Economic Growth to Continue Throughout 2010

Manufacturing Growth Continues in 2010;
Revenue to Increase 6.3%;
Capital Investment to Increase 2%;
Capacity Utilization at 72.8%

Non-Manufacturing Growth Also Continues in 2010;
Revenue to Increase 0.3%;
Capital Investment to Increase 1.9%;
Capacity Utilization at 83.6%

“Manufacturing is emerging from a period in which many companies lost significant volumes of business due to reduced demand. While excess capacity and meager capital investment are concerns, the forecast of revenue growth and improved employment will drive the continuation of the recovery”

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management™ (ISM). The forecast was presented 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, and senior vice president — supply management, Hilton Worldwide.

Manufacturing Summary

Sixty-six percent of respondents predict revenues will be 12 percent greater, 13 percent expect an 11.1 percent decline, and 21 percent foresee no change. This yields significant expectations for growth in 2010, as manufacturers’ net revenues are expected to increase 6.3 percent. This represents an improvement in expectations from December 2009 when the panel of supply management executives predicted a 5.7 percent increase in 2010 revenues compared to 2009. With operating capacity improving to 72.8 percent, an expected capital expenditure increase of 2 percent, and prices paid expected to increase 3.8 percent for the full year of 2010, manufacturers will be challenged to grow revenues and contain costs during the year. “Manufacturing is emerging from a period in which many companies lost significant volumes of business due to reduced demand. While excess capacity and meager capital investment are concerns, the forecast of revenue growth and improved employment will drive the continuation of the recovery,” said Ore.

The 15 industries reporting expectations of revenue growth (3 percent or greater) during the year — listed in order — are: Wood Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Primary Metals; Paper Products; Textile Mills; Machinery; Plastics & Rubber Products; Petroleum & Coal Products; Miscellaneous Manufacturing(a); Computer & Electronic Products; Fabricated Metal Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; and Furniture & Related Products.

Non-Manufacturing Summary

Forty-four percent of non-manufacturing purchasing and supply executives expect their 2010 revenues to be greater by 6.4 percent than in 2009. Overall, respondents currently expect a 0.3 percent net increase in overall revenues, which is lower than the 1.3 percent increase that was forecast in December 2009. “Indications are that non-manufacturing has stabilized and is on track for slow and steady growth for the balance of 2010. Capital funding and employment will continue to be a concern in the non-manufacturing sector,” Nieves said.

The 10 non-manufacturing industries expecting increases in revenue in 2010 — listed in order — are: Finance & Insurance; Other Services(b); Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Information; Management of Companies & Support Services; Professional, Scientific & Technical Services; Transportation & Warehousing; Utilities; and Retail Trade.

OPERATING RATE

Manufacturing

Purchasing and supply managers report that their companies are currently operating at 72.8 percent of normal capacity, representing an increase from the 70.1 percent reported in December 2009 and the 67 percent reported in April 2009, but still lower than the 75.2 percent reported in December 2008. This is consistent with the eight-month growth trend that began in August 2009 as reported in the monthly Manufacturing ISM Report On Business^®. The 11 industries operating at capacity levels at or above the average capacity of 72.8 percent — listed in order — are: Paper Products; Apparel, Leather & Allied Products; Wood Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Textile Mills; Miscellaneous Manufacturing(a); Machinery; Chemical Products; Electrical Equipment, Appliances & Components; and Printing & Related Support Activities.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 83.6 percent of normal capacity. This is higher than the 81.3 percent reported in December 2009 and the 80.1 percent reported in April 2009. The following nine industries — listed in order — are operating at capacity levels above the average rate of 83.6 percent: Information; Other Services(b); Educational Services; Utilities; Public Administration; Transportation & Warehousing; Finance & Insurance; Accommodation & Food Services; and Health Care & Social Assistance.

PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing is expected to increase 6.4 percent in 2010. This increase is significantly greater than the 2.7 percent increase predicted in December 2009 for 2010, and the 5 percent decline reported in December for 2009. This reflects the current upturn in the sector as 38 percent of respondents expect an average capacity increase of 19.6 percent, 9 percent expect decreases averaging 10 percent, and 53 percent expect no change. The nine industries reporting expected production capacity increases (greater than 3 percent) for 2010 — listed in order — are: Petroleum & Coal Products; Fabricated Metal Products; Transportation Equipment; Primary Metals; Machinery; Miscellaneous Manufacturing(a); Food, Beverage & Tobacco Products; Textile Mills; and Electrical Equipment, Appliances & Components.

Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 2.3 percent during 2010. This compares to a decrease of 1.4 percent reported for 2009 and a prediction in December 2009 of an increase of 0.9 percent for 2010. For 2010, 25 percent of non-manufacturing respondents expect their capacity to increase by an average of 13.2 percent, and 10 percent of the respondents foresee their capacity decreasing by an average of 9.1 percent. Sixty-five percent expect no change in their capacity. The 12 industries expecting to add to their production capacity in 2010 — listed in order — are: Real Estate, Rental & Leasing; Wholesale Trade; Professional, Scientific & Technical Services; Construction; Utilities; Other Services(b); Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; Management of Companies & Support Services; Information; Transportation & Warehousing; and Accommodation & Food Services.

PREDICTED CAPITAL EXPENDITURES — 2010 vs. 2009

Manufacturing

Survey respondents expect a 2 percent increase in capital expenditures in 2010. This is significantly greater than the December 2009 forecast when members predicted a decrease of 4 percent for 2010. Currently, 28 percent of respondents predict increased capital expenditures in 2010, with an average increase of 33.6 percent, while the 22 percent who said their capital spending would be reduced expect an average decrease of 34.3 percent. Fifty percent say they will spend the same in 2010 as they did in 2009. The nine industries expecting increases in capital expenditures in 2010 compared to 2009 — listed in order — are: Paper Products; Petroleum & Coal Products; Transportation Equipment; Textile Mills; Fabricated Metal Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; and Computer & Electronic Products.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are expecting to increase their level of capital expenditures 1.9 percent in 2010 compared to 2009. The 25 percent of members expecting to spend more predict an average increase of 33.8 percent. An additional 27 percent of respondents anticipate a decrease averaging 23.4 percent. Forty-eight percent of the respondents expect to spend the same on capital expenditures in 2010 as in 2009. The seven industries expecting an increase in capital expenditures in 2010 from 2009 — listed in order — are: Retail Trade; Other Services(b); Finance & Insurance; Wholesale Trade; Educational Services; Utilities; and Information.

PRICES — Changes Between End of 2009 and April 2010

Manufacturing

In the December 2009 forecast, respondents predicted an increase of 0.2 percent in prices paid during the first four months of 2010; however, they now report prices have increased 2.7 percent for the period. The 55 percent who say their prices are higher now than at the end of 2009 report an average increase of 7.3 percent, while the 15 percent who report lower prices report an average decrease of 8.8 percent. The remaining 30 percent indicate no change for the period. The nine industries reporting increases (2 percent or greater) in prices paid for the first part of 2010 — listed in order — are: Textile Mills; Wood Products; Petroleum & Coal Products; Primary Metals; Computer & Electronic Products; Plastics & Rubber Products; Transportation Equipment; Paper Products; and Printing & Related Support Activities.

Non-Manufacturing

Non-Manufacturing respondents report that their purchases in the first four months of this year cost an average of 0.7 percent more than they cost at the end of 2009. This is 0.5 percentage point below the 1.2 percent increase predicted in December 2009 for 2010. Forty-four percent of the non-manufacturing respondents report the prices they paid increased an average of 4.8 percent in the first part of 2010. Thirteen percent report price decreases averaging 11.3 percent. The remaining 43 percent indicate no change in prices in the first four months of 2010. The 15 industries reporting an increase in prices paid in the first part of 2010 — listed in order — are: Mining; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Construction; Health Care & Social Assistance; Other Services(b); Transportation & Warehousing; Finance & Insurance; Educational Services; Management of Companies & Support Services; Retail Trade; Utilities; Information; Professional, Scientific & Technical Services; and Accommodation & Food Services.

PRICES — Predicted Changes Between End of 2009 and End of 2010

Manufacturing

When asked to predict 2010 price changes, 65 percent of respondents expect the prices they pay to increase by 7.4 percent compared to the end of 2009. At the same time, 14 percent anticipate decreases averaging 7.4 percent. Including the 21 percent who expect no change in prices, survey respondents expect net average prices to increase 3.8 percent for the entire year of 2010, indicating that prices are expected to rise 1.1 percent for the remainder of the year. The 16 industries predicting increases in prices for all of 2010 — listed in order — are: Textile Mills; Petroleum & Coal Products; Wood Products; Primary Metals; Fabricated Metal Products; Transportation Equipment; Paper Products; Printing & Related Support Activities; Plastics & Rubber Products; Computer & Electronic Products; Furniture & Related Products; Apparel, Leather & Allied Products; Chemical Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing(a); and Machinery.

Non-Manufacturing

Non-manufacturing respondents expect the prices they pay to increase 1.7 percentage points when compared to the prices at the end of 2009. Given that respondents have reported that prices have increased 0.7 percent through April, the prediction is for prices to increase an additional 1 percent over the remainder of the year. Fifty-six percent of the respondents anticipate price increases averaging 5.5 percent. Fourteen percent of the respondents expect price decreases of 10.4 percent, and 30 percent do not expect prices to change. The 16 industries expecting price increases in 2010 — listed in order — are: Arts, Entertainment & Recreation; Mining; Construction; Agriculture, Forestry, Fishing & Hunting; Utilities; Other Services(b); Professional, Scientific & Technical Services; Public Administration; Health Care & Social Assistance; Accommodation & Food Services; Wholesale Trade; Finance & Insurance; Educational Services; Management of Companies & Support Services; Retail Trade; and Information.