.

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 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. ISM, established in 1915, is the largest supply management organization in the world as well as one of the most respected. Its 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 next Manufacturing ISM Report On Business, featuring the December 2007 data, will be released on Wednesday, January 2.