Manufacturing Growth Expected in 2011

Revenue to Increase 5.6%

Capital Expenditures to Increase 14.5%

Capacity Utilization Currently at 80.2%

Non-Manufacturing to Grow Moderately in 2011

Revenue to Increase 3.4%

Capital Expenditures to Increase 3.7%

Capacity Utilization Currently at 82.9%

Economic growth in the United States will continue in 2011, say the nation's purchasing and supply management executives in their December 2010 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009. The manufacturing sector continues to outpace the non-manufacturing sector and has greater expectations for growth in terms of revenue, say the nation's purchasing and supply management executives in their December 2010 Semiannual Economic Forecast. The overall forecast projects optimism about the U.S. economy for 2011. The manufacturing sector, overall, is positive about prospects in 2011 with revenues expected to increase in 16 of 18 industries, while the non-manufacturing sector appears slightly less positive about the year ahead, with 12 of 18 industries expecting higher revenues. Business investment, a major driver in the U.S. economy, will increase substantially in the manufacturing sector, while investment in the non-manufacturing sector will increase at a lower level.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management™ (ISM). The forecast was released today by Norbert J. Ore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee; and by Anthony S. Nieves, C.P.M., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee.

Manufacturing Summary

Expectations for 2011 are positive as 65 percent of survey respondents expect revenues to be greater in 2011 than in 2010. The panel of purchasing and supply executives expects a 5.6 percent net increase in overall revenues for 2011, compared to a 7.9 percent increase reported for 2010. The 16 manufacturing industries expecting improvement over 2010 — listed in order — are: Primary Metals; Fabricated Metal Products; Petroleum & Coal Products; Apparel, Leather & Allied Products; Transportation Equipment; Miscellaneous Manufacturing; Furniture & Related Products; Plastics & Rubber Products; Machinery; Textile Mills; Wood Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Chemical Products; and Paper Products.

"Manufacturing purchasing and supply executives have expectations for continued growth and are optimistic about their organizations' prospects as they consider the first half of 2011, and they are even more positive about the second half," said Ore. "While 2010 has been a year of recovery in manufacturing, our forecast sees improvements in both investment and employment in 2011. Respondents expect cost pressures in 2011 to be somewhat greater than in 2010. Manufacturing growth is now in its 16th consecutive month as measured by and reported in the monthly Manufacturing ISM Report On Business®."

In the manufacturing sector, respondents report operating at 80.2 percent of their normal capacity, up from 72.8 percent reported in April 2010. Purchasing and supply executives predict that capital expenditures will increase by 14.5 percent in 2011, compared to a 5.9 percent increase reported for 2010. Survey respondents also forecast that they will reduce inventories in an effort to improve their purchased inventory-to-sales ratio in 2011. Manufacturers have an expectation that employment in the sector will increase by 1.8 percent, while labor and benefits costs are expected to increase an average of 1.9 percent in 2011. Manufacturing purchasers are predicting strength in exports and imports in 2011. They also expect the U.S. dollar to weaken on average against the currencies of major trading partners.

The panel also predicts the prices they pay will increase 2.7 percent during the first four months of 2011, and will increase an additional 1.3 percent during the balance of the year, with an overall increase of 4 percent for 2011. Survey respondents expect to realize supply chain improvements through improved inventory/asset management; cost reduction; supplier development/better metrics; supplier consolidation; and better risk management.

Non-Manufacturing Summary

Fifty-one percent of non-manufacturing supply management executives expect their 2011 revenues to be greater than in 2010. They currently expect a 3.4 percent net increase in overall revenues for 2011 compared to a 0.2 percent increase reported for 2010. The 12 non-manufacturing industries expecting revenue improvement in 2011 over 2010 — listed in order — are: Mining; Transportation & Warehousing; Retail Trade; Information; Wholesale Trade; Accommodation & Food Services; Management of Companies & Support Services; Finance & Insurance; Utilities; Educational Services; Other Services; and Health Care & Social Assistance.

"Non-manufacturing supply managers report operating at 82.9 percent of their normal capacity, below the 83.6 percent reported in April 2010. They are optimistic about continued growth in the first half of 2011 compared to the second half of 2010, and they have a higher level of optimism about the next 12 months than they had last December for 2010," said Nieves. "They forecast that their capacity to produce products and provide services will rise by 2 percent during 2011, and capital expenditures will increase by 3.7 percent from the 2010 level. Non-manufacturers also predict that their employment will increase by 0.3 percent during 2011."

Respondents in non-manufacturing industries expect that the prices they pay for materials and services will increase by 3.1 percent during 2011. They also forecast their overall labor and benefit costs will increase 1.1 percent for 2011. Profit margins are reported to have decreased in the second and third quarters of 2010, and respondents expect them to increase between now and April 2011. Survey respondents indicate that process improvement is the most frequently cited means of improving supply chains in 2011. Other improvement approaches include: Enhancement and leverage of technology; product rationalization; supplier management/consolidation; improved inventory management; and strategic cost management.

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