Ring in a robust New Year!, say the nation's purchasing and supply executives in their 68th Semiannual Economic Forecast. Economic growth in the U.S. will gain momentum this year, they report in the forecast issued by the Business Survey Committee of the Institute for Supply Management(TM) (ISM).

Expectations for 2005 are higher in both the manufacturing and non-manufacturing sectors, with attitudes more upbeat than they were a year ago. The overall prediction is for economic growth to continue at a relatively strong level for the next 12 months.

In the manufacturing sector, projections are positive as 75% of survey respondents expect revenues to exceed those of 2004. The panel of purchasing and supply executives projects a 7.8% net increase in overall revenues for the year, compared to an increase of 8.3% reported for 2004. Manufacturing industries expecting the greatest improvement over last year are — listed in order — miscellaneous*; glass, stone and aggregate; fabricated metals; primary metals; instruments and photographic equipment; transportation and equipment; apparel; and electronic components and equipment.

"Manufacturing purchasing and supply executives are optimistic about their organizations' prospects for the first half, and predict additional growth during the second half of 2005," says Norbert J. Ore, C.P.M., chair of the ISM Manufacturing Business Survey Committee and group director of strategic sourcing and procurement for Georgia-Pacific Corporation. Ore, along with Ralph G. Kauffman, Ph.D., C.P.M., chair of the ISM Non-Manufacturing Business Survey Committee and coordinator of the purchasing and supply management program at the University of Houston-Downtown, released the forecast last month.
"While 2004 has been a particularly strong year overall, it has presented challenges with regard to inflation in manufacturing costs. At present, the sector continues to recover from major influences that stalled growth early in the millennium," says Ore.

Respondents report operating at 83% of their normal capacity, down from 85.6% reported last April. Purchasing and supply executives in the manufacturing sector expect capital expenditures to increase only 1.6% in 2005, compared to the 15.1% increase reported for 2004. Survey respondents also forecast that they will increase their purchased inventory to sales ratio this year. Manufacturers anticipate that employment in the sector will grow by 1.6%, while labor and benefits costs are expected to increase an average of 3.4%. Manufacturing purchasers are predicting growth in exports and imports. They also expect the U.S. dollar to strengthen somewhat against currencies of major trading partners.

Additionally, they predict the prices they pay will increase 4.3% during the first four months of the year, and will increase an additional 0.1% for the remainder of 2005. Respondents' major concerns are: prices and inflation; energy price increases; weak economy; effects of war and geopolitical concerns; and labor, benefits and healthcare costs, including labor shortages.

Meanwhile in the non-manufacturing sector, 66% of non-manufacturing purchasing and supply executives expect their 2005 revenues to be greater than last year's. They currently project a 5.9% net increase in overall revenues compared to a 6.4% increase reported for 2004. Non-manufacturing industries expecting the greatest improvement over 2004 are — listed in order — transportation; business services; entertainment; mining; and other services**.

"Non-manufacturing purchasers report operating at 88.2% of their normal capacity, somewhat above the 85.4% reported in April 2004 and the 85.6% reported in December 2003. They have a slightly higher level of optimism about the next 12 months than they had in April and are much more optimistic than they were one year ago in December 2003," says Kauffman. "While they forecast that their capacity to produce products and provide services will rise by 4.4% during 2005, capital expenditures are expected to increase by only 1.8%. This is a drop from the 4.5% increase reported for 2004. Non-manufacturers also predict that their employment will grow by 3.1% during 2005. Their major economic concerns are: energy price increases; prices and inflation; labor, benefits and healthcare costs, including labor shortages; weak economy; and effects of war and geopolitical concerns."

Purchasers in non-manufacturing industries expect that the prices they pay for materials and services will increase by a significant 3.6% during 2005. They also forecast a 3.7% increase in their overall labor and benefit costs this year. Profit margins are reported to have increased in the period since April 2004, and members expect them to continue to rise. Overall, they anticipate business in the first half of the year to be better than the second half of 2004, and to further improve in the second half of 2005.

*Miscellaneous items include: a preponderance of jewelry, toys, sporting goods, and musical instruments.

**Other services include: hotels, rooming houses, camps, and other lodging places; personal services; automotive repair, services, and parking; miscellaneous repair services; educational services; social services; museums, art galleries, and botanical and zoological gardens; membership organizations; engineering, accounting, research, management, and related services; and miscellaneous services.

Source:

Economic Growth to Continue in 2005
ISM Semiannual Forecast, December 2004
Institute for Supply Management
www.ism.ws/ISMReport/SemiannualROB122004.cfm