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ECONOMIC DECLINE TO CONTINUE THROUGHOUT 2009

FOR RELEASE: May 5, 2009


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

Manufacturing Declines in 2009
Revenue to Decrease 14.7%
Capital Investment to Decrease 22.7%
Capacity Utilization at 67%
Non-Manufacturing Also Declines in 2009
Revenue to Decrease 5.1%
Capital Investment to Decrease 13.5%
Capacity Utilization at 80.1%

(Tempe, AZ) — Economic decline to continue in the United States throughout the remainder of 2009, say the nation's purchasing and supply executives in their spring 2009 Semiannual Economic Forecast. Expectations for the remainder of 2009 have weakened 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, CPSM, C.P.M., 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, and senior vice president — supply management, Hilton Hotels Corporation.

Manufacturing Summary

While 15 percent of respondents predict revenues to be 13.7 percent greater in 2009 than in 2008, an overall revenue decrease of 14.7 percent is expected for manufacturing as 67 percent expect a 25.2 percent decline, and 18 percent expect no change. This represents a significant decline in expectations from December 2008 when the panel of supply management executives predicted a 1.1 percent decrease in 2009 revenues compared to 2008. With operating capacity at 67 percent, an expected capital investment decline of 22.7 percent and prices expected to decrease 5.3 percent during 2009, manufacturers will need to focus on cost-cutting to offset lower revenue. "Given the significant decline in activity, 2009 shapes up as a very difficult year for U.S. manufacturers," said Ore.

Food, Beverage & Tobacco Products is the only manufacturing industry expecting a revenue increase in 2009.

Non-Manufacturing Summary

Fifty percent of non-manufacturing purchasing and supply executives expect their 2009 revenues to be lower by 14.5 percent than in 2008. Overall, respondents currently expect a 5.1 percent net decrease in overall revenues, much lower than the 0.7 percent increase that was forecast in December 2008. "2009 continues to be challenging for the non-manufacturing sector, with the steady decline in activity coupled with increasing unemployment," Nieves said.

Non-manufacturing industries expecting increases in revenue in 2009 are: Finance & Insurance; and Other Services**.



OPERATING RATE

Manufacturing

Purchasing and supply managers report that their companies are currently operating at 67 percent of normal capacity, representing a decline from the 75.2 percent reported in December 2008 and the 78.6 percent reported in April 2008; and the lowest operating rate on record since the statistic was first tracked by ISM in 1985. This is consistent with the trend of rapid contraction in manufacturing as reported in the monthly Manufacturing ISM Report On Business®. The following industries are operating at capacity levels at or above the average capacity of 67 percent: Apparel, Leather & Allied Products; Paper Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing*; Electrical Equipment, Appliances & Components; Chemical Products; and Machinery.

Non-Manufacturing

Non-manufacturing purchasing and supply executives report that their organizations are currently operating at 80.1 percent of normal capacity. This is lower than the 83.1 percent reported in December 2008 and the 85.9 percent reported in April 2008; and the lowest operating rate on record since this statistic was first tracked by ISM in 1998. The following industries are operating at capacity levels above the average rate of 80.1 percent: Mining; Public Administration; Utilities; Health Care & Social Assistance; Real Estate, Rental & Leasing; Information; Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Finance & Insurance; Educational Services; and Retail Trade.

Operating Rate
  Manufacturing Non-Manufacturing
  April
2008
Dec
2008
April
2009
April
2008
Dec
2008
April
2009
90%+ 33% 30% 15% 52% 43% 39%
50%-89% 60% 63% 69% 46% 52% 54%
Below 50% 7% 7% 16% 2% 5% 7%
Est. Overall Average 78.6% 75.2% 67% 85.9% 83.1% 80.1%


PRODUCTION CAPACITY

Manufacturing

Production capacity in manufacturing is expected to decrease 8.4 percent in 2009. This decline is significantly greater than the 2.1 percent increase predicted in December 2008 for 2009, and the decline of 0.8 percent reported in December for 2008. This reflects the current downturn in the sector as 18 percent of respondents expect an average capacity increase of 13.7 percent, 40 percent expect decreases averaging 26.6 percent, and 42 percent expect no change. The industries reporting expected production capacity increases for 2009 are: Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products.

Manufacturing Production Capacity
  For 2008 For 2009 For 2009
  Reported
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Predicted
April 2009
Magnitude
of Change
Higher 36% +10.3% 31% +10.9% 18% +13.7%
Same 41% NA 55% NA 42% NA
Lower 23% -20% 14% -9.5% 40% -26.6%
Net Average   -0.8%   +2.1%   -8.4%
Non-Manufacturing

The capacity to produce products or provide services in the non-manufacturing sector is expected to decrease 2.6 percent during 2009. This compares to an increase of 0.3 percent reported for 2008 and a prediction in December 2008 of an increase of 0.6 percent for 2009. For 2009, 12 percent of non-manufacturing respondents expect their capacity to increase by an average of 7.9 percent, and 15 percent of the respondents foresee their capacity decreasing by an average of 23.6 percent. Seventy-three percent expect no change in their capacity. The industries expecting to add to their production capacity in 2009 are: Retail Trade; Management of Companies & Support Services; Real Estate, Rental & Leasing; Transportation & Warehousing; and Utilities.

Non-Manufacturing Production or Provision Capacity
  For 2008 For 2009 For 2009
  Reported
Dec 2008
Magnitude
of Change
Predicted
Dec 2008
Magnitude
of Change
Predicted
April 2009
Magnitude
of Change
Higher 22% +12.5% 28% +8.7% 12% +7.9%
Same 58% NA 61% NA 73% NA
Lower 20% -12.1% 11% -16.2% 15% -23.6%
Net Average   +0.3%   +0.6%   -2.6%


PREDICTED CAPITAL EXPENDITURES — 2009 vs. 2008

Manufacturing

Survey respondents expect a 22.7 percent decrease in capital expenditures in 2009. This is significantly greater than the December 2008 forecast when members predicted a decrease of 6.7 percent for 2009. Currently, 8 percent of respondents predict increased capital expenditures in 2009, with an average increase of 25.4 percent, while the 64 percent who said their capital spending would be reduced report an average decrease of 38.6 percent. Twenty-eight percent say they will spend the same in 2009 as they did in 2008. Plastics & Rubber Products is the only industry reporting an expected increase in capital expenditures in 2009.

Non-Manufacturing

Non-manufacturing purchasing and supply executives are expecting to decrease their level of capital expenditures 13.5 percent in 2009 compared to 2008. The 15 percent of members expecting to spend more predict an average increase of 37 percent. An additional 62 percent of respondents anticipate a decrease averaging 30.5 percent. Twenty-three percent of the respondents expect to spend the same on capital expenditures in 2009 as in 2008. Industries expecting an increase in capital expenditures in 2009 from 2008 are: Retail Trade; Mining; Real Estate, Rental & Leasing; and Utilities.

Predicted Capital Expenditures 2009 vs. 2008
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Predicted
April 2009
Magnitude
of Change
Predicted
Dec 2008
Predicted
April 2009
Magnitude
of Change
Higher 13% 8% +25.4% 20% 15% +37%
Same 30% 28% NA 30% 23% NA
Lower 57% 64% -38.6% 50% 62% -30.5%
Net Average -6.7%   -22.7% -8.4%   -13.5%


PRICES — Changes Between End of 2008 and April 2009

Manufacturing

In the December 2008 forecast, respondents forecasted a decrease of 2.3 percent in prices paid during the first four months of 2009; however, they now report prices have decreased 6.8 percent for the period. The 18 percent who say their prices are higher now than at the end of 2008 report an average increase of 5.8 percent, while the 63 percent who report lower prices report an average decrease of 12.3 percent. The remaining 19 percent indicate no change for the period. Industries reporting increases in prices paid for the first part of 2009 are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Plastics & Rubber Products; and Miscellaneous Manufacturing*.

Non-Manufacturing

Non-Manufacturing respondents report that their purchases in the first four months of this year cost an average of 1.3 percent less than they cost at the end of 2008. This is 2.7 percentage points below the 1.4 percent increase predicted in December 2008 for 2009. Twenty-seven percent of the non-manufacturing respondents report the prices they paid increased an average of 6.2 percent in the first part of 2009. Thirty-seven percent report price decreases averaging 8.1 percent. The remaining 36 percent indicate no change in prices in the first four months of 2009. Industries reporting an increase in prices paid in the first part of 2009 are: Arts, Entertainment & Recreation; Health Care & Social Assistance; Real Estate, Rental & Leasing; Utilities; and Public Administration.

Prices — Changes Between End of 2008 and April 2009
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Reported
April 2009
Magnitude
of Change
Predicted
Dec 2008
Reported
April 2009
Magnitude
of Change
Higher 27% 18% +5.8% 50% 27% +6.2%
Same 26% 19% NA 32% 36% NA
Lower 47% 63% -12.3% 18% 37% -8.1%
Net Average -2.3%   -6.8% +1.4%   -1.3%


PRICES — Predicted Changes Between End of 2008 and End of 2009

Manufacturing

When asked to predict 2009 price changes, 20 percent of respondents expect the prices they pay to increase by 6.7 percent. At the same time, 62 percent anticipate decreases averaging 10.8 percent. Including the 18 percent who expect no change in prices, survey respondents expect net average prices to decrease 5.3 percent for the entire year of 2009, indicating that prices are expected to rise 1.5 percent for the remainder of the year. The overall decrease of 5.3 percent for the year is greater than the December 2008 prediction of a decrease of 2.6 percent. Industries predicting increases in prices for all of 2009 are: Apparel, Leather & Allied Products; and Miscellaneous Manufacturing*.

Non-Manufacturing

Non-manufacturing respondents expect the prices they pay to remain flat when compared to the prices at the end of 2008. Given that respondents have reported that prices have decreased 1.3 percent through April, the prediction is for prices to increase 1.3 percent over the remainder of the year and to return to the same level as at the end of 2008. Thirty-five percent of the respondents anticipate price increases averaging 6.1 percent. Thirty-three percent of the respondents expect price decreases of 6.5 percent, and 32 percent do not expect prices to change. Industries expecting price increases in 2009 are: Arts, Entertainment & Recreation; Health Care & Social Assistance; Utilities; Public Administration; Real Estate, Rental & Leasing; and Wholesale Trade.

Prices — Predicted Changes Between End of 2008 and End of 2009
  Manufacturing Non-Manufacturing
  Predicted
Dec 2008
Predicted
April 2009
Magnitude
of Change
Predicted
Dec 2008
Predicted
April 2009
Magnitude
of Change
Higher 30% 20% +6.7% 58% 35% +6.1%
Same 18% 18% NA 22% 32% NA
Lower 52% 62% -10.8% 20% 33% -6.5%
Net Average -2.6%   -5.3% +2.3%   0%


EMPLOYMENT

Change in Overall Employment — Balance 2009

Manufacturing

ISM's Manufacturing Business Survey respondents forecast that manufacturing employment will decrease 2.6 percent during the balance of 2009, with 12 percent expecting employment to be 6 percent higher. This is in contrast to the 34 percent who predict employment to be lower by 9.8 percent. The remaining 54 percent of respondents expect their employment levels to be unchanged for the remainder of 2009. Industries reporting expectations of growth in employment during the year are: Nonmetallic Mineral Products; Wood Products; Paper Products; and Computer & Electronic Products.

Non-Manufacturing

ISM's Non-Manufacturing Business Survey Committee members forecast that employment will decrease 6.4 percent during the balance of 2009. For the remaining months of 2009, 15 percent expect higher levels of employment, 35 percent anticipate lower levels and 50 percent expect their employment levels to be unchanged. Industries anticipating increases in employment in the coming months of 2009 are: Accommodation & Food Services; Professional, Scientific & Technical Services; Other Services**; and Mining.

Predicted Change in Overall Employment
  Manufacturing Non-Manufacturing
  Predicted
for 2009
Dec 2008
Balance
of 2009
April 2009
Magnitude
of Change
Predicted
for 2009
Dec 2008
Balance
of 2009
April 2009
Magnitude
of Change
Higher 12% 12% +6.0% 18% 15% +8.5%
Same 45% 54% NA 45% 50% NA
Lower 43% 34% -9.8% 37% 35% -21.9%
Net Average -2.7%   -2.6% -1.3%   -6.4%
Diffusion Index 34.5% 39%   40.5% 40%  


BUSINESS REVENUES

Business Revenues Comparison — 2009 vs. 2008

Manufacturing

Looking ahead, expectations are for decreased revenues in 2009 as purchasing and supply management executives indicate an overall net nominal decrease of 14.7 percent in business revenues for 2009 over 2008. This is a significantly greater decrease than the 1.1 percent decrease that was forecast in December 2008 for all of 2009, and more than the 2.2 percent decrease reported for 2008. Fifteen percent of respondents say that nominal revenues (before adjusting for inflation) for 2009 will increase an average of 13.7 percent over 2008. Conversely, 67 percent say their nominal revenues will decrease an average of 25.2 percent, and the remaining 18 percent indicate no change. Food, Beverage & Tobacco Products is the only industry expecting a revenue gain in 2009.

Manufacturing Business Revenues
2008 vs 2007 2009 vs 2008
  Reported
Dec 2008
Nominal
% Change
Predicted
Dec 2008
Nominal
% Change
Predicted
April 2009
Nominal
% Change
Higher 35% +11.6% 35% +9.0% 15% +13.7%
Same 19% NA 27% NA 18% NA
Lower 46% -13.9% 38% -11.2% 67% -25.2%
Net Average   -2.2%   -1.1%   -14.7%
Non-Manufacturing

Non-manufacturing respondents forecast that business revenues for 2009 will decrease 5.1 percent compared to 2008. This is lower than the 0.7 percent increase predicted in December 2008 for 2009. The 20 percent of respondents forecasting better business in 2009 than in 2008 estimate an average nominal revenue increase of 11.2 percent. This is in contrast to an average nominal decrease of 14.5 percent forecast by the 50 percent who predict less business in 2009. The remaining 30 percent see no change in revenues for 2009. Industries expecting an increase in revenues in 2009 are: Finance & Insurance; and Other Services**.

Non-Manufacturing Business Revenues
2008 vs 2007 2009 vs 2008
  Reported
Dec 2008
Nominal
% Change
Predicted
Dec 2008
Nominal
% Change
Predicted
April 2009
Nominal
% Change
Higher 35% +8.6% 36% +11.3% 20% +11.2%
Same 27% NA 32% NA 30% NA
Lower 38% -15.1% 32% -10.4% 50% -14.5%
Net Average   -2.6%   +0.7%   -5.1%


SUMMARY

Manufacturing
  • Operating rate is currently 67 percent of normal capacity.
  • Production capacity is expected to decrease 8.4 percent in 2009.
  • Capital expenditures are expected to decrease 22.7 percent in 2009.
  • Prices paid decreased 6.8 percent through the end of April 2009.
  • Prices are expected to decrease a total of 5.3 percent for all of 2009, indicating an expected increase in prices of 1.5 percent for the remainder of the year.
  • Manufacturing employment is expected to decrease 2.6 percent during the remainder of 2009.
  • Manufacturing revenues are expected to decrease 14.7 percent in 2009.
  • Overall, manufacturing is expected to decline significantly in 2009.
Non-Manufacturing
  • Operating rate is currently 80.1 percent of normal capacity.
  • Production capacity is expected to decrease 2.6 percent in 2009.
  • Capital expenditures are expected to decrease 13.5 percent in 2009.
  • Prices paid decreased 1.3 percent through the end of April 2009.
  • Prices are expected to increase 1.3 percent over the remainder of the year and to remain flat relative to price levels at the end of 2008.
  • Non-manufacturing employment is expected to decrease 6.4 percent during the balance of 2009.
  • Non-manufacturing revenues are expected to decrease 5.1 percent in 2009.
  • Overall, non-manufacturing is declining in 2009.

*Miscellaneous Manufacturing* 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 2009 data will be released at 10:00 a.m. (ET) on Monday, June 1, 2009.

The next Non-Manufacturing ISM Report On Business® featuring the May 2009 data will be released at 10:00 a.m. (ET) on Wednesday, June 3, 2009.



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