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Bradley J. Holcomb, ISM: September 2012 US Manufacturing Expands

October 1, 2012

Economic activity in the manufacturing sector expanded in September following three consecutive months of slight contraction, and the overall economy grew for the 40th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The PMI registered 51.5 percent, an increase of 1.9 percentage points from August's reading of 49.6 percent, indicating a return to expansion after contracting for three consecutive months. The New Orders Index registered 52.3 percent, an increase of 5.2 percentage points from August, indicating growth in new orders after three consecutive months of contraction. The Production Index registered 49.5 percent, an increase of 2.3 percentage points and indicating contraction in production for the second time since May 2009. The Employment Index increased by 3.1 percentage points, registering 54.7 percent. The Prices Index increased 4 percentage points from its August reading to 58 percent. Comments from the panel reflect a mix of optimism over new orders beginning to pick up, and continued concern over soft global business conditions and an unsettled political environment."

PERFORMANCE BY INDUSTRY

Of the 18 manufacturing industries, 11 are reporting growth in September in the following order: Textile Mills; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Paper Products; Petroleum & Coal Products; Primary Metals; Fabricated Metal Products; Furniture & Related Products; and Miscellaneous Manufacturing. The six industries reporting contraction in September — listed in order — are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Machinery; Chemical Products; and Computer & Electronic Products.

WHAT RESPONDENTS ARE SAYING ...
  • "Appears that our so-called 'slowdown' was a summer thing. September brings with it increasing requirements and business." (Paper Products)
  • "Business improved through Q3, but is beginning to show signs of slowing down in Q4; this has been a typical trend over the last few years." (Wood Products)
  • "Business has picked up going into the last quarter." (Plastics & Rubber Products)
  • "We are sticking to our manufacturing plan, but have slowed production down considerably. Haven't added any new units to the 2012 plan, and still have no forecast for 2013 released." (Computer & Electronic Products)
  • "Sales have tanked over the last two months, bringing a very concerned and stressed management team. Not very optimistic for the near-term future." (Apparel, Leather & Allied Products)
  • "Uncertainty in the healthcare legislation (reform) continues to be the underlying force keeping our sales revenue below its full potential." (Miscellaneous Manufacturing)
  • "Steel and aluminum prices still dropping, and auto production orders are up." (Transportation Equipment)
  • "Domestic business is up; international is down." (Electrical Equipment, Appliances & Components)
  • "Demand seems to have stabilized from August. New orders are appearing this month without advanced notice from our customers." (Chemical Products)
MANUFACTURING AT A GLANCE
SEPTEMBER 2012


Index
Series
Index
Sep
Series
Index
Aug
Percentage
Point
Change


Direction
Rate
of
Change

Trend*
(Months)
PMI™ 51.5 49.6 +1.9 Growing From Contracting 1
New Orders 52.3 47.1 +5.2 Growing From Contracting 1
Production 49.5 47.2 +2.3 Contracting Slower 2
Employment 54.7 51.6 +3.1 Growing Faster 36
Supplier Deliveries 50.3 49.3 +1.0 Slowing From Faster 1
Inventories 50.5 53.0 -2.5 Growing Slower 2
Customers' Inventories 49.5 49.0 +0.5 Too Low Slower 10
Prices 58.0 54.0 +4.0 Increasing Faster 2
Backlog of Orders 44.0 42.5 +1.5 Contracting Slower 6
Exports 48.5 47.0 +1.5 Contracting Slower 4
Imports 49.5 49.0 +0.5 Contracting Slower 2
             
OVERALL ECONOMY Growing Faster 40
Manufacturing Sector Growing From Contracting 1

*Number of months moving in current direction.
 

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Caustic Soda (2); Corn (3); Corn Products (2); Corrugated Boxes (2); Flour; Fuel (2); Gasoline; HDPE; Soy Bean Oil; Steel*; and Structural Steel.

Commodities Down in Price

Aluminum (2); Nickel (2); Stainless Steel (3); Steel* (7); and Steel Products.

Commodities in Short Supply

Plastic Components is the only commodity reported in short supply.

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


SEPTEMBER 2012 MANUFACTURING INDEX SUMMARIES


PMI

Manufacturing expanded in September as the PMI registered 51.5 percent, an increase of 1.9 percentage points when compared to August's reading of 49.6 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 42.6 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the September PMI indicates growth for the 40th consecutive month in the overall economy, and indicates a return to growth in the manufacturing sector following three consecutive months of slight contraction. Holcomb stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through September (52.1 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP). In addition, if the PMI for September (51.5 percent) is annualized, it corresponds to a 3 percent increase in real GDP annually."

THE LAST 12 MONTHS
Month PMI™   Month PMI™
Sep 2012 51.5   Mar 2012 53.4
Aug 2012 49.6   Feb 2012 52.4
Jul 2012 49.8   Jan 2012 54.1
Jun 2012 49.7   Dec 2011 53.1
May 2012 53.5   Nov 2011 52.2
Apr 2012 54.8   Oct 2011 51.8
Average for 12 months – 52.2
High – 54.8
Low – 49.6

New Orders

ISM's New Orders Index registered 52.3 percent in September, which is an increase of 5.2 percentage points when compared to the August reading of 47.1 percent. This represents a return to growth in new orders following three consecutive months of contraction. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The eight industries reporting growth in new orders in September — listed in order — are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Paper Products; Plastics & Rubber Products; Primary Metals; and Fabricated Metal Products. The six industries reporting a decrease in new orders during September — listed in order — are: Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Machinery; Miscellaneous Manufacturing; and Wood Products.

New
Orders
%
Better
%
Same
%
Worse

Net

Index
Sep 2012 27 48 25 +2 52.3
Aug 2012 21 50 29 -8 47.1
Jul 2012 20 51 29 -9 48.0
Jun 2012 24 53 23 +1 47.8

Production

ISM's Production Index registered 49.5 percent in September, which is an increase of 2.3 percentage points when compared to the 47.2 percent reported in August. This indicates contraction in production for the second time since May 2009 when the Production Index registered 43.9 percent. An index above 51.2 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The five industries reporting growth in production during the month of September are: Printing & Related Support Activities; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Paper Products; and Fabricated Metal Products. The six industries reporting a decrease in production in September — listed in order — are: Nonmetallic Mineral Products; Machinery; Petroleum & Coal Products; Transportation Equipment; Chemical Products; and Electrical Equipment, Appliances & Components. Seven industries reported no change in production in September compared to August.


Production
%
Better
%
Same
%
Worse

Net

Index
Sep 2012 24 50 26 -2 49.5
Aug 2012 19 57 24 -5 47.2
Jul 2012 19 58 23 -4 51.3
Jun 2012 24 60 16 +8 51.0

 
Employment

ISM's Employment Index registered 54.7 percent in September, which is 3.1 percentage points higher than the 51.6 percent reported in August. This is the 36th consecutive month of growth in the Employment Index. An Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, 11 reported growth in employment in September in the following order: Textile Mills; Printing & Related Support Activities; Wood Products; Food, Beverage & Tobacco Products; Paper Products; Petroleum & Coal Products; Primary Metals; Furniture & Related Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Machinery. The six industries reporting a decrease in employment in September — listed in order — are: Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Transportation Equipment; Computer & Electronic Products; and Apparel, Leather & Allied Products.


Employment
%
Higher
%
Same
%
Lower

Net

Index
Sep 2012 23 59 18 +5 54.7
Aug 2012 19 65 16 +3 51.6
Jul 2012 20 65 15 +5 52.0
Jun 2012 29 57 14 +15 56.6

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in September as the Supplier Deliveries Index registered 50.3 percent, which is 1 percentage point higher than the 49.3 percent reported in August. This is the first month that supplier deliveries have been slower than the previous month since January 2012, when the Supplier Deliveries Index registered 53.6 percent. A reading above 50 percent indicates slower deliveries.

The seven industries reporting slower supplier deliveries in September — listed in order — are: Wood Products; Primary Metals; Electrical Equipment, Appliances & Components; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The four industries reporting faster supplier deliveries in September are: Furniture & Related Products; Plastics & Rubber Products; Machinery; and Miscellaneous Manufacturing. Seven industries reported no change in supplier deliveries in September compared to August.

Supplier
Deliveries
%
Slower
%
Same
%
Faster

Net

Index
Sep 2012 8 86 6 +2 50.3
Aug 2012 9 83 8 +1 49.3
Jul 2012 9 84 7 +2 48.7
Jun 2012 8 85 7 +1 48.9

Inventories*

The Inventories Index registered 50.5 percent in September, which is 2.5 percentage points lower than the 53 percent reported in August. This month's reading indicates that respondents are reporting inventories are growing for the second consecutive month, but at a slower rate than in August. An Inventories Index greater than 42.8 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 six industries reporting higher inventories in September — listed in order — are: Textile Mills; Plastics & Rubber Products; Wood Products; Machinery; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The eight industries reporting decreases in inventories in September — listed in order — are: Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Transportation Equipment; Chemical Products; Paper Products; Miscellaneous Manufacturing; Fabricated Metal Products; and Apparel, Leather & Allied Products.


Inventories
%
Higher
%
Same
%
Lower

Net

Index
Sep 2012 20 61 19 +1 50.5
Aug 2012 24 58 18 +6 53.0
Jul 2012 21 56 23 -2 49.0
Jun 2012 13 62 25 -12 44.0

Customers' Inventories

The ISM Customers' Inventories Index registered 49.5 percent in September, which is 0.5 percentage point higher than in August when the index registered 49 percent. Customers' inventories have registered at or below 50 percent for 42 consecutive months. A reading below 50 percent indicates customers' inventories are considered too low.

The five manufacturing industries reporting customers' inventories as being too high during September are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Primary Metals; Electrical Equipment, Appliances & Components; and Chemical Products. The six industries reporting customers' inventories as too low during September — listed in order — are: Paper Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Computer & Electronic Products; and Food, Beverage & Tobacco Products. Six industries reported no change in Customers' Inventories in September compared to August.

Customers'
Inventories
%
Reporting
%Too
High
%About
Right
%Too
Low

Net

Index
Sep 2012 68 21 57 22 -1 49.5
Aug 2012 70 16 66 18 -2 49.0
Jul 2012 69 17 65 18 -1 49.5
Jun 2012 70 13 71 16 -3 48.5

Prices

The ISM Prices Index registered 58 percent in September, which is an increase of 4 percentage points compared to August, and follows a 14.5 percentage point increase in August compared to July. In September, 27 percent of respondents reported paying higher prices, 11 percent reported paying lower prices, and 62 percent of supply executives reported paying the same prices as in August. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, 10 reported paying increased prices during the month of September in the following order: Food, Beverage & Tobacco Products; Plastics & Rubber Products; Printing & Related Support Activities; Wood Products; Chemical Products; Primary Metals; Furniture & Related Products; Machinery; Fabricated Metal Products; and Miscellaneous Manufacturing. The four industries reporting paying lower prices during September are: Paper Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Nonmetallic Mineral Products.


Prices
%
Higher
%
Same
%
Lower

Net

Index
Sep 2012 27 62 11 +16 58.0
Aug 2012 23 62 15 +8 54.0
Jul 2012 11 57 32 -21 39.5
Jun 2012 7 60 33 -26 37.0

Backlog of Orders

ISM's Backlog of Orders Index registered 44 percent in September, which is 1.5 percentage points higher than the 42.5 percent reported in August. This is the sixth consecutive month of contraction in order backlogs. Of the 83 percent of respondents who reported their backlog of orders, 14 percent reported greater backlogs, 26 percent reported smaller backlogs, and 60 percent reported no change from August.

The four industries reporting increased order backlogs in September are: Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The 10 industries reporting decreases in order backlogs during September — listed in order — are: Nonmetallic Mineral Products; Machinery; Wood Products; Transportation Equipment; Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Fabricated Metal Products; Chemical Products; and Apparel, Leather & Allied Products.

Backlog of
Orders
%
Reporting
%
Greater
%
Same
%
Less

Net

Index
Sep 2012 83 14 60 26 -12 44.0
Aug 2012 84 16 53 31 -15 42.5
Jul 2012 84 13 60 27 -14 43.0
Jun 2012 86 16 57 27 -11 44.5

New Export Orders

ISM's New Export Orders Index registered 48.5 percent in September, which is 1.5 percentage points higher than the 47 percent reported in August, and represents the fourth month of contraction in the index since June 2009, when the index registered 49.5 percent. Prior to this current four-month period of contraction, the New Export Orders Index had registered 50 percent or above for the past 35 consecutive months.

The seven industries reporting growth in new export orders in September — listed in order — are: Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Chemical Products; and Computer & Electronic Products. The eight industries reporting a decrease in new export orders during September — listed in order — are: Wood Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Transportation Equipment; Machinery; Paper Products; Food, Beverage & Tobacco Products; and Apparel, Leather & Allied Products.

New Export
Orders
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Sep 2012 77 15 67 18 -3 48.5
Aug 2012 77 13 68 19 -6 47.0
Jul 2012 77 10 73 17 -7 46.5
Jun 2012 78 15 65 20 -5 47.5

Imports

ISM's Imports Index registered 49.5 percent in September, which is 0.5 percentage point higher than the 49 percent reported in August. This month's reading reflects the second month of contraction in imports since November 2011, when the Imports Index registered 49 percent.

The nine industries reporting growth in imports during the month of September — listed in order — are: Textile Mills; Wood Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Paper Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The seven industries reporting a decrease in imports during September — listed in order — are: Furniture & Related Products; Machinery; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Chemical Products; and Apparel, Leather & Allied Products.


Imports
%
Reporting
%
Higher
%
Same
%
Lower

Net

Index
Sep 2012 77 11 77 12 -1 49.5
Aug 2012 77 13 72 15 -2 49.0
Jul 2012 80 13 75 12 +1 50.5
Jun 2012 78 18 71 11 +7 53.5

* The Inventories, Customers' Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.
Buying Policy

Average commitment lead time for Capital Expenditures decreased 1 day to 123 days. Average lead time for Production Materials decreased 1 day to 54 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies remained unchanged at 27 days.

Percent Reporting

Capital
Expenditures
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Sep 2012 25 5 14 18 23 15 123
Aug 2012 23 7 13 19 23 15 124
Jul 2012 29 7 13 18 21 12 109
Jun 2012 26 10 9 20 20 15 118
 

Production
Materials
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Sep 2012 18 38 22 16 4 2 54
Aug 2012 16 37 26 15 4 2 55
Jul 2012 17 37 24 17 3 2 54
Jun 2012 15 40 21 17 5 2 57
 

MRO
Supplies
Hand-
to-
Mouth

30
Days

60
Days

90
Days

6
Months

1
Year+

Average
Days
Sep 2012 44 36 16 3 1 0 27
Aug 2012 46 38 11 3 2 0 27
Jul 2012 47 36 11 5 1 0 26
Jun 2012 43 40 11 3 2 1 31

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