The report was issued Tuesday by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.
"2005 was an excellent year for the manufacturing sector as measured by the ISM data," Ore said. "In December, we saw a decline in the rate of growth of both new orders and production, but both indexes are at levels that support economic growth. We saw a significant slowing in the upward pricing spiral that has been a source of continuing concern for manufacturers. A strong fourth quarter should carry significant momentum forward into 2006."
TOP PERFORMING INDUSTRIES
The 10 industries reporting growth in December – listed in order – are: Miscellaneous*; Petroleum; Food; Primary Metals; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; Instruments & Photographic Equipment; Paper; Rubber & Plastic Products; and Transportation & Equipment.
WHAT RESPONDENTS ARE SAYING ...
- "Business remains strong into our traditional slow time. This is a big surprise. The reason is the construction economy continues to be strong." (Fabricated Metals)
- "Sales have improved as a result of impending holidays." (Food)
- "Steel prices are staying at the fourth-quarter level at least for the first quarter and possibly the first six months of 2006." (Furniture)
- "Although gas and electricity costs are quite high, we are able to offset these costs by a strong construction market that enables us to maintain a good profit margin." (Primary Metals)
- "Business continues to remain strong. We are beginning to see a retreat in petroleum-based goods." (Textiles)
| MANUFACTURING AT A GLANCE DECEMBER 2005 | ||||||
|---|---|---|---|---|---|---|
Index |
Series Index December |
Series Index November |
Percentage Point Change |
Direction |
Rate of Change |
Trend* (Months) |
| PMI | 54.2 | 58.1 | -3.9 | Growing | Slower | 31 |
| New Orders | 55.5 | 59.8 | -4.3 | Growing | Slower | 32 |
| Production | 57.0 | 60.6 | -3.6 | Growing | Slower | 32 |
| Employment | 52.7 | 56.6 | -3.9 | Growing | Slower | 6 |
| Supplier Deliveries | 53.5 | 58.3 | -4.8 | Slowing | Slower | 30 |
| Inventories | 47.2 | 49.3 | -2.1 | Contracting | Faster | 9 |
| Customers' Inventories | 48.0 | 43.5 | +4.5 | Too Low | Slower | 55 |
| Prices | 63.0 | 74.0 | -11.0 | Increasing | Slower | 5 |
| Backlog of Orders | 49.5 | 53.0 | -3.5 | Contracting | From Growing | 1 |
| Exports | 54.3 | 59.2 | -4.9 | Growing | Slower | 48 |
| Imports | 52.8 | 54.1 | -1.3 | Growing | Slower | 49 |
| OVERALL ECONOMY | Growing | Slower | 50 | |||
| Manufacturing Sector | Growing | Slower | 31 | |||
*Number of months moving in current direction
COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY
Commodities Up in Price
Aluminum (5); Aluminum Products; Caustic Soda (20); Chemicals (23); Copper (7); Copper Products; Corrugated Containers (2); Corrugated Packaging; Energy (11); Freight; Gasoline (6); LDPE (2); Natural Gas (41); Natural Rubber; Oil (8); Packaging; Petroleum Products (2); Plastic Resins (11); Plastics (17); Resins* (6); Rubber (2); and Steel (27).
Commodities Down in Price
Diesel Fuel (2) and Resins*.
Commodities in Short Supply
Caustic Soda (2); Plastics; Resins; and Steel (3).
*Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.
DECEMBER 2005 MANUFACTURING INDEX SUMMARIES
PMI
The PMI indicates that the manufacturing economy grew in December for the 31st consecutive month. The PMI for December registered 54.2 percent, a decrease of 3.9 percentage points when compared to November's reading of 58.1 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 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. The December 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 through December (55.5 percent) corresponds to a 4.6 percent increase in real gross domestic product (GDP) on an annual basis. In addition, if the PMI for December (54.2 percent) is annualized, it corresponds to a 4.2 percent increase in real GDP annually.
THE LAST 12 MONTHS
| Month | PMI | Month | PMI | |
|---|---|---|---|---|
| Dec 2005 | 54.2 | Jun 2005 | 53.8 | |
| Nov 2005 | 58.1 | May 2005 | 51.4 | |
| Oct 2005 | 59.1 | Apr 2005 | 53.3 | |
| Sep 2005 | 59.4 | Mar 2005 | 55.2 | |
| Aug 2005 | 53.6 | Feb 2005 | 55.3 | |
| Jul 2005 | 56.6 | Jan 2005 | 56.4 | |
| Average for 12 months – 55.5 High – 59.4 Low – 51.4 | ||||
New Orders
ISM's New Orders Index grew in December with a reading of 55.5 percent. The index is 4.3 percentage points lower than the 59.8 percent registered in November, and December is the 32nd 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). Ten industries reported increases during December: Petroleum; Miscellaneous*; Instruments & Photographic Equipment; Food; Primary Metals; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Electronic Components & Equipment; Transportation & Equipment; and Furniture.
| New Orders |
% Better |
% Same |
% Worse |
Net |
Index |
|---|---|---|---|---|---|
| Dec 2005 | 30 | 50 | 20 | +10 | 55.5 |
| Nov 2005 | 30 | 54 | 16 | +14 | 59.8 |
| Oct 2005 | 30 | 54 | 16 | +14 | 61.7 |
| Sep 2005 | 35 | 53 | 12 | +23 | 63.8 |
Production
ISM's Production Index registered 57 percent in December, 3.6 percentage points lower than the 60.6 percent reported in November. December is the 32nd 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 December, 10 registered growth: Miscellaneous*; Primary Metals; Industrial & Commercial Equipment & Computers; Instruments & Photographic Equipment; Food; Paper; Furniture; Wood & Wood Products; Electronic Components & Equipment; and Rubber & Plastic Products.
Production |
% Better |
% Same |
% Worse |
Net |
Index |
|---|---|---|---|---|---|
| Dec 2005 | 27 | 58 | 15 | +12 | 57.0 |
| Nov 2005 | 30 | 59 | 11 | +19 | 60.6 |
| Oct 2005 | 31 | 57 | 12 | +19 | 62.0 |
| Sep 2005 | 37 | 52 | 11 | +26 | 63.1 |
Employment
ISM's Employment Index expanded for the sixth consecutive month in December. The index registered 52.7 percent in December compared to 56.6 percent in November, a decrease of 3.9 percentage points. An Employment Index above 48.5 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 December are: Electronic Components & Equipment; Miscellaneous*; Food; Industrial & Commercial Equipment & Computers; Primary Metals; Paper; Fabricated Metals; and Rubber & Plastic Products.
Employment |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|
| Dec 2005 | 12 | 80 | 8 | +4 | 52.7 |
| Nov 2005 | 19 | 72 | 9 | +10 | 56.6 |
| Oct 2005 | 18 | 69 | 13 | +5 | 55.0 |
| Sep 2005 | 19 | 65 | 16 | +3 | 53.1 |
Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower for the 30th consecutive month in December. ISM's Supplier Deliveries Index for December registered 53.5 percent, a decrease of 4.8 percentage points when compared to November's reading of 58.3 percent. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in December are: Wood & Wood Products; Textiles; Fabricated Metals; Transportation & Equipment; Electronic Components & Equipment; and Chemicals.
| Supplier Deliveries |
% Slower |
% Same |
% Faster |
Net |
Index |
|---|---|---|---|---|---|
| Dec 2005 | 12 | 79 | 9 | +3 | 53.5 |
| Nov 2005 | 19 | 74 | 7 | +12 | 58.3 |
| Oct 2005 | 26 | 70 | 4 | +22 | 61.7 |
| Sep 2005 | 21 | 75 | 4 | +17 | 59.3 |
Inventories
Manufacturers' inventories declined in December for the ninth consecutive month as ISM's Inventories Index registered 47.2 percent, indicating a faster rate of liquidation when compared to November's reading of 49.3. December's index represents a 2.1 percentage point decrease from November's index. An Inventories Index greater than 42.3 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 December are: Food; Paper; and Electronic Components & Equipment.
Inventories |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|
| Dec 2005 | 12 | 69 | 19 | -7 | 47.2 |
| Nov 2005 | 15 | 64 | 21 | -6 | 49.3 |
| Oct 2005 | 13 | 67 | 20 | -7 | 48.1 |
| Sep 2005 | 17 | 65 | 18 | -1 | 49.6 |
Customers' Inventories**
The December Customers' Inventories Index is at 48 percent, 4.5 percentage points higher than the 43.5 percent reported in November. While the index indicates that respondents believe their customers do not have sufficient inventories on hand (inventories are too low) at this time, it is important to note that 70 percent indicate that inventories are "about right." This is the 55th consecutive month that the index has registered below 50 percent. Nine industries reported higher customers' inventories during December: Paper; Furniture; Textiles; Glass, Stone & Aggregate; Rubber & Plastic Products; Miscellaneous*; Transportation & Equipment; Chemicals; and Primary Metals.
| Customers' Inventories |
% Reporting |
%Too High |
%About Right |
%Too Low |
Net |
Index |
|---|---|---|---|---|---|---|
| Dec 2005 | 76 | 13 | 70 | 17 | -4 | 48.0 |
| Nov 2005 | 72 | 9 | 69 | 22 | -13 | 43.5 |
| Oct 2005 | 79 | 8 | 66 | 26 | -18 | 41.0 |
| Sep 2005 | 74 | 9 | 71 | 20 | -11 | 44.5 |
Prices**
In December, the ISM Prices Index was 63 percent, indicating significant pricing activity. However, the index is down 11 percentage points from the 74 percent it registered in November. While 37 percent of supply executives reported paying higher prices and 11 percent reported paying lower prices, the majority of respondents (52 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 December, 14 industries reported paying higher prices: Petroleum; Rubber & Plastic Products; Furniture; Paper; Glass, Stone & Aggregate; Miscellaneous*; Transportation & Equipment; Industrial & Commercial Equipment & Computers; Fabricated Metals; Textiles; Electronic Components & Equipment; Instruments & Photographic Equipment; Chemicals; and Food.
Prices |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|
| Dec 2005 | 37 | 52 | 11 | +26 | 63.0 |
| Nov 2005 | 53 | 42 | 5 | +48 | 74.0 |
| Oct 2005 | 70 | 28 | 2 | +68 | 84.0 |
| Sep 2005 | 60 | 36 | 4 | +56 | 78.0 |
Backlog of Orders**
ISM's Backlog of Orders Index registered 49.5 percent, indicating manufacturers' backlogs in December are contracting when compared to November. This 3.5 percentage point decrease from the 53 percent reported in November is a reversal from growth to contraction. Of the 86 percent of respondents who report their backlog of orders, 22 percent reported greater backlogs, 23 percent reported smaller backlogs, and 55 percent reported no change from November. The seven industries reporting an increase in order backlogs during the month are: Food; Textiles; Rubber & Plastic Products; Primary Metals; Electronic Components & Equipment; Industrial & Commercial Equipment & Computers; and Transportation & Equipment.
| Backlog of Orders |
% Reporting |
% Greater |
% Same |
% Less |
Net |
Index |
|---|---|---|---|---|---|---|
| Dec 2005 | 86 | 22 | 55 | 23 | -1 | 49.5 |
| Nov 2005 | 83 | 24 | 58 | 18 | +6 | 53.0 |
| Oct 2005 | 85 | 29 | 53 | 18 | +11 | 55.5 |
| Sep 2005 | 85 | 28 | 54 | 18 | +10 | 55.0 |
New Export Orders
ISM's New Export Orders Index for December registered 54.3 percent, a decrease of 4.9 percentage points when compared to November's index of 59.2 percent. This is the 48th consecutive month of growth in export orders. The eight industries reporting growth in new export orders in December are: Food; Apparel; Instruments & Photographic Equipment; Furniture; Electronic Components & Equipment; Transportation & Equipment; Fabricated Metals; and Industrial & Commercial Equipment & Computers.
| New Export Orders |
% Reporting |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|---|
| Dec 2005 | 76 | 12 | 83 | 5 | +7 | 54.3 |
| Nov 2005 | 74 | 19 | 78 | 3 | +16 | 59.2 |
| Oct 2005 | 76 | 15 | 77 | 8 | +7 | 54.8 |
| Sep 2005 | 74 | 17 | 78 | 5 | +12 | 56.9 |
Imports
Imports of materials by manufacturers grew during December as the Imports Index registered 52.8 percent. The index decreased 1.3 percentage points when compared to November's index of 54.1 percent, indicating a slower rate of growth. The six industries reporting growth in import activity for December are: Miscellaneous*; Food; Instruments & Photographic Equipment; Furniture; Rubber & Plastic Products; and Industrial & Commercial Equipment & Computers.
Imports |
% Reporting |
% Higher |
% Same |
% Lower |
Net |
Index |
|---|---|---|---|---|---|---|
| Dec 2005 | 80 | 13 | 79 | 8 | +5 | 52.8 |
| Nov 2005 | 78 | 15 | 77 | 8 | +7 | 54.1 |
| Oct 2005 | 78 | 20 | 72 | 8 | +12 | 58.2 |
| Sep 2005 | 77 | 16 | 76 | 8 | +8 | 53.4 |
*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.
**The Backlog of Orders, Prices and Customers' Inventories Indexes do not meet the accepted criteria for seasonal adjustments.
Buying Policy
Average commitment leadtime for Capital Expenditures increased 5 days to 113 days. Average leadtime for Production Materials increased 1 day to 51 days. Average leadtime for Maintenance, Repair and Operating (MRO) supplies increased 5 days to 27 days.
| Percent Reporting | |||||||
|---|---|---|---|---|---|---|---|
Capital Expenditures |
Hand- to- Mouth |
30 Days |
60 Days |
90 Days |
6 Months |
1 Year+ |
Average Days |
| Dec 2005 | 22 | 11 | 13 | 18 | 25 | 11 | 113 |
| Nov 2005 | 24 | 9 | 16 | 17 | 24 | 10 | 108 |
| Oct 2005 | 25 | 8 | 13 | 18 | 26 | 10 | 110 |
| Sep 2005 | 25 | 9 | 14 | 18 | 25 | 9 | 106 |
Production Materials |
Hand- to- Mouth |
30 Days |
60 Days |
90 Days |
6 Months |
1 Year+ |
Average Days |
| Dec 2005 | 20 | 36 | 27 | 11 | 5 | 1 | 51 |
| Nov 2005 | 16 | 41 | 27 | 11 | 4 | 1 | 50 |
| Oct 2005 | 22 | 36 | 25 | 12 | 3 | 2 | 50 |
| Sep 2005 | 23 | 38 | 26 | 9 | 2 | 2 | 47 |
MRO Supplies |
Hand- to- Mouth |
30 Days |
60 Days |
90 Days |
6 Months |
1 Year+ |
Average Days |
| Dec 2005 | 51 | 31 | 12 | 5 | 0 | 1 | 27 |
| Nov 2005 | 55 | 30 | 12 | 3 | 0 | 0 | 22 |
| Oct 2005 | 51 | 32 | 13 | 3 | 1 | 0 | 24 |
| Sep 2005 | 53 | 33 | 11 | 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 over 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 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 42.7 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.7 percent, it is generally declining. The distance from 50 percent or 42.7 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 January 2006 data will be released at 10:00 a.m. (ET) on February 1, 2006.
