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October Manufacturing Report: Electronics Sectors Grow
November 4, 2008 |Estimated reading time: 5 minutes
TEMPE, Ariz. Economic activity in the manufacturing sector failed to grow in October for the third consecutive month, and the overall economy concluded 83 consecutive months of growth, say the Institute for Supply Management (ISM) in "Manufacturing ISM Report On Business." Computer and electronic products was one of only two sectors to show growth. Contraction was reported in other industries such as paper products and fabricated metal industries. The report was issued by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The [38.9%] PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September 2008. It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices. This is the lowest level for the PMI since September 1982 when it registered 38.8%. In this report, we see inflationary pressures dissolving as the Prices Index fell to 37%, the lowest since December 2001. Export orders also contracted for the first time following 70 months of growth."
The two industries reporting growth in October are, in order, apparel, leather, and allied products; and computer and electronic products. The industries reporting contraction in October include chemical products; fabricated metal products; machinery; plastics and rubber products; primary metals; printing; transportation equipment; miscellaneous manufacturing; electrical equipment, appliances, and components; petroleum and coal products; nonmetallic mineral products; wood products; furniture and related products; textile mills; paper products; and food, beverage, and tobacco products.
Commodities sued in electronics manufacturing that show a rise in prices include chemicals and copper, as did steel bars and sulfuric acid. Aluminum, some copper products, nickel, polypropylene, stainless steel, and zinc all dropped in price.
Of those who responded to the report's special question section, 52.9% indicated that they (or their suppliers) have been affected by the recent financial market turmoil. Of those who have been affected, 44.6% indicated that they have seen a decrease in the availability of credit; 40.8% have seen an increase in the cost of credit; 24.7% have experienced difficulty in initiating or renewing a bank credit line; and 78.6% have reduced spending and/or hiring.
Manufacturing contracted in October as the PMI registered 38.9%, 4.6 percentage points lower than the 43.5% reported in September. A reading above 50% indicates that the manufacturing economy is generally expanding. A PMI in excess of 41.1%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates contraction in both the overall economy and the manufacturing sector. The average PMI for January through October (47.8%) corresponds to a 2.1% increase in real gross domestic product (GDP). In addition, if the PMI for October is annualized, it corresponds to a 0.7% decrease in real GDP annually.
ISM's "New Orders Index" registered 32.2% in October, 6.6 percentage points lower than the 38.8% registered in September. This is the lowest reading for this index since June 1980 when the index was at 24.2%. A New Orders Index above 51.6%, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
ISM's Production Index decreased to 34.1% in October, a decrease of 6.7 percentage points from the 40.8% reported in September. An index above 49.9%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.
ISM's Employment Index registered 34.6% in October, which is a decrease of 7.2 percentage points when compared to the 41.8% reported in September. This is the lowest reading for the Employment Index since March 1991 when the index registered 33.6%. An Employment Index above 49.5%, 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 moved from slower to faster in October as the Supplier Deliveries Index registered 49.2%, which is 3.3 percentage points lower than the 52.5% registered in September. A reading above 50% indicates slower deliveries. Electrical equipment, appliances, and components; and computer and electronic products industries both reported faster deliveries in October.Manufacturers' inventories contracted in October as the Inventories Index registered 44.3%, which is 0.9 percentage point higher than the 43.4% reported in September. An Inventories Index greater than 42.4%, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars). Electrical equipment, appliances, and components; and computer and electronic products industries reported higher inventories.The ISM Customers' Inventories Index registered 55% in October, an increase of 1.5 percentage points when compared to September's reading of 53.5%. The index indicates that respondents believe their customers' inventories are too high at this time.
Ten industries reported higher customers' inventories during October, including electrical equipment, appliances and components and computer and electronic products
The ISM Prices Index registered 37% in October compared to 53.5% in September, indicating manufacturers are paying lower prices on average when compared to September. This is the lowest reading for the index since December 2001 when it registered 33.2%. While 14% of respondents reported paying higher prices and 40% reported paying lower prices, 46% of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.4%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.
In October, six industries reported paying higher prices. Among the responding industries that reported paying lower prices during October are electrical equipment, appliances, and components and computer and electronic products.
ISM's Backlog of Orders Index registered 29.5% in October, 5.5 percentage points lower than the 35% reported in September. Of the 87% of respondents who reported their backlog of orders, 9% reported greater backlogs, 50% reported smaller backlogs, and 41% reported no change from September.
ISM's New Export Orders Index registered 41% in October, a decrease of 11 percentage points when compared to September's index of 52%. This month's reading of 41% ends 70 consecutive months of growth in the New Export Orders Index.
Imports of materials by manufacturers contracted during October as the Imports Index registered 41%, 3 percentage points lower than the 44% reported in September. This is the ninth consecutive month of contraction in imports.
Average commitment lead time for Capital Expenditures increased by 1 day to 114 days. Average lead time for production materials decreased by 3 days to 48 days. Average lead time for maintenance, repair, and operating (MRO) supplies increased by 3 days to 25 days.
The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. The "Manufacturing ISM Report On Business" is published monthly by the Institute for Supply Management, available at www.ism.ws.