An overwhelming majority of purchasers believe that the economy will improve in the next year, according to a recent report by the Tempe, Arizona-based Institute for Supply Management (ISM). In fact, the poll recorded its highest index in nearly 30 years as 68% of the approximately 350 manufacturing purchasing and supply chain managers surveyed said they anticipate an economic upswing in the next 12 months. This figure represents a significant surge in optimism from just six months ago when only 19% of survey participants responded in a similar manner, the lowest percentage reported since December 1991. In addition, purchasers now say they are operating at 79.3% of normal capacity, an improvement from 77.5% in December 2001.

"The recession is ending and we're getting moving again," says Liz Alber, a procurement manager in charge of R&D purchasing for Texas Instruments Inc.'s Broadband Access Group. Purchasers are responding to positive signs such as sustained consumer spending and smaller inventories. "In the last few months purchasers have said that their customers' inventories may be too low, indicating the supply chain is no longer filled," says Norbert Ore, ISM Manufacturing Business Survey Committee chairman. Those polled expect production capacity in manufacturing to jump 3.8% in 2002, with electronic components and equipment as one of the industries that will enjoy a production capacity increase above 3%.

Other indications of optimism include purchasers' expectations of increased revenue and their belief that the drop in capital expenditures won't be as steep as they previously thought. According to the survey, purchasers predict that overall revenue will increase by 2.8% from last year—a modest estimate says EBN staff economist Jim Haughey. In addition, the poll reports that purchasers expect capital expenditures to decrease by 8.7% in 2002, a more optimistic estimate than the 14.4% drop they predicted in the December 2001 survey. Meanwhile, economists expect overall spending to remain steady or fall by just 5%, says Haughey.

Economic growth is imminent, economists agree, but the process will be gradual and even awkward. "This will not be like previous recoveries. This will feel uncomfortable all the way through," says Scott F. Gannis, director and chief economist at California-based Western Asset Management Co. Purchasers and supply chain executives are still anxious about weathering economic fluctuations, import restrictions, and increases in energy, labor and health care costs. In addition, it still remains unclear whether net prices in the manufacturing sector will continue to fall. While ISM predicts a 0.8% increase in 2002, the Bureau of Labor Statistics reports a slight price decrease from last year in both durable and nondurable goods.

To ensure a smoother recovery, purchasers are planning to improve supply chain management. According to the ISM survey, 72% say that they will initiate changes in this front, including implementing e-commerce tools, further reducing inventory and cost, and improving supplier and information management. By doing so, they hope to enhance productivity.

Sources: Purchasers are Perking Up
Jennifer Baljko Shah
EBN, EDTN Network, May 13, 2002
http://www.ebnews.com/story/OEG20020513S0031

Purchasers Now Expect Modest Uptick in Revenues
Jennifer Baljko Shah
EBN, EDTN Network, May 7, 2002
http://www.ebnews.com/story/OEG20020507S0020