New Orders, Production and Employment Growing

Economic activity in the manufacturing sector expanded in August for the seventh consecutive month, while the overall economy grew for the 70th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business(r).

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

"Viewed from the manufacturing sector, the overall economy continues to grow at a significant rate. In comparing August to July, the rate of growth in manufacturing was slightly less but continues the expansion, although at the slowest pace in the past five months. Both the New Orders Index and the Production Index are encouraging for continuing growth as we head toward the fourth quarter of 2007."

Manufacturing grew at a slower rate in August as the PMI registered 52.9 percent, a decrease of 0.9 percentage point when compared to July's reading of 53.8 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 August (53.1 percent) corresponds to a 3.5 percent increase in real gross domestic product (GDP) annually. In addition, if the PMI for August (52.9 percent) is annualized, it corresponds to a 3.4 percent increase in real GDP annually."

ISM's New Orders Index registered 55.3 percent in August. The index is 2.2 percentage points lower than the 57.5 percent reported in July. 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 August: Petroleum & Coal Products; Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Wood Products; Chemical Products; and Fabricated Metal Products.

ISM's Production Index registered 56.1 percent in August, which is 0.5 percentage point higher than the 55.6 percent reported in July. August is the seventh consecutive month of production growth for manufacturers. An index above 49.8 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

ISM's Employment Index registered 51.3 percent in August, which is an increase of 1.1 percentage points when compared to July's reading of 50.2 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 delivery performance of suppliers to manufacturing organizations was unchanged in August. ISM's Supplier Deliveries Index registered 50 percent in August, indicating no change from July. A reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in August are: Printing & Related Support Activities; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; and Chemical Products.

Manufacturers' inventories registered 45.4 percent in August, which is 3.1 percentage points lower than July's reading of 48.5 percent. This is the 13th 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 ISM Customers' Inventories Index registered 49 percent in August, which is 2 percentage points lower than the 51 percent reported in July. The index indicates that respondents believe their customers have less than sufficient inventories on hand (inventories are too low) at this time. Seven industries reported higher customers' inventories during August: Paper Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; and Chemical Products.

ISM's Backlog of Orders Index registered 50.5 percent in August, 1.5 percentage points lower than the 52 percent reported in July. Of the 84 percent of respondents who reported their backlog of orders, 19 percent reported greater backlogs, 18 percent reported smaller backlogs, and 63 percent reported no change from July. The five industries reporting an increase in order backlogs in August are: Wood Products; Machinery; Chemical Products; Transportation Equipment; and Food, Beverage & Tobacco Products.

ISM's New Export Orders Index registered 57 percent in August, an increase of 0.5 percentage point when compared to July's index of 56.5 percent. This is the 57th consecutive month of growth in export orders. The nine industries reporting growth in new export orders in August are: Wood Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Machinery.

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