HIGH LIGHTS. Prices Continuing to Increase in Both Sectors, but at Slower Rates. Manufacturing. Non-Manufacturing APRIL 2005

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1 B U S I N E S S APRIL HIGH LIGHTS Prices Continuing to Increase in Both Sectors, but at Slower Rates Route to: Contents See the following pages for complete reports. Manufacturing report report Manufacturing charts charts Manufacturing 48.5% = B.L.S. Mfg. Employment An Employment Index above percent is an indication of job growth in the manufacturing sector. Employment is considered a lagging indicator in that it trails activity in New Orders and Production. April is the 18th consecutive month of growth in manufacturing employment. While job creation has been stronger in the last two recoveries, the manufacturing sector overall is growing with regard to employment. The true determinant will be the length of the growth cycle as the job growth continues. Norbert J. Ore, C.P.M., ISM Manufacturing Business Survey Committee, chair. Employment Index Backlog of Orders Index ISM s Backlog of Orders Index indicates the month-to-month change in the quantity of products and services for which supply professionals have orders or other requests in-hand, but for which they have not yet begun to provide the services or products. Due to the wide range of industries included in the nonmanufacturing sector of the economy for example, retail trade, wholesale trade, transportation, utilities, communication, public administration, health services, finance and banking, mining, construction and agriculture the variety of products and services provided is very broad. As an example, in the construction industry there could be a backlog of booked projects, while in the communications industry there could be a backlog of customer service installations. The ISM Backlog of Orders Index has indicated increasing backlogs in 23 of the past 24 months, reflecting continuing economic growth during that period. Ralph G. Kauffman, Ph.D., C.P.M., ISM Business Survey Committee, chair. May Inside Supply Management 1

2 APRIL MANUFACTURING PMI at 53.3%; New Orders, Production, Employment Expanding; Prices Increasing Economic activity in the manufacturing sector grew in April for the 23rd consecutive month, while the overall economy grew for the 42nd consecutive month, say the nation s supply executives in the latest Manufacturing ISM Report On Business. This continual growth trend represents the longest period of growth in the last 16 years. However, the rate of growth slowed to its lowest level since July. The trend is definitely toward a slower pace of growth, which should relieve some of the pricing pressure the sector has experienced during and into. Declines in both Inventories and Customers Inventories indicate that manufacturers are adjusting to slower growth in new orders. ISM s PMI registered 53.3 percent in April. ISM s New Orders Index registered 53.7 percent. ISM s Production Index increased to 56.7 percent. The ISM Employment Index is at 52.3 percent in April. ISM s Supplier Deliveries Index registered 51.5 percent. ISM s Inventories Index declined to 47.9 percent in April. ISM s Customers Inventories Index for April is at 41.5 percent. ISM s Prices Index is 71 percent. ISM s Backlog of Orders Index for April registered 53 percent. ISM s New Export Orders Index increased to 57.2 percent. ISM s Imports Index is at 56.7 percent. The 14 industries reporting growth in April listed in order are: Wood & Wood Products; Miscellaneous*; Rubber AT A GLANCE APRIL ISM MANUFACTURING SURVEY Analysis 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. Data for this report was collected in April. & Plastic Products; Instruments & Photographic Equipment; Furniture; Leather; Glass, Stone & Aggregate; Industrial & Commercial Equipment & Computers; Chemicals; Food; Tobacco; Fabricated Metals; Primary Metals; and Transportation Petroleum is the only industry reporting the same level of activity as last month. The industries reporting decreased activity in April are: Apparel; Paper; Electronic Components & Equipment; Printing & Publishing; and Textiles. APRIL MARCH % POINT RATE OF TREND* INDEX INDEX INDEX CHANGE DIRECTION CHANGE (MONTHS) PMI Growing Slower 23 New Orders Growing Slower 24 Production Growing Faster 24 Employment Growing Slower 18 Supplier Deliveries Slowing Slower 22 Inventories Contracting From Growing 1 Customers Inventories Contracting Faster 47 Prices Increasing Slower 38 Backlog of Orders Growing Slower 5 New Export Orders Growing Faster Imports Growing Slower 41 THE ECONOMY Overall Economy Growing Slower 42 Manufacturing Growing Slower 23 *Number of months moving in current direction. UP IN PRICE Aluminum (18); Aluminum Extrusions; Beef; Butadiene; Caustic Soda (12); Chemicals (15); Coal; Copper (7); Corrugated Containers (15); Diesel Fuel (8); Energy (3); Freight (14); Fuel (3); Fuel Oil (2); Fuel Surcharges; Gasoline (3); Glass; LDPE; Machined Components (2); Natural Gas (33); Paper (14); PET; Petroleum-Based Products (2); Plastic Products (various forms) (15); Plastic Resin (3); Plastics (9); PVC; Resins (9); Rubber-Based Products; Steel* (19); Titanium (2); Titanium Dioxide; Wood (2); and Wood Pulp. DOWN IN PRICE Steel* (2). IN SHORT SUPPLY Caustic Soda (3) and Steel (16). *Reported as both up and down in price. Note: The number of consecutive months the commodity is listed is indicated after each item. The PMI indicates that the manufacturing economy grew in April for the 23rd consecutive month. The PMI for April registered 53.3 percent, a decrease of 1.9 percentage points when compared to March s reading of 55.2 percent. A reading above percent indicates that the manufacturing economy is generally expanding; below percent indicates that it is generally PMI % = Manufacturing Economy 42.7% = Overall Economy contracting. A PMI in excess of 42.7 percent, over a period of time, generally indicates an expansion of the overall economy. The April 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 average PMI for January through April (55.1 percent) corresponds to a 4.5 percent increase in gross domestic product (GDP) on an annual basis. In addition, if the PMI for April (53.3 percent) is annualized, it corresponds to a 3.8 percent increase in GDP annually. 2 Inside Supply Management May

3 APRIL Business Activity at 61.7%; Employment Index Down 3.8 Points to 53.3%; Prices Index Down 3.7 Points to 61.9% Business activity in the non-manufacturing sector increased in April, say the nation s purchasing and supply executives in the latest ISM Report On Business. Non-manufacturing business activity increased for the 25th consecutive month in April. Business activity increased at a slower rate in April, as did new orders. While both of these key indicators slowed compared to March, they are still both at relatively high levels historically. This indicates business in the non-manufacturing sector continues at a strong pace in April but at a lower rate of increase. While the Prices Index declined in April, comments from members indicate that pressure from their suppliers to increase prices continues unabated. ISM s Business Activity Index registered 61.7 percent in April. The New Orders Index is 58.8 percent. ISM s Non- Manufacturing Employment Index declined 3.8 percentage points to 53.3 percent. Supplier Deliveries registered 53 percent in April, the same as in March. ISM s Inventories Index grew to 54.5 percent. The Prices Index declined to 61.9 percent for April. The Non- Manufacturing Backlog of Orders Index registered 54 percent. The Find it at To see the full text and all the charts in the report, visit the ISM Web site at and select the ISM Report On Business link from the menu at the left. Links to regional business survey reports can be found on ISM s Web site at the same location. NON-MANUFACTURING Analysis by Ralph G. Kauffman, Ph.D., C.P.M., chair of the Institute for Supply Management Business Survey Committee; and coordinator of the Purchasing and Supply Management Program, University of Houston Downtown. Data for this report was collected in April. New Export Orders Index increased to 52.5 percent, and ISM s Imports Index registered 58.5 percent in April. The Inventory Sentiment Index is at.5 percent. UP IN PRICE Air Fares; Aluminum (16); Asphalt/Asphalt Products (2); Beef* (5); Cement/Concrete; Coffee (2); Copper (20); Copper Cable and Wire (2); #1 Diesel Fuel (2); #2 Diesel Fuel (4); Electric Transmission Products/Utility Hardware; Electronic Components & Equipment; Energy; Fertilizer/Components; Food & Beverage Products; Fuel (17); Fuel Surcharges; Gas & Fuel Oil; Gasoline (17); Hotel Rates (5); Janitorial Supplies; Lumber and Lumber Products including Pine and Treated (4); Medical Devices/Equipment; Medical/Surgical Supplies; Metals (3); Natural Gas (8); Oil; Packaging Supplies/Materials* (2); Paper/Paper Products (15); Petroleum; Petroleum-Based Products (3); Petroleum-Related Products; Plastic Items/Products (4); Plastics* (16); Polyester/ Films (2); Printing Paper; PVC (4); Roofing Products including Felt, Shingles and Insulation (6); Steel (18); Steel Products* (14); Transportation/Freight Charges (12); and Unleaded Gasoline (3). DOWN IN PRICE Beef*; Cardboard/Corrugated Boxes; Computer Hardware (PCs and related products) (7); Consulting Fees/Services; LCD PC Monitors/Projectors; Office Equipment/Furniture; Office Supplies; Packaging Supplies/Materials*; Plastics*; Print Services; Printed Materials; Printer Toners; and Steel Products*. IN SHORT SUPPLY Conveyor Belt/Products and Steel (15). * Reported as both up and down in price. Note: The number of consecutive months the commodity is listed is indicated after each item. NON-MANUFACTURING VS. MANUFACTURING Manufacturing APR. MAR. % POINT RATE OF TREND* APR. MAR. % POINT SURVEY QUESTION INDEX INDEX CHANGE DIRECTION CHANGE (MONTHS) INDEX INDEX CHANGE Business Activity/ Production Increasing Slower New Orders Increasing Slower Employment Increasing Slower Supplier Deliveries Slowing At Same Rate Inventories Increasing Faster Prices Increasing Slower Backlog of Orders Increasing Slower New Export Orders Increasing Faster Imports Increasing Slower Inventory Sentiment Too High Lesser 95 N/A N/A Customers Inventories N/A N/A ISM Report On Business data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment indexes. Manufacturing ISM Report On Business data is seasonally adjusted except for Backlog of Orders, Prices and Customers Inventories. * Number of months moving in same direction. May Inside Supply Management 3

4 MANUFACTURING MANUFACTURING MANUFACTURING MANUFACTURING MANUFACTURING NEW ORDERS CUSTOMERS INVENTORIES 51.1% = Census Bureau Mfg. Index %Better %Same %Worse April March ISM s New Orders Index grew in April with a reading of 53.7 percent. Eleven industries reported increases for the month of April: Wood & Wood Products; Instruments & Photographic Equipment; Glass, Stone & Aggregate; Miscellaneous*; Furniture; Rubber & Plastic Products; Chemicals; Fabricated Metals; Industrial & Commercial Equipment & Computers; Food; and Transportation %Too %About %Too Index High Right Low April March The April Customers Inventories Index is at 41.5 percent, 4.5 percentage points lower compared to the 46 percent reported in March. Respondents indicate that their customers do not have sufficient inventories on hand (inventories are too low) at this time. Four industries reported higher customers inventories during April and they are: Furniture; Miscellaneous*; Electronic Components & Equipment; and Chemicals. PRODUCTION % = Fed. Res. Brd. Ind. Prod. Index EMPLOYMENT 48.5% = B.L.S. Mfg. Employment Index %Better %Same %Worse April March April March ISM s Production Index is 56.7 percent in April. Of the industries reporting in April, 15 registered growth: Leather; Wood & Wood Products; Tobacco; Instruments & Photographic Equipment; Miscellaneous*; Chemicals; Rubber & Plastic Products; Furniture; Industrial & Commercial Equipment & Computers; Textiles; Glass, Stone & Aggregate; Primary Metals; Food; Fabricated Metals; and Transportation The ISM Employment Index registered 52.3 percent in April compared to 53.3 percent in March. The nine industries reporting growth in employment during April are: Miscellaneous*; Wood & Wood Products; Rubber & Plastic Products; Food; Furniture; Industrial & Commercial Equipment & Computers; Primary Metals; Transportation & Equipment; and Instruments & Photographic Equipment. PRICES BACKLOG OF ORDERS No (data was not collected prior to 1993) 47.1% = B.L.S. Producer Prices Index for Intermediate Materials April March Index %Greater %Same %Less April March ISM s Prices Index is at 71 percent, 2 percentage points lower than March s reading of 73 percent. Eighteen industries reported paying higher prices: Tobacco; Petroleum; Leather; Glass, Stone & Aggregate; Textiles; Transportation & Equipment; Printing & Publishing; Chemicals; Paper; Instruments & Photographic Equipment; Furniture; Primary Metals; Electronic Components & Equipment; Rubber & Plastic Products; Wood & Wood Products; Industrial & Commercial Equipment & Computers; Miscellaneous*; and Food. ISM s Backlog of Orders Index registered 53 percent, indicating manufacturers backlogs in April are growing at a slower rate when compared to March. The 11 industries reporting an increase in order backlogs during the month are: Wood & Wood Products; Apparel; Furniture; Textiles; Glass, Stone & Aggregate; Miscellaneous*; Industrial & Commercial Equipment & Computers; Fabricated Metals; Instruments & Photographic Equipment; Food; and Transportation SUPPLIER DELIVERIES Index %Slower %Same %Faster April March ISM s Supplier Deliveries Index for April registered 51.5 percent. A reading above percent indicates slower deliveries. The 10 industries reporting slower supplier deliveries in April are: Apparel; Rubber & Plastic Products; Paper; Glass, Stone & Aggregate; Furniture; Primary Metals; Wood & Wood Products; Instruments & Photographic Equipment; Chemicals; and Industrial & Commercial Equipment & Computers. NEW EXPORT ORDERS April March ISM s New Export Orders Index for April registered 57.2 percent. The 11 industries reporting growth in new export orders in April are: Tobacco; Food; Chemicals; Instruments & Photographic Equipment; Printing & Publishing; Industrial & Commercial Equipment & Computers; Transportation & Equipment; Paper; Rubber & Plastic Products; Fabricated Metals; and Electronic Components INVENTORIES 42.3% = B.E.A. Overall Mfg. Inventories April March ISM s Inventories Index registered 47.9 percent, down 6.2 percentage points when compared to March s 54.1 percent. The six industries reporting higher inventories in April are: Wood & Wood Products; Furniture; Industrial & Commercial Equipment & Computers; Food; Chemicals; and Transportation *Miscellaneous a preponderance of jewelry, toys, sporting goods and musical instruments. IMPORTS April March The ISM Imports Index registered 56.7 percent. The 13 industries reporting growth in import activity for April are: Miscellaneous*; Printing & Publishing; Furniture; Textiles; Industrial & Commercial Equipment & Computers; Glass, Stone & Aggregate; Transportation & Equipment; Wood & Wood Products; Electronic Components & Equipment; Rubber & Plastic Products; Instruments & Photographic Equipment; Fabricated Metals; and Chemicals. 4 Inside Supply Management May

5 NON-MANUFACTURING NON-MANUFACTURING NON-MANUFACTURING NON-MANUFACTURING BUSINESS ACTIVITY April March ISM s Business Activity Index in April registered 61.7 percent. This month, 14 sectors report increased business activity, one is reporting decreased activity, and two indicate unchanged activity compared to March. The industries reporting the highest rates of growth of business activity in April are: Utilities; Insurance; Retail Trade; Public Administration; and Communication. The one industry reporting contraction of business activity in April is Entertainment. PRICES April March ISM s Prices Index for April is 61.9 percent, down 3.7 percentage points from the 65.6 percent registered for March. The industries reporting the highest rates of increase in prices paid in April are: Agriculture; Public Administration; Insurance; Construction; and Utilities. No industry is reporting price decreases in April. NEW ORDERS BACKLOG OF ORDERS April March ISM s New Orders Index is at 58.8 percent. Comments from members include: Higher demand for business services (internal and external) and Increase of capital assets purchasing. Industries reporting the highest rates of growth of new orders in April are: Utilities; Insurance; Health Services; Communication; and Retail Trade. The one industry reporting contraction of new orders in April is Entertainment. April March ISM s Backlog of Orders Index registered 54 percent. Comments include: Completing current projects for clients incoming projects are of smaller volume and Inventory balancing. The industries reporting the highest rates of increase in order backlogs in April are: Construction; Mining; Utilities; Communication; and Finance & Banking. The industries reporting a decrease in backlog of orders in April are: Legal Services; Wholesale Trade; and Public Administration. EMPLOYMENT NEW EXPORT ORDERS April March ISM s Employment Index for April is 53.3 percent. Comments from respondents include: We are not using as many temporary workers as we have been and Business is up. The industries reporting the highest rates of growth in employment in April are: Mining; Insurance; Retail Trade; Health Services; and Wholesale Trade. The industries reporting reductions in employment in April are: Entertainment and Communication. April March The New Export Orders Index for April is 52.5 percent compared to March s 51.5 percent, indicating a faster rate of growth in April compared to March. The industries reporting increases in new export orders in April are: Finance & Banking; Communication; Other Services*; Wholesale Trade; and Retail Trade. The industries reporting decreases in new export orders in April are: Public Administration; Mining; and Business Services. SUPPLIER DELIVERIES Index %Slower %Same %Faster April March The Supplier Deliveries Index registered 53 percent, the same as in March. A reading above percent indicates slower deliveries. The industries reporting the highest rates of slowing in supplier deliveries in April are: Legal Services; Utilities; Mining; Communication; and Construction. Industries reporting faster supplier deliveries in April are: Business Services and Other Services*. IMPORTS April March The ISM Imports Index registered 58.5 percent in April. The industries reporting the highest rates of increase in the use of imports in April are: Construction; Communication; Mining; Utilities; and Retail Trade. The industries reporting decreases in the use of imports in April are: Entertainment and Agriculture. INVENTORIES INVENTORY SENTIMENT April March ISM s Inventories Index registered 54.5 percent in April. This is the third consecutive month of higher inventories after a dip in inventory size in January. The industries reporting the highest rates of inventory increases in April are: Communication; Other Services*; Public Administration; Wholesale Trade; and Finance & Banking. The industries reporting inventory decreases in April are: Legal Services; Entertainment; Agriculture; and Utilities. %Too %About %Too Index High Right Low April March The ISM Inventory Sentiment Index in April registered.5 percent. The industries reporting the highest rates of feeling that their inventories are too high in April are: Wholesale Trade; Communication; Legal Services; Health Services; Agriculture; and Finance & Banking. The industries reporting that their inventories are too low in April are: Mining; Utilities; and Public Administration. *Other Services Hotels, Rooming Houses, Camps and Other Lodging Places; Personal Services; Automotive Repair, Services and Parking; Miscellaneous Repair Services; Educational Services; Social Services; Museums, Art Galleries, and Botanical and Zoological Gardens; Membership Organizations; Engineering, Accounting, Research, Management and Related Services; and Miscellaneous Services. May Inside Supply Management 5