U.S. economic growth expected to continue in 2012, according to U.S. purchasing and supply management executives; revenue growth anticipated in 17 manufacturing industries: Institute for Supply Management

Cindy Allen

TEMPE, Arizona , December 6, 2011 (Institute for Supply Management) – Economic growth in the United States will continue in 2012, say the nation’s purchasing and supply management executives in their December 2011 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009, as indicated in the monthly ISM Report On Business®. The forecast projects optimism about the U.S. economy for 2012. The manufacturing sector, overall, is positive about prospects in 2012 with revenues expected to increase in 17 industries, while the non-manufacturing sector appears slightly less positive about the year ahead, with 15 industries expecting higher revenues. Capital expenditures, a major driver in the U.S. economy, however, will increase only modestly in the manufacturing sector, while investment in the non-manufacturing sector will remain essentially flat.

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 Bradley J. Holcomb, CPSM, CPSD, 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 2012 are positive as 69 percent of survey respondents expect revenues to be greater in 2012 than in 2011. The panel of purchasing and supply executives expects a 5.5 percent net increase in overall revenues for 2012, compared to a 7 percent increase reported for 2011 over 2010 revenues. The following 17 manufacturing industries expecting revenue improvement over 2011 — listed in order — are: Computer & Electronic Products; Machinery; Petroleum & Coal Products; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Furniture & Related Products; Transportation Equipment; Paper Products; Printing & Related Support Activities; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Primary Metals; Fabricated Metal Products; Chemical Products; and Miscellaneous Manufacturing.

“Manufacturing purchasing and supply executives expect to see continued growth in 2012. They are optimistic about their overall business prospects for the first half of 2012, and are even more optimistic about the second half of 2012," said Holcomb. "Manufacturing has demonstrated its resilience throughout this challenging economic recovery period with consistent growth dating back to August of 2009 (as indicated in the monthly ISM Report On Business®), and our forecast calls for a continuation of that growth in 2012. Respondents expect raw materials pricing pressures in 2012 to be less than they were in 2011, and expect their margins will improve. Manufacturing is now in its 28th consecutive month of growth as measured by and reported in the monthly Manufacturing ISM Report On Business®.”

In the manufacturing sector, respondents report operating at 79.2 percent of their normal capacity, down from 83.2 percent reported in April 2011. Purchasing and supply executives predict that capital expenditures will increase by 1.9 percent in 2012 over 2011, compared to an 11 percent increase reported for 2011 over 2010. Survey respondents also forecast that they will reduce inventories by 1.2 percent in an effort to improve their purchased inventory-to-sales ratio in 2012. Manufacturers have an expectation that employment in the sector will increase by 1.3 percent, while labor and benefit costs are expected to increase an average of 2.4 percent in 2012. Manufacturing purchasers are predicting growth in exports and imports in 2012. Respondents also expect the U.S. dollar to weaken very slightly on average against the currencies of major trading partners.

The panel also predicts the prices they pay for raw materials will increase 2 percent during the first four months of 2012, and will increase an additional 0.9 percent during the balance of the year, with an overall increase of 2.9 percent for 2012. This compares to a reported 5.7 percent increase in raw materials prices for 2011 compared with 2010.

Survey respondents report that the most challenging problems facing their businesses as they plan for 2012 are: poor sales (43.9 percent); government regulations (22 percent); inflation (17.4 percent); cost of labor (4.5 percent); quality of labor (4.5 percent); taxes (4.5 percent); and interest rates and finance (3 percent).

The panel also indicated that supply chain management practices will be improved in 2012 using the following strategies, listed in order: supplier performance management; strategic sourcing/supply base rationalization; demand planning/supplier lead time reduction; inventory management and control; and process and information systems improvements.

Non-Manufacturing Summary

Fifty-eight percent of non-manufacturing supply management executives expect their 2012 revenues to be greater than in 2011. They currently expect a 3.1 percent net increase in overall revenues for 2012 compared to a 1.5 percent increase reported for 2011 over 2010 revenues. The 15 non-manufacturing industries expecting revenue improvement in 2012 over 2011 — listed in order — are: Professional, Scientific & Technical Services; Mining; Construction; Other Services; Wholesale Trade; Agriculture, Forestry, Fishing & Hunting; Information; Retail Trade; Transportation & Warehousing; Arts, Entertainment & Recreation; Accommodation & Food Services; Real Estate, Rental & Leasing; Finance & Insurance; Utilities; and Public Administration.

“Non-manufacturing supply managers report operating at 85.2 percent of their normal capacity, more than the 83.7 percent reported in April 2011. They are optimistic about continued growth in the first half of 2012 compared to the second half of 2011, and they have a higher level of optimism about the next 12 months than they had last December for 2011,” said Nieves. “They forecast that their capacity to produce products and provide services will rise by 3.2 percent during 2012, and capital expenditures will increase by 0.1 percent from the 2011 level. Non-manufacturers also predict their employment will increase by 1.1 percent during 2012.”

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 2.7 percent during 2012. They also forecast their overall labor and benefit costs will increase 1.8 percent in 2012. Profit margins are reported to have decreased in the second and third quarters of 2011, and respondents expect them to increase between now and April 2012.

Survey respondents report that the most challenging problems facing their businesses as they plan for 2012 are: poor sales (34.4 percent); government regulations (26.4 percent); inflation (10.4 percent); interest rates and finance (9.6 percent); cost of labor (8.8 percent); taxes (5.6 percent); and quality of labor (4.8 percent).

Survey respondents indicate that process improvement is the most frequently cited means of improving supply chains in 2012. Other improvement approaches include: Leverage of new and existing technology; contract management; professional development; and strategic sourcing.

SUMMARY

Manufacturing

The manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in the first half of 2012, and at a faster rate in the second half of 2012.

Operating rate is currently at 79.2 percent.
Production capacity increased by 4.6 percent in 2011.
Production capacity is expected to increase by 5.6 percent in 2012.
Capital expenditures increased 11 percent in 2011.
Capital expenditures are expected to increase 1.9 percent in 2012.
Prices paid increased 5.7 percent in 2011.
Overall 2012 prices paid are expected to increase 2.9 percent.
Labor and benefit costs are expected to increase 2.4 percent in 2012.
Manufacturing employment is expected to increase 1.3 percent in 2012.
Expect growth in U.S. exports in 2012.
Expect growth in U.S. imports in 2012.
Manufacturing revenues (nominal) are up 7 percent in 2011.
Manufacturing revenues (nominal) are expected to increase 5.5 percent in 2012.
The U.S. dollar is expected to weaken slightly on average versus major trading partner currencies in 2012.
Overall attitude of manufacturing management: optimistic, with 84 percent of respondents predicting 2012 will be the same as or better than 2011.

Non-Manufacturing

The non-manufacturing sector continues to expand, and the forecast indicates an increased rate of expansion in 2012.

Operating rate is currently at 85.2 percent.
Production capacity increased 1.1 percent in 2011.
Production and provision capacity is expected to increase 3.2 percent in 2012.
Capital expenditures increased 4 percent in 2011.
Capital expenditures are expected to increase 0.1 percent in 2012.
Prices paid increased 2.8 percent in 2011.
Prices paid are expected to increase 2.7 percent in 2012.
Labor and benefit costs are expected to increase 1.8 percent in 2012.
Non-manufacturing employment is expected to increase 1.1 percent in 2012.
Expect export levels to increase in 2012.
Expect import growth in 2012.
Non-manufacturing revenues (nominal) are up 1.5 percent in 2011.
Non-manufacturing revenues (nominal) are expected to rise 3.1 percent in 2012.
Overall attitude of non-manufacturing supply managers: mostly positive outlook, with 82 percent of respondents predicting 2012 will be the same as or better than 2011.

*Miscellaneous Manufacturing includes items such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies.

**Other Services include services such as equipment and machinery repairing; promoting or administering religious activities; grant making; advocacy; and providing dry-cleaning and laundry services, personal care services, death care services, pet care services, photofinishing services, temporary parking services, and dating services.

In addition to the forecast, the Manufacturing ISM Report On Business® is issued monthly and is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by government agencies and economic business leaders. The report, compiled from responses to questions asked of purchasing and supply executives across the country, tracks industrial production, new orders, inventories, supplier deliveries, imports, exports, backlog of orders, employment, customers’ inventories, buying policies and prices. The report has been issued by the association since 1931, except during World War II.

Covering the non-manufacturing sector, ISM debuted the Non-Manufacturing ISM Report On Business® in June 1998. The Non-Manufacturing ISM Report On Business® is released on the third business day of each month, and is based on data received from purchasing and supply executives across the country. The report covers business activity, new orders, backlog of orders, new export orders, inventory change, inventory sentiment, imports, prices, employment, and supplier deliveries.

The industries reporting growth, as indicated in the Manufacturing and Non-Manufacturing ISM Report On Business® monthly reports, and in this semiannual forecast, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

The Manufacturing and Non-Manufacturing ISM Report On Business® is published monthly by the Institute for Supply Management™. The Institute for Supply Management™, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM’s mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

The full text version of each report is posted on ISM’s Home Page at www.ism.ws on the first and third business day of every month after 10:10 a.m. (ET).

The next Manufacturing ISM Report On Business® featuring the December 2011 data will be released at 10:00 a.m. (ET) on Tuesday, January 3, 2012.

The next Non-Manufacturing ISM Report On Business® featuring the December 2011 data will be released at 10:00 a.m. (ET) on Thursday, January 5, 2012.

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