The report was issued November 1 by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.
"In October, the manufacturing sector fell to its lowest level of growth since June 2003," said Ore. "There was significant movement in most of the indexes as new orders and production continued to soften, while backlogs contracted for a second month. There was particularly good news on the pricing front as the Prices Index fell 14 points, signaling some relief for buyers for the first time in 15 months. A second positive signal is the improvement in new export orders as the weaker dollar continues to support a strong export market."
TOP PERFORMING INDUSTRIES
The eight industries reporting growth in October — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Food, Beverage & Tobacco Products; Non-metallic Mineral Products; Furniture & Related Products; Chemical Products; and Paper Products.
WHAT RESPONDENTS ARE SAYING ...
- "Still receiving price increases on petroleum-based products." (Chemical Products)
- "Business appears to be softening slightly — both volume and margin." (Fabricated Metal Products)
- "Raw material leadtimes shortening, especially in wood and steel." (Furniture & Related Products)
- "Raw material prices have not yet begun to decline in response to lower oil and natural gas prices." (Paper Products)
- "Business is softening, particularly in Europe." (Machinery)
| MANUFACTURING AT A GLANCE OCTOBER 2006 | ||||||
|---|---|---|---|---|---|---|
Index |
Series Index October |
Series Index September |
Percentage Point Change |
Direction |
Rate of Change |
Trend* (Months) |
| PMI | 51.2 | 52.9 | -1.7 | Growing | Slower | 41 |
| New Orders | 52.1 | 54.2 | -2.1 | Growing | Slower | 42 |
| Production | 51.9 | 56.1 | -4.2 | Growing | Slower | 42 |
| Employment | 50.8 | 49.4 | +1.4 | Growing | From Contracting | 1 |
| Supplier Deliveries | 50.2 | 54.1 | -3.9 | Slowing | Slower | 40 |
| Inventories | 49.4 | 46.4 | +3.0 | Contracting | Slower | 2 |
| Customers' Inventories | 52.0 | 49.0 | +3.0 | Too High | From Too Low | 1 |
| Prices | 47.0 | 61.0 | -14.0 | Decreasing | From Increasing | 1 |
| Backlog of Orders | 44.5 | 46.5 | -2.0 | Contracting | Faster | 2 |
| Exports | 57.8 | 55.3 | +2.5 | Growing | Faster | 47 |
| Imports | 57.0 | 56.0 | +1.0 | Growing | Faster | 58 |
| OVERALL ECONOMY | Growing | Slower | 60 | |||
| Manufacturing Sector | Growing | Slower | 41 | |||
*Number of months moving in current direction
COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY
Commodities Up in Price
Corrugated Containers (12); Methanol (2); and Stainless Steel (6).
Commodities Down in Price
Aluminum (2); Copper Products; Fuel; Gasoline (2); Natural Gas (2); Natural Rubber (2); Oil-Based Products; Polyethylene Resin; and Steel.
Commodities in Short Supply
Titanium.
Note: The number of consecutive months the commodity is listed is indicated after each item.
OCTOBER 2006 MANUFACTURING INDEX SUMMARIES
Purchasing Managers' Index (PMI)
The PMI indicates that the manufacturing economy grew in October for the 41st consecutive month as it registered 51.2 percent, a decrease of 1.7 percentage points when compared to September's reading of 52.9 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 42 percent, over a period of time, generally indicates an expansion of the overall economy. The October PMI indicates that both the overall economy and the manufacturing sector are growing at a slower rate.
"The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (54.6 percent) corresponds to a 4.3 percent increase in real gross domestic product (GDP)," said Ore. "In addition, if the PMI for October (51.2 percent) is annualized, it corresponds to a 3.1 percent increase in real GDP annually."
THE LAST 12 MONTHS
| Month | PMI | Month | PMI | |
|---|---|---|---|---|
| Oct 2006 | 51.2 | Apr 2006 | 57.3 | |
| Sep 2006 | 52.9 | Mar 2006 | 55.2 | |
| Aug 2006 | 54.5 | Feb 2006 | 56.7 | |
| Jul 2006 | 54.7 | Jan 2006 | 54.8 | |
| Jun 2006 | 53.8 | Dec 2005 | 55.6 | |
| May 2006 | 54.4 | Nov 2005 | 57.3 | |
| Average for 12 months – 54.9 High – 57.3 Low – 51.2 | ||||
New Orders
ISM's New Orders Index registered 52.1 percent in October. The index is 2.1 percentage points lower than the 54.2 percent reported in September. October is the 42nd 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). Seven industries reported increases during October: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Computer & Electronic Products; Furniture & Related Products; Non-metallic Mineral Products; Chemical Products; and Food, Beverage & Tobacco Products.
| New Orders |
% Better |
% Same |
% Worse |
Net |
Index |
|---|---|---|---|---|---|
| Oct 2006 | 26 | 47 | 27 | -1 | 52.1 |
| Sep 2006 | 28 | 54 | 18 | +10 | 54.2 |
| Aug 2006 | 27 | 51 | 22 | +5 | 54.2 |
| Jul 2006 | 29 | 52 | 19 | +10 | 56.1 |
Production
ISM's Production Index registered 51.9 percent in October, 4.2 percentage points lower than the 56.1 percent reported in September. October is the 42nd 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 October, 10 registered growth: Apparel, Leather & Allied Products; Computer & Electronic Products; Textile Mills; Miscellaneous Manufacturing; Paper Products; Non-metallic Mineral Products; Primary Metals; Furniture & Related Products; Chemical Products; and Transportation Equipment.
Production |
% Better |
% Same |
% Worse |
Net |
Index |
|---|---|---|---|---|---|
| Oct 2006 | 22 | 58 | 20 | +2 | 51.9 |
| Sep 2006 | 28 | 59 | 13 | +15 | 56.1 |
| Aug 2006 | 23 | 61 | 16 | +7 | 56.6 |
| Jul 2006 | 27 | 56 | 17 | +10 | 57.6 |
Employment
ISM's Employment Index registered 50.8 percent in October, an increase of 1.4 percentage points when compared to September's reading of 49.4 percent. 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 five industries reporting growth in employment during October are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Primary Metals.
Employment |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|
| Oct 2006 | 17 | 63 | 20 | -3 | 50.8 |
| Sep 2006 | 12 | 72 | 16 | -4 | 49.4 |
| Aug 2006 | 19 | 66 | 15 | +4 | 54.0 |
| Jul 2006 | 16 | 70 | 14 | +2 | 50.7 |
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower for the 40th consecutive month in October. ISM's Supplier Deliveries Index for October registered 50.2 percent, a decrease of 3.9 percentage points when compared to September's reading of 54.1 percent. A reading above 50 percent indicates slower deliveries. The three industries reporting slower supplier deliveries in October are: Computer & Electronic Products; Non-metallic Mineral Products; and Transportation Equipment.
| Supplier Deliveries |
% Slower |
% Same |
% Faster |
Net |
Index |
|---|---|---|---|---|---|
| Oct 2006 | 9 | 83 | 8 | +1 | 50.2 |
| Sep 2006 | 13 | 82 | 5 | +8 | 54.1 |
| Aug 2006 | 16 | 80 | 4 | +12 | 55.0 |
| Jul 2006 | 16 | 80 | 4 | +12 | 55.4 |
Inventories
Manufacturers' inventories contracted at a slower rate in October as ISM's Inventories Index registered 49.4 percent, a 3 percentage point increase when compared to September's reading of 46.4 percent. 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 four industries reporting higher inventories in October are: Food, Beverage & Tobacco Products; Furniture & Related Products; Paper Products; and Primary Metals.
Inventories |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|
| Oct 2006 | 17 | 61 | 22 | -5 | 49.4 |
| Sep 2006 | 14 | 66 | 20 | -6 | 46.4 |
| Aug 2006 | 20 | 62 | 18 | +2 | 50.2 |
| Jul 2006 | 13 | 70 | 17 | -4 | 50.5 |
Customers' Inventories*
The ISM Customers' Inventories Index registered 52 percent in October, which is 3 percentage points higher than the 49 percent reported in September. The index indicates that respondents believe their customers have sufficient inventories on hand (inventories are too high) at this time. This reversal in the index concludes 64 consecutive months that the index registered below 50 percent. Eight industries reported higher customers' inventories during October: Textile Mills; Wood Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Furniture & Related Products; Fabricated Metal Products; and Chemical Products.
| Customers' Inventories |
% Reporting |
%Too High |
%About Right |
%Too Low |
Net |
Index |
|---|---|---|---|---|---|---|
| Oct 2006 | 74 | 19 | 66 | 15 | +4 | 52.0 |
| Sep 2006 | 71 | 15 | 68 | 17 | -2 | 49.0 |
| Aug 2006 | 75 | 10 | 72 | 18 | -8 | 46.0 |
| Jul 2006 | 73 | 12 | 65 | 23 | -11 | 44.5 |
Prices*
In October, the ISM Prices Index registered 47 percent, indicating manufacturers are paying lower prices on average when compared to September. While 58 percent of supply executives reported paying the same prices and 24 percent reported paying lower prices, only 18 percent of respondents reported that prices were higher than 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 October, five industries reported paying higher prices: Food, Beverage & Tobacco Products; Computer & Electronic Products; Chemical Products; Machinery; and Primary Metals.
Prices |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|
| Oct 2006 | 18 | 58 | 24 | -6 | 47.0 |
| Sep 2006 | 36 | 50 | 14 | +22 | 61.0 |
| Aug 2006 | 50 | 46 | 4 | +46 | 73.0 |
| Jul 2006 | 59 | 39 | 2 | +57 | 78.5 |
Backlog of Orders*
ISM's Backlog of Orders Index registered 44.5 percent, indicating manufacturers' backlogs in October are contracting for the second consecutive month. The index is 2 percentage points lower than the 46.5 percent reported in September. Of the 85 percent of respondents who reported their backlog of orders, 14 percent reported greater backlogs, 25 percent reported smaller backlogs, and 61 percent reported no change from September. The six industries reporting an increase in order backlogs in October are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Non-metallic Mineral Products; Transportation Equipment; Chemical Products; and Miscellaneous Manufacturing.
| Backlog of Orders |
% Reporting |
% Greater |
% Same |
% Less |
Net |
Index |
|---|---|---|---|---|---|---|
| Oct 2006 | 85 | 14 | 61 | 25 | -11 | 44.5 |
| Sep 2006 | 83 | 14 | 65 | 21 | -7 | 46.5 |
| Aug 2006 | 83 | 19 | 65 | 16 | +3 | 51.5 |
| Jul 2006 | 88 | 19 | 63 | 18 | +1 | 50.5 |
New Export Orders
ISM's New Export Orders Index registered 57.8 percent in October, an increase of 2.5 percentage points when compared to September's index of 55.3 percent. This is the 47th consecutive month of growth in export orders. The 11 industries reporting growth in new export orders in October are: Apparel, Leather & Allied Products; Non-metallic Mineral Products; Food, Beverage & Tobacco Products; Primary Metals; Miscellaneous Manufacturing; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; and Chemical Products.
| New Export Orders |
% Reporting |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|---|
| Oct 2006 | 80 | 18 | 76 | 6 | +12 | 57.8 |
| Sep 2006 | 77 | 14 | 80 | 6 | +8 | 55.3 |
| Aug 2006 | 77 | 14 | 81 | 5 | +9 | 55.7 |
| Jul 2006 | 79 | 10 | 83 | 7 | +3 | 51.9 |
Imports*
Imports of materials by manufacturers grew during October as the Imports Index registered 57 percent. The index is 1 percentage point higher when compared to September. The nine industries reporting growth in import activity for October are: Apparel, Leather & Allied Products; Non-metallic Mineral Products; Wood Products; Furniture & Related Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; Machinery; and Computer & Electronic Products.
Imports |
% Reporting |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|---|
| Oct 2006 | 85 | 19 | 76 | 5 | +14 | 57.0 |
| Sep 2006 | 81 | 18 | 76 | 6 | +12 | 56.0 |
| Aug 2006 | 81 | 15 | 78 | 7 | +8 | 54.0 |
| Jul 2006 | 83 | 22 | 71 | 7 | +15 | 57.5 |
* 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 10 days to 119 days. Average leadtime for Production Materials increased 8 days to 55 days. Average leadtime for maintenance, repair and operating (MRO) supplies increased two days to 24 days.
Percent Reporting
| Percent Reporting | |||||||
|---|---|---|---|---|---|---|---|
Capital Expenditures |
Hand- to- Mouth |
30 Days |
60 Days |
90 Days |
6 Months |
1 Year+ |
Average Days |
| Oct 2006 | 22 | 9 | 14 | 19 | 22 | 14 | 119 |
| Sep 2006 | 26 | 8 | 14 | 18 | 23 | 11 | 109 |
| Aug 2006 | 25 | 7 | 11 | 22 | 22 | 13 | 116 |
| Jul 2006 | 19 | 12 | 13 | 21 | 23 | 12 | 116 |
Production Materials |
Hand- to- Mouth |
30 Days |
60 Days |
90 Days |
6 Months |
1 Year+ |
Average Days |
| Oct 2006 | 21 | 36 | 23 | 13 | 4 | 3 | 55 |
| Sep 2006 | 19 | 43 | 22 | 12 | 3 | 1 | 47 |
| Aug 2006 | 19 | 40 | 25 | 10 | 6 | 0 | 48 |
| Jul 2006 | 18 | 38 | 28 | 8 | 6 | 2 | 54 |
MRO Supplies |
Hand- to- Mouth |
30 Days |
60 Days |
90 Days |
6 Months |
1 Year+ |
Average Days |
| Oct 2006 | 52 | 31 | 13 | 3 | 1 | 0 | 24 |
| Sep 2006 | 50 | 37 | 10 | 3 | 0 | 0 | 22 |
| Aug 2006 | 49 | 35 | 14 | 2 | 0 | 0 | 23 |
| Jul 2006 | 48 | 36 | 12 | 3 | 0 | 1 | 27 |
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 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, 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 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 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 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 Report On Business, featuring the November 2006 data, will be released at 10 a.m. (ET) on December 1.
