Spring 2007 Semiannual Economic Forecast

FOR RELEASE: May 8, 2007

Contact: Rose Marie Goupil
  ISM, Media Relations
  Tempe, Arizona
  800/888-6276, ext. 3015
  E-mail: rgoupil@ism.ws

ECONOMIC GROWTH TO CONTINUE THROUGHOUT 2007

Manufacturing Growth Sustainable in 2007
Revenue to Increase 5.6%
Capital Investment to Increase 5.8%
Capacity Utilization at 82.8%
Non-Manufacturing Growth Sustainable in 2007
Revenue to Increase 2.1%
Capital Investment to Increase 5.6%
Capacity Utilization at 84.4%

(Tempe, AZ) — Economic growth in the United States is sustainable throughout the remainder of 2007, say the nation's purchasing and supply executives in their spring 2007 Semiannual Economic Forecast. Expectations for the remainder of 2007 are encouraging in both the manufacturing and non-manufacturing sectors.

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, C.P.M., chair of the ISM Manufacturing Business Survey Committee, and group director, strategic sourcing and procurement, Georgia-Pacific LLC; 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 Hotels Corporation.

Manufacturing Summary

The survey panel of purchasing and supply management executives remains optimistic with 62 percent of respondents predicting revenues to be greater in 2007 than in 2006. This is reflected in their expectations of a 5.6 percent net increase in revenues for the period. To support the revenue growth expectations, manufacturers expect to increase capital expenditures 5.8 percent for the year in spite of a lower current operating rate of 82.8 percent.

The manufacturing industries expecting the greatest revenue increases in 2007 — listed in order — are: Primary Metals; Miscellaneous Manufacturing*; Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products. "Respondents are optimistic about their organizations' prospects for 2007," said Ore. "While 2007 appears to be lagging behind the last three years in terms of manufacturing growth, the forecast indicates manufacturers are investing and foresee revenue improvement in their future."

Non-Manufacturing Summary

Fifty-four percent of non-manufacturing purchasing and supply executives expect their 2007 revenues to be greater than in 2006. They currently expect a 2.1 percent net increase in overall revenues, lower than the 6.4 percent increase that was forecast in December 2006. Non-manufacturing industries expecting greater-than-average revenue in 2007 are: Professional, Scientific & Technical Services; Information; Arts, Entertainment & Recreation; Other Services**; Health Care & Social Assistance; Retail Trade; Real Estate, Rental & Leasing; and Accommodation & Food Services.



OPERATING RATE

Manufacturing

Purchasing and supply managers report that their companies are currently operating at 82.8 percent of normal capacity, representing a decline from the 84.5 percent reported in December 2006 and the 85.6 percent reported in April 2006, and the lowest since December 2003 when the rate was 80.1 percent. This is consistent with the trend of slower growth in manufacturing as reported in the monthly Manufacturing ISM Report On Business®. The following industries are operating at capacity levels above the average capacity of 82.8 percent: Paper Products; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing*.

Non-Manufacturing

Non-Manufacturing purchasing and supply executives report that their organizations are currently operating at 84.4 percent of normal capacity. This is lower than the 86.3 percent reported in December 2006 and the 88.4 percent reported in April 2006. The following section of this forecast indicates that non-manufacturing industries are continuing to add capacity in 2007, but at a slower rate. The following industries are operating at capacity levels at or above the average rate of 84.4 percent: Mining; Educational Services; Utilities; Transportation & Warehousing; Public Administration; Information; Finance & Insurance; Retail Trade; Real Estate, Rental & Leasing; and Other Services**.

Operating Rate
  Manufacturing Non-Manufacturing
  April
2006
Dec
2006
April
2007
April
2006
Dec
2006
April
2007
90%+ 49% 42% 43% 53% 56% 47%
50%-89% 49% 56% 53% 47% 43% 52%
Below 50% 2% 2% 4% 0% 1% 1%
Est. Overall Average 85.6% 84.5% 82.8% 88.4% 86.3% 84.4%



PRODUCTION CAPACITY — April 2007

Manufacturing

Production capacity in manufacturing is expected to increase 4 percent in 2007. This is less than the 5.4 percent predicted in December 2006, but significantly better than the 2.7 percent reported in December for 2006. This reflects the current improvement in the sector as 46 percent reported an average capacity increase of 12.8 percent, 10 percent reported decreases averaging 18.9 percent, and 44 percent reported no change. The industries reporting expected production capacity increases at or above 4 percent are: Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing*; Transportation Equipment; and Primary Metals.

Manufacturing Production Capacity
  For 2006 For 2007 For 2007
  Reported
Dec 2006
Magnitude
of Change
Predicted
Dec 2006
Magnitude
of Change
Predicted
April 2007
Magnitude
of Change
Higher 44% + 9.8% 53% + 11.0% 46% + 12.8%
Same 43% NA 42% NA 44% NA
Lower 13% - 11.8% 5% - 10.1% 10% - 18.9%
Net Average   + 2.7%   + 5.4%   + 4.0%

Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to increase 3.2 percent during 2007. This compares to an increase of 3 percent reported for 2006 and a prediction in December 2006 of 6.2 percent for 2007. For 2007, 34 percent of non-manufacturing respondents expect their capacity to increase by an average of 13.7 percent, and 7 percent of the respondents foresee their capacity decreasing by an average of 23.1 percent. Fifty-nine percent expect no change in their capacity. The industries expecting to add more than the average 3.2 percent to their production capacity are: Information; Construction; Transportation & Warehousing; Professional, Scientific & Technical Services; Health Care & Social Assistance; Other Services**; Retail Trade; Real Estate, Rental & Leasing; and Finance & Insurance.

Non-Manufacturing Production or Provision Capacity
  For 2006 For 2007 For 2007
  Reported
Dec 2006
Magnitude
of Change
Predicted
Dec 2006
Magnitude
of Change
Predicted
April 2007
Magnitude
of Change
Higher 42% + 7.4% 51% + 12.8% 34% + 13.7%
Same 56% NA 45% NA 59% NA
Lower 2% - 7.5% 4% - 9.5% 7% - 23.1%
Net Average   + 3.0%   + 6.2%   + 3.2%



PREDICTED CAPITAL EXPENDITURES — 2007 vs. 2006

Manufacturing

Survey respondents expect a 5.8 percent increase in capital expenditures in 2007. This is less than the December 2006 forecast when members predicted an 8.5 percent increase for 2007. Currently, 35 percent of respondents predict increased capital expenditures in 2007 with an average increase of 32.6 percent, while the 17 percent who said their capital spending would be reduced report an average decrease of 33.6 percent. Forty-eight percent say they will spend the same in 2007 as they did in 2006. Industries predicting an increase above 5.8 percent are: Food, Beverage & Tobacco Products; Primary Metals; Machinery; Fabricated Metal Products; Paper Products; Transportation Equipment; and Electrical Equipment, Appliances & Components.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are expecting to increase their level of capital expenditures 5.6 percent in 2007 compared to 2006. The 43 percent of members expecting to spend more predict and average increase of 24.1 percent. An additional 20 percent anticipate a decrease averaging 23.4 percent. Thirty-seven percent of the respondents expect to spend the same on capital expenditures in 2007 as in 2006. Industries expecting greater than the average 5.6 percent increase in capital expenditures in 2007 are: Health Care & Social Assistance; Educational Services; Utilities; and Accommodation & Food Services.

Predicted Capital Expenditures 2007 vs. 2006
  Manufacturing Non-Manufacturing
  Predicted
Dec 2006
Predicted
April 2007
Magnitude
of Change
Predicted
Dec 2006
Predicted
April 2007
Magnitude
of Change
Higher 44% 35% + 32.6% 50% 43% + 24.1%
Same 39% 48% NA 34% 37% NA
Lower 17% 17% - 33.6% 16% 20% - 23.4%
Net Average + 8.5%   + 5.8% + 8.2%   + 5.6%



PRICES — Changes Between End of 2006 and April 2007

Manufacturing

In the December 2006 forecast, respondents expected an increase of 1.4 percent in prices paid during the first four months of 2007; however, they now report prices have increased 2.8 percent for the period. The 66 percent who say their prices are higher now than at the end of 2006 report an average increase of 4.9 percent, while the 12 percent who report lower prices report an average decrease of 3.5 percent. The remaining 22 percent indicate no change for the period. Industries reporting increases at or above 2.8 percent in prices paid for the first part of 2007 are: Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Textile Mills; Chemical Products; and Fabricated Metal Products.

Non-Manufacturing

Non-Manufacturing respondents report that their purchases in the first four months of this year cost an average of 2.6 percent more than they cost at the end of 2006. This is 0.5 percent below the 3.1 percent predicted for this period in December 2006. Sixty-seven percent of the non-manufacturing respondents report the prices they paid increased an average of 5.5 percent in the first part of 2007. Seven percent report price decreases averaging 16.1 percent. The remaining twenty-six percent indicate no change in prices in the first four months of 2007. Industries reporting a greater-than-average increase in prices they paid in the first part of 2007 are: Real Estate, Rental & Leasing; Mining; Educational Services; Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Public Administration; Other Services**; Utilities; and Retail Trade.

Prices — Changes Between End of 2006 and April 2007
  Manufacturing Non-Manufacturing
  Predicted
Dec 2006
Reported
April 2007
Magnitude
of Change
Predicted
Dec 2006
Reported
April 2007
Magnitude
of Change
Higher 49% 66% + 4.9% 64% 67% + 5.5%
Same 30% 22% NA 27% 26% NA
Lower 21% 12% - 3.5% 9% 7% - 16.1%
Net Average + 1.4%   + 2.8% + 3.1%   + 2.6%



PRICES — Predicted Changes Between End of 2006 and End of 2007

Manufacturing

When asked to predict 2007 price changes, 77 percent of respondents expect prices they pay to increase by 5.4 percent. At the same time, 12 percent anticipate decreases averaging 6 percent. Including the 11 percent who expect no change in prices, survey respondents expect net average prices to increase 3.5 percent for 2007, which is greater than the December 2006 prediction of 1.1 percent. Industries predicting increases in prices greater than 3.5 percent for all of 2007 are: Primary Metals; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Textile Mills; Fabricated Metal Products; and Chemical Products.

Non-Manufacturing

Non-manufacturing respondents expect prices they pay to increase an average of 3.2 percent over the entire year. Seventy-two percent of the respondents anticipate price increases averaging 5.9 percent. Eight percent of the respondents expect decreases of 13.8 percent, and 20 percent do not expect prices to change. Industries expecting higher-than-average rates of price increases in 2007 are: Real Estate, Rental & Leasing; Mining; Public Administration; Arts, Entertainment & Recreation; Other Services**; Utilities; Accommodation & Food Services; Retail Trade; and Professional, Scientific & Technical Services.

Prices — Predicted Changes Between End of 2006 and End of 2007
  Manufacturing Non-Manufacturing
  Predicted
Dec 2006
Predicted
April 2007
Magnitude
of Change
Predicted
Dec 2006
Predicted
April 2007
Magnitude
of Change
Higher 55% 77% + 5.4% 75% 72% + 5.9%
Same 19% 11% NA 16% 20% NA
Lower 26% 12% - 6.0% 9% 8% - 13.8%
Net Average + 1.1%   + 3.5% + 4.0%   + 3.2%



EMPLOYMENT

Change in Overall Employment — Balance 2007

Manufacturing

ISM's Manufacturing Business Survey respondents forecast that manufacturing employment will increase 0.5 percent in 2007, with 25 percent expecting employment to be 7.2 percent higher. This is in contrast to the 16 percent who predict employment to be lower by 7.7 percent. The remaining 59 percent of respondents expect their employment levels to be unchanged in 2007. Industries reporting expectations for greater than 0.5 percent growth in employment during the year are: Fabricated Metal Products; Transportation Equipment; Miscellaneous Manufacturing*; Computer & Electronic Products; Chemical Products; and Food, Beverage & Tobacco Products.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members forecast that employment will increase 0.5 percent during the balance of 2007. For the remaining months of 2007, 31 percent expect higher levels of employment, 15 percent anticipate lower levels, and 54 percent expect their employment levels to be unchanged. Industries anticipating above average increases in their employment in the coming months of 2007 are: Arts, Entertainment & Recreation; Health Care & Social Assistance; Utilities; Finance & Insurance; Transportation & Warehousing; Other Services**; Professional, Scientific & Technical Services; Construction; Management of Companies & Support Services; and Educational Services.

Predicted Change in Overall Employment
  Manufacturing Non-Manufacturing
  Predicted
for 2007
Dec 2006
Balance
of 2007
April 2007
Nominal
Change
Predicted
for 2007
Dec 2006
Balance
of 2007
April 2007
Nominal
Change
Higher 31% 25% + 7.2% 43% 31% + 7.1%
Same 44% 59% NA 42% 54% NA
Lower 25% 16% - 7.7% 15% 15% - 11.4%
Net Average + 0.1%   + 0.5% + 1.6%   + 0.5%
Diffusion Index 53% 54.5%   64% 58%  



BUSINESS REVENUES

Business Revenues Comparison — 2007 vs. 2006

Manufacturing

Looking ahead, expectations are for increased revenues in 2007 as purchasing and supply management executives indicate an overall net nominal increase of 5.6 percent in business revenues for 2007 over 2006. This is less than the 6.4 percent increase that was forecast in December 2006 for all of 2007, and less than the 6.2 percent reported for 2006, but still a significant year-over-year improvement. Sixty-two percent of respondents say that nominal revenues (before adjusting for inflation) will increase an average of 12.2 percent over 2006. Conversely, 16 percent say their nominal revenues will decrease an average of 12 percent, and the remaining 22 percent indicate no change. The industries expecting revenue gains of 5.6 percent or higher in 2007 are: Primary Metals; Miscellaneous Manufacturing*; Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

Manufacturing Business Revenues
  2006 vs 2005 2007 vs 2006
  Reported
Dec 2006
Nominal
% Change
Predicted
Dec 2006
Nominal
% Change
Predicted
April 2007
Nominal
% Change
Higher 66% + 12.4% 72% + 10.7% 62% + 12.2%
Same 15% NA 17% NA 22% NA
Lower 19% - 10.5% 11% - 12.7% 16% - 12%
Net Average   + 6.2%   + 6.4%   + 5.6%

Non-Manufacturing

Non-manufacturing respondents forecast that business revenues for 2007 will increase 2.1 percent compared to 2006. This is lower than the 6.4 percent predicted in December 2006 for 2007. The fifty-four percent of respondents forecasting better business in 2007 than in 2006 estimate an average nominal revenue increase of 7.7 percent. This is in contrast to an average nominal decrease of 15.2 percent forecast by the 14 percent who predict less business in 2007. The remaining 32 percent see no change in revenues for 2007. Industries expecting a 2.1 percent or greater increase in revenues in 2007 are: Professional, Scientific & Technical Services; Information; Arts, Entertainment & Recreation; Other Services**; Health Care & Social Assistance; Retail Trade; Real Estate, Rental & Leasing; and Accommodation & Food Services.

Non-Manufacturing Business Revenues
  2006 vs 2005 2007 vs 2006
  Reported
Dec 2006
Nominal
% Change
Predicted
Dec 2006
Nominal
% Change
Predicted
April 2007
Nominal
% Change
Higher 70% + 12.5% 72% + 9.8% 54% + 7.7%
Same 18% NA 22% NA 32% NA
Lower 12% - 7.9% 6% - 10.9% 14% - 15.2%
Net Average   + 7.7%   + 6.4%   + 2.1%



SUMMARY

Manufacturing
  • Operating rate is currently 82.8 percent of normal capacity.
  • Production capacity is expected to increase 4 percent in 2007.
  • Capital expenditures are expected to increase 5.8 percent in 2007.
  • Prices paid increased 2.8 percent through the end of April 2007.
  • Prices are expected to increase an additional 0.7 percent for a total increase of 3.5 percent for all of 2007.
  • Manufacturing employment is expected to increase 0.5 percent during the remainder of 2007.
  • Manufacturing revenues are expected to increase 5.6 percent in 2007.
  • Overall, manufacturing is growing at a slower but sustainable rate.
Non-Manufacturing
  • Operating rate is currently 84.4 percent of normal capacity.
  • Production capacity is expected to increase 3.2 percent in 2007.
  • Capital expenditures are expected to increase 5.6 percent in 2007.
  • Prices paid increased 2.6 percent through the end of April 2007.
  • Prices are expected to increase an additional 0.6 percent for a total increase of 3.2 percent for all of 2007.
  • Non-manufacturing employment is expected to increase 0.5 percent during the balance of 2007.
  • Non-manufacturing revenues are expected to increase 2.1 percent in 2007.
  • Overall, non-manufacturing is growing at a slower but sustainable rate.

*Miscellaneous items include: Products such as Medical Equipment and Supplies, Jewelry, Sporting Goods, Toys and Office Supplies.

**Other Services include: Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & 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 on the first business day of each month and is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by top government agencies and economic business leaders. The report, compiled from responses to questions asked of approximately 350 purchasing and supply executives across the country, tracks industrial production, new orders, inventories, supplier deliveries, employment, buying policies and prices. Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing*. 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 from 18 different non-manufacturing industries across the country. The Non-Manufacturing ISM Report On Business® is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). The Non-Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Other Services**; and Public Administration. The report covers business activity, new orders, backlog of orders, new export orders, inventory change, inventory sentiment, imports, prices, employment and supplier deliveries.

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 the reports 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 May 2007 data will be released at 10:00 a.m. (ET) on Friday, June 1, 2007.

The next Non-Manufacturing ISM Report On Business® featuring the May 2007 data will be released at 10:00 a.m. (ET) on Monday, June 4, 2007.

View the 2007 Semiannual Economic Forecast and Economic OutlookPresentation Slides



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