Economic activity in the manufacturing sector failed to grow in July for the 18th consecutive month, while the overall economy grew for the third consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI — the New Orders and Production Indexes — rose significantly above 50 percent, thus setting an expectation for future growth in the sector. The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction. It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering. Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue.”

PERFORMANCE BY INDUSTRY

Six of the 18 manufacturing industries reported growth in July. These industries — listed in order — are: Nonmetallic Mineral Products; Paper Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Transportation Equipment; and Chemical Products. The 10 industries reporting contraction in July — listed in order — are: Machinery; Plastics & Rubber Products; Wood Products; Textile Mills; Miscellaneous Manufacturing; Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Primary Metals.

WHAT RESPONDENTS ARE SAYING …

  • “[There is concern about] overall health of strategic suppliers — continue to see new suppliers filing Chapter 7 or 11, posing significant risk to supply chain.” (Machinery)
  • “We believe our inventories are now at the bottom of this cycle, driving stronger demand for raw materials.” (Paper Products)
  • “While our aftermarket business has improved slightly, we are still awaiting an increase in OEM demand.” (Transportation Equipment)
  • “No stimulus for manufacturing.” (Fabricated Metal Products)
  • “Looking at another round of shutdowns to align supply with projected demands.” (Nonmetallic Mineral Products)

MANUFACTURING AT A GLANCE
JULY 2009

                       
Index

Series
Index
July

Series
Index
June

Percentage
Point
Change

Direction

Rate of
Change

Trend(a)
(Months)

 
PMI 48.9 44.8 +4.1 Contracting Slower 18
New Orders 55.3 49.2 +6.1 Growing From Contracting 1
Production 57.9 52.5 +5.4 Growing Faster 2
Employment 45.6 40.7 +4.9 Contracting Slower 12
Supplier Deliveries 52.0 50.6 +1.4 Slowing Faster 2
Inventories 33.5 30.8 +2.7 Contracting Slower 39
Customers’ Inventories 42.5 43.5 -1.0 Too Low Faster 4
Prices 55.0 50.0 +5.0 Increasing From Unchanged 1
Backlog of Orders 50.0 47.5 +2.5 Unchanged From Contracting 1
Exports 50.5 49.5 +1.0 Growing From Contracting 1
Imports 50.0 46.0 +4.0 Unchanged From Contracting 1
OVERALL ECONOMY

Manufacturing Sector

Growing

Faster

3

Contracting Slower 18

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Aluminum; Copper (2); Copper Based Products; Nickel; Plastic Resins; Polypropylene; Pulp; Solvents; Steel; and Steel Products.

Commodities Down in Price

Caustic Soda (5); Corrugated Containers (7); Diesel Fuel; and Natural Gas.

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.

JULY 2009 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing contracted at a slower rate in July as the PMI registered 48.9 percent, which is 4.1 percentage points higher than the 44.8 percent reported in June. This is the 18th consecutive month of contraction in the manufacturing sector. 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 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the third consecutive month in the overall economy, and continuing contraction in the manufacturing sector. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (40.6 percent) corresponds to a 0.2 percent decrease in real gross domestic product (GDP). However, if the PMI for July (48.9 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually."

THE LAST 12 MONTHS

          Month                     PMI                               Month                     PMI
 
Jul 2009 48.9 Jan 2009 35.6
Jun 2009 44.8 Dec 2008 32.9
May 2009 42.8 Nov 2008 36.6
Apr 2009 40.1 Oct 2008 38.7
Mar 2009 36.3 Sep 2008 43.4
Feb 2009 35.8 Aug 2008 49.3
Average for 12 months – 40.4

High – 49.3

Low – 32.9

New Orders

ISM’s New Orders Index registered 55.3 percent in July, 6.1 percentage points higher than the 49.2 percent registered in June. New orders have grown in two of the last three months. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The nine industries reporting growth in new orders in July — listed in order — are: Electrical Equipment, Appliances & Components; Primary Metals; Paper Products; Printing & Related Support Activities; Chemical Products; Transportation Equipment; Miscellaneous Manufacturing; Fabricated Metal Products; and Computer & Electronic Products. The five industries contracting in July — listed in order — are: Plastics & Rubber Products; Wood Products; Food, Beverage & Tobacco Products; Machinery; and Nonmetallic Mineral Products.

New Orders           %Better         %Same         %Worse         Net         Index
 
Jul 2009 33 45 22 +11 55.3
Jun 2009 28 48 24 +4 49.2
May 2009 27 54 19 +8 51.1
Apr 2009 31 40 29 +2 47.2

Production

ISM’s Production Index registered 57.9 percent in July, which is an increase of 5.4 percentage points from June’s reading of 52.5 percent. An index above 50.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. This is the second month the Production Index has registered above 50 percent, following nine months of contraction.

The 11 industries reporting growth in production during the month of July — listed in order — are: Nonmetallic Mineral Products; Paper Products; Textile Mills; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Transportation Equipment; Computer & Electronic Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The four industries reporting decreases in production in July are: Plastics & Rubber Products; Wood Products; Machinery; and Primary Metals.

Production           %Better         %Same         %Worse         Net         Index
 
Jul 2009 33 50 17 +16 57.9
Jun 2009 32 46 22 +10 52.5
May 2009 23 52 25 -2 46.0
Apr 2009 21 45 34 -13 40.4

Employment

ISM’s Employment Index registered 45.6 percent in July, which is 4.9 percentage points higher than the 40.7 percent reported in June. This is the 12th consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Two of the 18 manufacturing industries reported growth in employment in July: Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The 10 industries that reported decreases in employment during July — listed in order — are: Wood Products; Textile Mills; Machinery; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Miscellaneous Manufacturing; Primary Metals; and Plastics & Rubber Products.

Employment           %Higher         %Same         %Lower         Net         Index
 
Jul 2009 11 70 19 -8 45.6
Jun 2009 9 66 25 -16 40.7
May 2009 8 56 36 -28 34.3
Apr 2009 7 58 35 -28 34.4

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in July as the Supplier Deliveries Index registered 52 percent, which is 1.4 percentage points higher than the 50.6 percent registered in June. This is the second month that the Supplier Deliveries Index has been above 50 percent, following eight months of faster delivery performance. A reading above 50 percent indicates slower deliveries.

The seven industries reporting slower supplier deliveries in July — listed in order — are: Textile Mills; Wood Products; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; Machinery; and Chemical Products. The three industries reporting faster deliveries in July are: Primary Metals; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products.

Supplier Deliveries           %Slower         %Same         %Faster         Net         Index
 
Jul 2009 14 80 6 +8 52.0
Jun 2009 8 87 5 +3 50.6
May 2009 8 86 6 +2 49.8
Apr 2009 5 80 15 -10 44.9

Inventories

Manufacturers’ inventories contracted in July as the Inventories Index registered 33.5 percent, which is 2.7 percentage points higher than June’s reading of 30.8 percent. An Inventories Index greater than 42.6 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

None of the 18 manufacturing industries reported higher inventories in July. The 14 industries that reported decreases in July — listed in order — are: Textile Mills; Machinery; Furniture & Related Products; Paper Products; Computer & Electronic Products; Miscellaneous Manufacturing; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Printing & Related Support Activities; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; and Plastics & Rubber Products.

Inventories           %Higher         %Same         %Lower         Net         Index
 
Jul 2009 5 55 40 -35 33.5
Jun 2009 8 46 46 -38 30.8
May 2009 10 46 44 -34 32.9
Apr 2009 11 47 42 -31 33.6

Customers’ Inventories(b)

The ISM Customers’ Inventories Index registered 42.5 percent in July, 1 percentage point lower than the 43.5 percent reported in June. The index indicates that respondents believe their customers’ inventories are too low at this time. This is the fourth consecutive month the Customers’ Inventories Index has been below 50 percent, following eight months above 50 percent.

Three industries reported higher customers’ inventories during July: Computer & Electronic Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. The 10 industries that reported lower customers’ inventories during July — listed in order — are: Plastics & Rubber Products; Textile Mills; Primary Metals; Printing & Related Support Activities; Wood Products; Food, Beverage & Tobacco Products; Machinery; Paper Products; Chemical Products; and Transportation Equipment.

Customers’ Inventories    

%
Reporting

   

%Too
High

   

%About
Right

   

%Too
Low

    Net     Index
 
Jul 2009 77 15 55 30 -15 42.5
Jun 2009 74 15 57 28 -13


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