The nation's purchasing and supply executives are more optimistic about this year than they were about 2003. In their 66th Semiannual Economic Forecast, they predicted that economic growth in the U.S. will strengthen this year. In fact, both the manufacturing and non-manufacturing sectors are more upbeat this time around than they were last year, with the former predicting that its expansion will continue and the latter expecting to maintain strength. Overall, executives from both sectors say that economic growth will continue at a relatively strong level in 2004.

The forecast, which was issued by the Institute for Supply Management (ISM) last month, showed that purchasing and supply executives in both manufacturing and non-manufacturing expect revenue to grow this year. While manufacturing executives predict a 5.8% net increase, non-manufacturing executives project a 5.7% net jump in overall revenues for 2004. What was significant was the huge surge of optimism in the manufacturing sector, which had entered 2003 expecting only a 2.8% increase in revenue. In fact, their expectations are more upbeat than they have been since May 2000.

What's more, a majority of respondents expect more robust revenues this year. While 76% of manufacturing respondents believe that 2004 revenues will exceed 2003 figures, 67% of non-manufacturing participants are similarly upbeat.

"Manufacturing purchasing and supply executives are optimistic about their organizations' prospects for the first half and predict additional growth during the second half of 2004," says Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee. While Ore presented the forecast for the manufacturing sector, Ralph G. Kauffman, chair of the ISM Non-Manufacturing Business Survey Committee, presented the non-manufacturing forecast during ISM's Economic Summit on Dec. 9.

Purchasers in both sectors also foresee an increase in capital spending. While executives in the manufacturing sector had modest expectations of a 3.2% increase in capital spending in 2004 (following the 2.7% rise reported for 2003), their non-manufacturing counterparts foresee a significant 7.1% growth (after only a 2.2% uptick reported last year).

Manufacturing industries expecting the most substantial year-over-year improvement in 2004 are (in order): electronic components & equipment; transportation & equipment; fabricated metals; primary metals; textiles; instruments & photographic equipment; furniture; rubber & plastic products; food; wood & wood products; glass, stone & aggregate; printing & publishing; and a miscellaneous group that's comprised of jewelry, toys, sporting goods and musical instruments.

Non-manufacturing industries expecting the greatest improvement over 2003 are (in order): business services; real estate; mining; entertainment; retail trade; and wholesale trade.

Highlights of the latest semiannual economic forecast include:

Manufacturing

• Operating rate is currently 80.1% of normal capacity.
• Capital expenditures increased 2.7% in 2003 and will increase 3.2% in 2004.
• Production capacity will increase 3.8% during 2004.
• Prices paid increased 0.7% during 2003.
• Overall 2004 prices will increase by a mild 1.3% from 2003.
• Labor and benefits costs will increase at a 2.7 percentage rate in 2004.
• Manufacturing employment will increase 0.3% in 2004.
• The U.S. dollar is expected to maintain its position versus major currencies.
• Exports and imports will continue to grow in 2004.
• Manufacturing revenues (nominal) are up by 2.8% in 2003.
• Manufacturing revenues (nominal) will be up by 5.8% in 2004.
• Major economic concerns to manufacturers: inflation, energy costs, health care costs, currency changes and terrorism/war.
• Overall attitude of manufacturing management: greater optimism, significantly better than a year ago.

Non-Manufacturing

• Operating rate is currently 85.6% of normal capacity.
• Capital spending increased 2.2% in 2003 and will increase 7.1% in 2004 compared to 2003.
• Production and provision capacity will increase 4.4% in 2004.
• Prices paid increased 0.4% during 2003 and will increase by a moderate 2.1% in 2004.
• Labor and benefits costs will increase 2.5% during 2004.
• Non-manufacturing employment will increase 1.4% in 2004.
• Both exports and imports by non-manufacturing industries will increase during 2004.
• Non-manufacturing revenues (nominal) are up by 4.6% in 2003.
• Non-manufacturing revenues (nominal) will be up by 5.7% in 2004.
• Major concerns to non-manufacturers: health care costs, inflation, energy costs, terrorism/war, and employment.
• Non-manufacturing purchasers are more optimistic about the next 12 months than they were one year ago.

MORE HEARTENING NEWS…

Manufacturing Growth Accelerates

Manufacturers increased output last month at an accelerating rate, say the nation's supply executives in the latest Manufacturing ISM Report On Business®. In fact, the report, which is issued by the Institute for Supply Management and gives an early indication of the status of the manufacturing sector, registered it best reading in two decades.

According to the December report, economic activity in the manufacturing sector grew for the sixth consecutive month, while the overall economy grew for the 26th month in a row.

Norbert J. Ore, who manages the index for the ISM, says, "The manufacturing sector enjoyed its best month since December 1983. Much of the momentum is in new orders, as the index is the highest reported reading since July 1950. The strength in December's data provides significant encouragement for prospects in the first quarter of 2004."

Exceeding analysts' forecasts, the report's manufacturing index stood at an impressive 66.2% in December, up 3.4 percentage points from November. Based on a survey of purchasing managers, an index above 50 indicates expansion within the manufacturing sector while a reading below 50 signifies contraction over the prior month. An index at 50 means that there was an equal balance between manufacturers reporting gains and declines in their business.

ISM's backlog of orders index indicates that order backlogs increased in December, and the employment index grew for the second consecutive month. ISM's prices index indicates that manufacturers once again experienced higher prices in their purchases. The new export orders and import indexes continue to grow, with exports accelerating during the month.

Comments from purchasing and supply managers confirm that a recovery is underway. Month-over-month improvement is significant to many respondents for the first time in three years. Although some expressed concern over steel prices, many expect relief with the release of the steel tariffs.

ISM's new orders index rose 3.9 percentage points from 73.7% in November to 77.6% in December. ISM's production index rose 4.7 percentage points to 73% in December. The ISM employment index is at 55.5% for December, an increase of 4.5 percentage points when compared to November's 51%, which was the first above-50 reading for this index in 37 months.

ISM's backlog of orders index increased 2 percentage points, registering 61% in December. ISM's new export orders index hit 60.4%, an increase of 2.5 percentage points from November's 57.9%. ISM's imports index decreased 4.6 percentage points to 57.8% in December.
"The month-over-month growth from November to December indicates a rapid recovery taking place in the sector, though there are still some businesses lagging and wondering when they will see the improvement that others are experiencing," said Ore.

Of the 20 industries in the manufacturing sector, 17 industries reported growth: instruments and photographic equipment; leather; furniture; miscellaneous*; apparel; electronic components and equipment; transportation and equipment; tobacco; textiles; industrial and commercial equipment and computers; primary metals; printing and publishing; fabricated metals; food; wood and wood products; glass, stone, and aggregate; and rubber and plastic products.

To learn how you might respond to this survey and contribute to this monthly report on the state of the manufacturing sector, please visit the ISM Report or contact Kristin Bryson at ISM (kbryson@ism.ws).

For more information on the latest Manufacturing ISM Report On Business, go to www.ism.ws/ISMReport/.

*Miscellaneous is a preponderance of jewelry, toys, sporting goods and musical instruments.

Source:

Founded in 1915, the Institute for Supply Management is the largest supply management organization in the world. ISM's membership base includes more than 45,000 supply management professionals with a network of domestic and international affiliated associations.