Economic activity in the manufacturing sector expanded in June for the 11th consecutive month, and the overall economy grew for the 14th 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 manufacturing sector continued to grow during June; however, the rate of growth as indicated by the PMI slowed when compared to May. The lower reading for the PMI came from a slowing in the New Orders and Production Indexes. We are now 11 months into the manufacturing recovery, and given the robust nature of recent growth, it is not surprising that we would see a slower rate of growth at this time. The sector appears to be solidly entrenched in the recovery. Comments from the respondents remain generally positive, but expectations have been that the second half of the year will not be as strong in terms of the rate of growth, and June appears to validate that forecast.”

PERFORMANCE BY INDUSTRY

Thirteen of the 18 manufacturing industries are reporting growth in June, in the following order: Plastics & Rubber Products; Transportation Equipment; Printing & Related Support Activities; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; and Chemical Products. The industries reporting contraction in June are: Apparel, Leather & Allied Products; Wood Products; and Machinery.

WHAT RESPONDENTS ARE SAYING …

• “Component lead times are increasing sharply.” (Computer & Electronic Products)
• “Market had begun to change, but it is now declining again.” (Wood Products)
• “BP oil spill will impact business conditions over the next few months.” (Fabricated Metal Products)
• “The economy continues to be sluggish, with orders 8 percent to 10 percent below last year.” (Nonmetallic Mineral Products)
• “Retail sales are strong for both the domestic and international markets.” (Food, Beverage & Tobacco Products)

(a) Number of months moving in current direction

COMMODITIES REPORTED UP/DOWN IN PRICE and IN SHORT SUPPLY

Commodities Up in Price

Corrugated Containers (4); Plastic Products; and Steel(b) (12).

Commodities Down in Price

Aluminum; Copper (2); Polypropylene Resins; and Steel(b).

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.

(b) Reported as both up and down in price.

JUNE 2010 MANUFACTURING INDEX SUMMARIES

PMI

Manufacturing continued to grow in June as the PMI registered 56.2 percent, a decrease of 3.5 percentage points when compared to May’s reading of 59.7 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. Therefore, the PMI indicates growth for the 14th consecutive month in the overall economy, as well as expansion in the manufacturing sector for the 11th consecutive month. Ore stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through June (58.5 percent) corresponds to a 5.5 percent increase in real gross domestic product (GDP). In addition, if the PMI for June (56.2 percent) is annualized, it corresponds to a 4.8 percent increase in real GDP annually."

THE LAST 12 MONTHS

New Orders

ISM’s New Orders Index registered 58.5 percent in June, which is a decrease of 7.2 percentage points when compared to the 65.7 percent reported in May. This is the 12th consecutive month of growth in the New Orders Index. A New Orders Index above 50.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

The 13 industries reporting growth in new orders in June — listed in order — are: Plastics & Rubber Products; Petroleum & Coal Products; Primary Metals; Computer & Electronic Products; Fabricated Metal Products; Paper Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Furniture & Related Products; Printing & Related Support Activities; Transportation Equipment; Chemical Products; and Electrical Equipment, Appliances & Components. Four industries reported decreases in new orders in June: Machinery; Wood Products; Apparel, Leather & Allied Products; and Miscellaneous Manufacturing.

Production

ISM’s Production Index registered 61.4 percent in June, which is a decrease of 5.2 percentage points from the May reading of 66.6 percent. An index above 51 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. This is the 13th consecutive month the Production Index has registered above 50 percent.

The 10 industries reporting growth in production during the month of June — listed in order — are: Plastics & Rubber Products; Printing & Related Support Activities; Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Chemical Products; and Machinery. The four industries reporting a decrease in production in June are: Wood Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; and Nonmetallic Mineral Products.

Employment

ISM’s Employment Index registered 57.8 percent in June, which is 2 percentage points lower than the 59.8 percent reported in May. This is the seventh consecutive month of growth in manufacturing employment. An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Ten of the 18 manufacturing industries reported growth in employment in June in the following order: Transportation Equipment; Petroleum & Coal Products; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Fabricated Metal Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The five industries reporting a decrease in employment during June are: Plastics & Rubber Products; Wood Products; Apparel, Leather & Allied Products; Machinery; and Chemical Products.

Supplier Deliveries

The delivery performance of suppliers to manufacturing organizations was slower in June as the Supplier Deliveries Index registered 57.3 percent, which is 3.7 percentage points lower than the 61 percent registered in May. This is the 13th consecutive month the Supplier Deliveries Index has been above 50 percent. A reading above 50 percent indicates slower deliveries.

The 11 industries reporting slower supplier deliveries in June — listed in order — are: Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Machinery; Computer & Electronic Products; Printing & Related Support Activities; Paper Products; Transportation Equipment; Fabricated Metal Products; and Food, Beverage & Tobacco Products. Petroleum & Coal Products is the only industry reporting faster deliveries in June.

Inventories

Manufacturers’ inventories contracted in June for the third consecutive month as the Inventories Index registered 45.8 percent. The index is 0.2 percentage point higher than the 45.6 percent reported in May. 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).

The five industries reporting higher inventories in June are: Transportation Equipment; Printing & Related Support Activities; Paper Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The eight industries reporting decreases in inventories in June — listed in order — are: Primary Metals; Plastics & Rubber Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Machinery; Chemical Products; and Fabricated Metal Products.

Customers’ Inventories(c)

The ISM Customers’ Inventories Index registered 38 percent in June, 6 percentage points higher than in May when the index registered 32 percent, and the 15th consecutive month the Customers’ Inventories Index has been below 50 percent. The index indicates that respondents believe their customers’ inventories are too low at this time.

None of the 18 manufacturing industries reported customers’ inventories as being too high during June. The 11 industries reporting customers’ inventories as too low during June — listed in order — are: Nonmetallic Mineral Products; Plastics & Rubber Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Paper Products; Machinery; Transportation Equipment; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Chemical Products; and Fabricated Metal Products.

Prices(c)

The ISM Prices Index registered 57 percent in June, 20.5 percentage points lower than the 77.5 percent reported in May. This is the 12th consecutive month in which the Prices Index has registered above 50 percent. While 32 percent of respondents reported paying higher prices and 18 percent reported paying lower prices, 50 percent of supply executives reported paying the same prices as in May. A Prices Index above 49.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

The nine industries reporting paying increased prices during the month of June — listed in order — are: Paper Products; Apparel, Leather & Allied Products; Fabricated Metal Products; Computer & Electronic Products; Furniture & Related Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Chemical Products. The six industries reporting paying lower prices on average during June — listed in order — are: Wood Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Machinery; and Transportation Equipment.

Backlog of Orders(c)

ISM’s Backlog of Orders Index registered 57 percent in June, 2.5 percentage points lower than the 59.5 percent reported in May. Of the 85 percent of respondents who reported their backlog of orders, 31 percent reported greater backlogs, 17 percent reported smaller backlogs, and 52 percent reported no change from May.

The nine industries reporting increased order backlogs in June — listed in order — are: Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Computer & Electronic Products; Nonmetallic Mineral Products; Paper Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; and Machinery. The three industries reporting decreases in order backlogs during June are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; and Printing & Related Support Activities.

New Export Orders(c)

ISM’s New Export Orders Index registered 56 percent in June, which is 6 percentage points lower than the 62 percent reported in May. This is the 12th consecutive month of growth in the New Export Orders Index.

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

Imports(c)

Imports of materials by manufacturers expanded in June as the Imports Index registered 56.5 percent, the same as reported in May. This is the 10th consecutive month of growth in imports.

The nine industries reporting growth in imports during the month of June — listed in order — are: Petroleum & Coal Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Transportation Equipment; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Machinery; Chemical Products; and Computer & Electronic Products. The only industry reporting a decrease in imports during June is Miscellaneous Manufacturing.

(c) The Backlog of Orders, Prices, Customers’ Inventories, Imports and New Export Orders Indexes do not meet the accepted criteria for seasonal adjustments.

Buying Policy

Average commitment lead time for Capital Expenditures increased 6 days to 112 days. Average lead time for Production Materials increased 2 days to 50 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies is unchanged at 23 days.

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 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; Nonmetallic 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 and Inventories) 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 equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.

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 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42 percent, it is generally declining. The distance from 50 percent or 42 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 lead time, 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 July 2010 data will be released at 10:00 a.m. (ET) on Monday, August 2, 2010.