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May Manufacturing Index: New Orders Grow (Plus comments from Dr. Joe Webb)

Press release from the issuing company

June 3, 2003 -- (Tempe, Arizona) — Economic activity in the manufacturing sector failed to grow in May, while the overall economy grew for the 19th 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, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee and group director, strategic sourcing and procurement, Georgia-Pacific Corporation. "The manufacturing sector failed to grow in May for the third consecutive month. However, there are signs of life in manufacturing as both the New Orders Index and the Production Index rose above the 50 percent mark after each had seen two consecutive months of decline. There is also good news on the pricing front as the Prices Index declined 12 percentage points, leaving it just above the breakeven point. Order backlogs grew in May following 10 months of decline. These are all signs of encouragement that manufacturing is recovering from the decline due to the war." ISM's Backlog of Orders Index indicates that order backlogs increased in May. Manufacturing employment continued to decline in May as the index remained below the breakeven point (an index of 50 percent) for the 32nd consecutive month. ISM's Prices Index is above 50 percent as manufacturers experienced higher prices for the 15th consecutive month. New Export Orders grew in May for the 17th consecutive month. May's Imports Index grew for the seventh consecutive month. Comments from purchasing and supply managers focus on the continued weakness in many sectors, pressure from natural gas prices, SARS concerns in Asia, and the impact of a declining dollar. ISM's PMI rose to 49.4 percent in May, an increase of 4 percentage points when compared to 45.4 in April. ISM's New Orders Index rose 6.7 percentage points from 45.2 percent in April to 51.9 percent in May. ISM's Production Index rose 4.5 percentage points from 47 percent in April to 51.5 percent in May. The ISM Employment Index is at 43 percent for May, an increase of 1.6 percentage points when compared to the 41.4 percent reported in April. ISM's Supplier Deliveries Index registered 51.3 percent, 1.3 percentage points higher than April's 50 percent. ISM's Inventories Index rose to 46.1 percent from 42.7 percent in April. ISM's Customers' Inventories Index for May is at 45 percent, a slight increase of 0.5 percentage point compared to the April reading of 44.5 percent. ISM's Prices Index in May is 51.5 percent, a decrease of 12 percentage points from April's 63.5 percent. ISM's Backlog of Orders Index increased 3.5 percentage points, registering 51 percent in May compared to 47.5 percent in April. ISM's New Export Orders Index registered 50.8 percent, down 0.3 percentage point from April's 51.1 percent, while ISM's Imports Index declined from 54.5 percent in April to 52.2 percent in May. "Supply managers' comments seem to be split among those who are starting to see improvement, those who see no improvement in sight, and those who are uncertain as to the direction. This is not really unusual when the economy is at a crossroads. Judging by the reversal in a number of the indexes this month, we are apparently at or near a crossroads," said Ore. Of the 20 industries in the manufacturing sector, 11 industries reported growth: Petroleum; Glass, Stone, & Aggregate; Chemicals; Fabricated Metals; Electronic Components & Equipment; Food; Instruments & Photographic Equipment; Transportation & Equipment; Printing & Publishing; Miscellaneous*; and Paper. === Free WTT Analysis: Below is a quick take on this news from Dr. Joe Webb. Premium Access Members can view more analysis in his weekly column on Friday, appropriately called “Fridays with Dr. Joe”. "The Institute for Supply Management's manufacturing activity index rose from 45.4 in April to 49.4 in May. Any number below 50 is considered a sign of contraction, but there is a lot to be positive about—afterall, it did go up by four points. The new orders portion of the index was 51.9, the first time this metric has been above 50 in the last three months, and the backlog of orders was 51.0, the first time above 50 for almost a year. Since employment contraction is a sign of improved productivity, I remain concerned that the ISM data may actually be understating the actual levels of economic activity. Definitive signals that the general economy is truly turning the corner are now appearing with regularity."